Tax Tuesday: Medical aid tax deductions

In Latest, Tax Tuesday by Kristia van Heerden

In this blog, we dig a little deeper into the tax realm of medical aids and expenses. As a taxpayer, you’re essentially entitled to two medical tax credits:

1. A credit on contributions made to your medical aid, and
2. A credit on additional medical expenses you paid that weren’t covered by your medical aid.

1. Medical Scheme Fees Tax Credit (MTC)

If you’re a member of a medical aid, you’re not allowed to claim your monthly premiums as a deduction for tax purposes. However, the South African Revenue Service (SARS) grants you a monthly tax credit* (MTC) for every month that you were a member of a medical aid during the relevant tax year. Below are the details of the MTC for the tax year ending on 28 February 2019:

Monthly Tax Credit – 2019 Tax Year

  • R310 per month for the taxpayer who paid the medical scheme contributions (you get this credit even if your employer pays the contributions on your behalf)
  • R310 per month for the first dependant
  • R209 per month for each additional dependant(s)

2. Additional Medical Expense Tax Credit (AMTC)

Additional Medical Expenses Tax Credit (AMTC) is a rebate which reduces the tax payable by the taxpayer. It’s mostly calculated against qualifying out-of-pocket medical expenses paid by you or any dependant. The AMTC is additional to the MTC.

Out-of-pocket medical expenses are medical expenses paid by you or a dependant (a spouse or child) that aren’t covered by your medical aid.

The AMTC is a tax credit that you can claim on all out-of-pocket medical expenses paid in addition to MTC. The credit is handled as a rebate to reduce your normal taxation.

Calculation of AMTC

All taxpayers younger than 65 years and who aren’t disabled can claim 25% of:

• The amount paid to your medical scheme that exceeds four times the amount of the medical tax credit you are entitled to, plus
• The amount of qualifying medical expenses paid out-of-pocket exceeding 7.5% of taxable income.

Example:
Sarah pays her family’s medical expenses. For the 2019 tax year (ending on 28 February 2019), we can assume the following:

  • Sarah’s taxable income: R420,000
  • Medical contributions paid to the medical aid: R66,000
  • Sarah has been a member for 12 months.
  • Qualifying out-of-pocket medical expenses paid: R40,000
  • Sarah is married and has three children (four dependants in total).

If you are 65 years or older, or you or one of your dependants has a disability, you can claim:
• 33.3% of the amount paid to your medical aid that exceeds four times the amount of medical tax credits you are entitled to, plus
• 33.3% of qualifying medical expenses paid out-of-pocket.
Please note – during e-Filing this calculation should be automated.

*A tax credit is not a normal tax deduction. It’s a deduction against the amount of tax owed to SARS and is, therefore, a higher form of tax deduction.

Please consult the SARS website for qualifying out-of-pocket expenses