When tax season arrives, South Africans are always faced with difficult calculations when arriving at an accurate amount to pay.
Whether it is by design of by accident, tax calculations are always very complicated, and often you will need a tax expert to be on the right side of the SARS.
Although it is not illegal to overpay, no one wants to do that. That’s why you should always be informed on what is exempted and deductible from your income, before handing over your hard earned cash to the government.
A very common question among South Africans seeking to file their returns is whether their medical aid expenses are tax deductible.
So, let us answer that in the simplest form possible.
Is medical insurance tax-deductible in South Africa?
To answer this question, we will have to separate our timeline into two. Prior to 2012 and after 2012.
Before 2012, South Africans could claims medical expenses as a tax deduction as they filed their returns. In tax lingo, it was what is called an ‘above the line‘ tax deduction. Basically, it means you could deduct all your medical expenses from your gross income, in order to arrive at the final adjusted gross income.
For instance if your gross income for the year was R1 million, but you incurred medical expenses/medical aid bill of R100,000, your final adjusted taxable gross income would be R900,000 (1,000,000 – 100,000 = 900,000). That is what would be taxed.
After 2012, The country switched to a tax credit system. This brought some equality to the process, meaning South Africans who opt for expensive insurance will be treated by the taxman the same as those who went for expensive options.
How South Africa’s medical insurance tax credit works
Basically, specified relief in terms of actual rands is given as a deduction from your tax payable. This is called a tax credit.
Tax credit – A rand for rand reduction of the income tax you owe.
The key difference between a tax credit and an above the line tax deduction is where the deduction is actually made. A tax credit directly deducts from the payable income tax, while above the line deduction deducts from the gross income.
These tax credits apply only to South Africans who contribute to a registered medical aid scheme.
The credits fall into two categories.
1. The Medical Schemes Tax Credit (MTC)
2. Additional Medical Expenses Tax Credit (AMTC)
The Medical Schemes Tax Credit
This is a deductible tied to your monthly contribution, with calculation based on a fixed rate. The MTC takes into account the number of dependents covered by a person’s insurance plan.
As the main dependent, you and your spouse are entitled to the highest tax credit. For each of your children/dependent you are also entitled to a slightly lower fixed rate.
The rates are set annually, with a possibility of a change every year.
For the 2020/2021 financial year, the rates stood as follows:
* R319 per month for the taxpayer also reffered to as main member
* R319 per month for the first dependent/spouse
* R215 per month for each additional dependent/child
These credits can only be claimed for the months the tax payer has been a contributing member of a medical aid scheme.
Additional Medical Expenses Tax Credit
The AMTC refers to other qualifying medical expenses incurred by a taxpayer in a specific tax year, out of pocket.
It also comes in the form of a tax deduction, and the SARS has a very specific list of what qualifies.
These tend the be expenses not covered by a typical medical aid scheme, such as home attendant care.
This is the full list of qualifying expenditures, effective 1 March 2020 according to the SARS.
– Personal care attendant expenses
– Travel and transportation
– Insurance, maintenance, repairs and supplies
– Aids and other devices
– Continence products
– Service animals
– Alterations or modifications to assets acquired or to be acquired
How to get your tax credit
If you are a permanent employee whose PAYE deductions and medical aid contributions are handled by a company, it is your employer’s duty to deduct the rebate from your monthly tax bill.
Tax payers who handle their own medical aid contributions should enter the medical tax credit, as a rebate, on their annual income tax return.