This week we focus on understanding the new medical tax credit system that came into effect on the 1st of March 2012.
The following document, explains what effect this will have on you and your family.
The current medical scheme contribution deduction (limited to a prescribed capped amount) will, for taxpayers aged below 65, be replaced by a medical scheme contribution tax credit, effective from March 2012.
This will affect the calculation of Employee’s tax to be withheld by employers from employees remuneration paid, payable from 1 March 2012, and the Income Tax assessments of taxpayers when their 2013 Income Tax Returns (ITR12’s) are processed.
- The tax credit will be available to taxpayers who belong to a medical scheme and are below the age of 65 (including persons with a disability), set at fixed amounts per month:
– R230 per month for contributions made by the taxpayer and R230 for the first dependant, plus;
– R154 per month in respect of each additional dependant.
- The non-taxable fringe benefit in respect of medical scheme contributions paid by the employer on behalf of a taxpayer who is 65 years and older and who has not retired from that employer has been repealed. This means that the contribution amount paid by an employer on behalf of the taxpayer who is 65 years and older and has not retired from the employer, will now be taxed as a fringe benefit. However, a person 65 years and older is still entitled to the full medical scheme contribution paid as a deduction. The net effect on such a person’s tax due is therefore nil.
- When a taxpayer has retired from an employer, and the employer continues to pay contributions on behalf of the retired taxpayer, the fringe benefit will still be non-taxable.
Under this new tax framework, the value of the tax credit is unrelated to a taxpayer’s income bracket, and is designed to benefit taxpayers with equivalent medical expenses equally and without regard to their taxable income levels.
Taxpayers will still be permitted to deduct qualifying out-of-pocket medical expenses.
Taxpayers below the age of 65, with no disability, will be granted a deduction as well as a medical tax credit based on:
- Contributions made
- All contributions as exceeds four (4) times the medical tax credit as determined
- Other medical expenditure not recoverable from the medical scheme that, in aggregate, exceeds 7,5% of taxable income (excluding retirement fund lump sums and retirement fund lump sum withdrawal benefits).
For taxpayers below the age of 65 with a disability, there is no limit on the out of pocket medical expenses that may be deducted.
The medical tax credit does not apply to persons who are 65 years and older. Such persons are still entitled to the full medical scheme contribution paid and all other qualifying expenditure as a deduction and therefore, the net effect on such a person’s tax due is nil.
| Taxpayer + dependants | Capped Deduction(1 March 2011 until 29 February 2012) | |
| Per month | Per annum | |
| Taxpayer (1) | R720.00 | R8 640.00 |
| Taxpayer + 1 dependant | R1 440.00 | R17 280.00 |
| Taxpayer + 2 dependants | R1 880.00 | R22 560.00 |
| Taxpayer + 3dependants | R2 320.00 | R27 840.00 |
| Taxpayer + 4 dependants | R2 760.00 | R33 120.00 |
| Taxpayer + dependants | Medical Tax Credit(1 March 2012 until 29 February 2013) | |
| Per month | Per annum | |
| Taxpayer (1) | R230.00 | R2 760.00 |
| Taxpayer + 1 dependant | R460.00 | R5 520.00 |
| Taxpayer + 2 dependants | R614.00 | R7 368.00 |
| Taxpayer + 3dependants | R768.00 | R9 216.00 |
| Taxpayer + 4 dependants | R922.00 | R11 064.00 |
Note: The tables are for illustration purposes only and the amounts may vary depending on the number
of months in the tax year that a taxpayer and dependants are members of a medical scheme fund.
SEE ILLUSTRATIVE EXAMPLE BELOW:
Note:
– All examples and amounts are used for illustrative purposes only
– The example is based on the assumption that the employer does not make any contributions on behalf of the employee
Mr Taxpayer, who is under the age of 65, earns a monthly salary of R27 083 and makes monthly contributions of:
- R3 000 to a pension fund, and
- R4 623 to a medical scheme in respect of himself and three dependants.
| MEDICAL DEDUCTION – February 2012 | MEDICAL TAX CREDIT – March 2013 | ||
| Salary | R27 083 | Salary | R27 083 |
| Pension Contribution | R3 000 | Pension Contribution | R3 000 |
| Medical Scheme Contribution | R4 623 | Medical Scheme Contribution | R4 623 |
| Scheme dependants (incl. Taxpayer) | 4 | Scheme dependants (incl. Taxpayer) | 4 |
| Monthly Capped Amount calculated as (R720 x 2) + (R440 x 2) | R2 320 | Tax Credit calculated as (R230 x 2) + (R154 x 2) | R 768 |
| Tax Calculation | Tax Calculation | ||
| Salary | R27 083 | Salary | R27 083 |
| Deductions | R-4 351 | Deductions | R-2 031 |
| Pension (limited to R27 083 x 7,5% = R2 031) | R2 031 | Pension (limited to R27 083 x 7,5% = R2 031) | R2 031 |
| Medical Scheme contribution – capped amount | R2 320 | ||
| Taxable Income | R22 732 | Taxable Income | R25 052 |
| Tax payable (incl. Rebates) as per the tax deduction tables | R4 067 | Tax payable (incl. Rebates) as per the tax deduction tables | R4 587 |
| Less: Tax credit | R- 768 | ||
| Final tax payable | R3 819 | ||
| Net take home pay | Net take home pay | ||
| Salary | R27 083 | Salary | R27 083 |
| Less: | R-11 690 | Less: | R-11 442 |
| Pension contribution | R3 000 | Pension contribution | R3 000 |
| Medical Scheme contribution | R4 623 | Medical Scheme contribution | R4 623 |
| Tax payable | R4 067 | Tax payable | R3 819 |
| Net salary | R15 393 | Net salary | R15 641 |
Therefore, Mr Taxpayer will receive an additional R248 (R15 641 – R15 393) included in his net salary received for March 2012.
Should you need any further clarification please do not hesitate to contact either Lisa or Angela on (021) 701 1161.