How to calculate your medical tax credit

tax credits calculations

Author: Ingé Lamprecht

New system less beneficial to higher income earners.

JOHANNESBURG – In an effort to improve the fairness and equity of the tax system, tax deductions for medical aid contributions and expenses have gradually been replaced with a tax credit system over the last few years.

Whereas a deduction reduces an individual’s taxable income, a credit (rebate) lowers an their tax liability. This means that all taxpayers enjoy the same rand benefit regardless of their marginal tax rate. In the past a medical deduction was more beneficial to a taxpayer with a higher marginal tax rate.

The tax year that started on March 1 2014 marks the first time medical aid contributions and expenses for all categories of taxpayers fall within the tax credit system.

Categories of taxpayers

  • Taxpayers younger than 65
  • Taxpayers 65 years and older, or younger than 65 but with a disability or a disabled dependent

 

Types of medical expenses

Two types of medical expenses qualify for a medical tax credit:

  • Medical aid contributions (Section 6A – Medical scheme contributions tax credit)
  • Qualifying out-of-pocket medical expenses (Section 6B – Additional medical expenses tax credit)

From the tax year starting March 1 2014, the monthly medical scheme contribution tax credit in terms of Section 6A is R257 per month for the taxpayer and his/her first dependent and R172 per month for each additional dependent. This is applicable to all categories of taxpayers, regardless of their age or disability status.

In addition to the section 6A rebate, taxpayers could also qualify for the section 6B rebate.

The following examples on the section 6B rebate were supplied by the South African Institute of Chartered Accountants (Saica) from its Tax Suite.

Example 1 – Taxpayer younger than 65, no disability

The rebate (credit) is limited to so much of the aggregate of 25% of:

  • The amount of the medical aid contributions paid by the person during the year of assessment as exceeds four times the amount of the section 6A (medical aid contribution) rebate to which he or she is entitled; and
  • The amount of qualifying medical expenses paid by the person during the year of assessment, as exceeds 7.5% of the person’s taxable income for the year of assessment.

 

Ms Y is 38 years old. She contributes R4 000 per month to her medical aid, in respect of herself and three dependents. Other qualifying medical expenditure incurred by Ms Y during the 2015 year is R42 000. Ms Y’s taxable income for the 2015 year, prior to the medical expense deduction is R450 000.

2015 Rebate (credit) calculated R
Medical aid contributions (R4 000 x 12)

48 000

Less: 4 times section 6A rebate
(4 x 12 x ((257 x 2) + (172 x 2))

(41 184)

Difference

6 816

Plus: Qualifying medical expenses

42 000

Subtotal

48 816

Less: 7.5% of taxable income

(33 750)

Medical contributions/expenses subject to 25% rebate

15 066

Section 6B rebate = 25% of above medical contributions/expenses

3 767

 

Example 2 – Taxpayer 65 years and older, or younger than 65 but with a disability or a disabled dependent

The rebate (credit) is limited to the aggregate of 33.33% of:

  • So much of the amount of the medical aid contributions paid by the person during the year as exceeds three times the amount of the section 6A rebate to which he or she is entitled; and
  • The amount of qualifying medical expenses paid by the person during the year of assessment.

 

Mr X is 67 years old. He contributes R1 900 per month to his medical aid. Other qualifying medical expenditure incurred by Mr X during the 2015 year, is R40 000.

2015 Rebate (credit) calculated R
Medical aid contributions (R1 900 x 12)

22 800

Less: Three times section 6A rebate (3 x 12 x 257)

(9 252)

Difference

13 548

Plus: Qualifying medical expenses

40 000

Medical contributions/expenses subject to the section 6B rebate

53 548

Section 6B rebate = 33.33% of above medical contributions/expenses

17 848

 

 

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