Medical Tax Credits

SARS Medical Tax Credits

Claiming for SARS medical expenses may seem complex, but it really isn’t! As long as you have your medical aid certificate (if applicable) and any qualifying medical expenses along with receipts, SARS will do all the medical tax credits calculations for you.

You don’t actually need to know exactly how the calculation works, but if you’re interested, read on!

If you are happy to accept the automatic filing that SARS does for you then this will not be applicable at all.

So just to clarify, when completing you tax return, you will need to enter the medical aid contribution amounts and the total amount of out-of-pocket medical expenses. SARS will do the medical aid tax credit calculations for you!

Firstly, what are qualifying expenses?

The following qualify for out-of-pocket medical expenses provided that they were not covered by your medical aid or Gap Cover:

  • Services rendered and medicines supplied by any duly registered medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthopaedist;
  • Hospitalisation in a registered hospital or nursing home;
  • Home nursing by a registered nurse, midwife or nursing assistant, including services supplied by any nursing agency;
  • Medicines prescribed by any duly registered physician (as listed above) and acquired from any duly registered pharmacist;
  • Expenditure incurred outside South Africa in respect of services rendered or medicines supplied which are substantially similar to the services and medicines listed above;
  • Any expenses prescribed by the Commissioner and necessarily incurred as a result of any physical impairment or disability.

It is important to note that “over the counter” medicines, such as cough syrups, headache tablets or vitamins, do not qualify as medical expenses, unless specifically prescribed by a registered medical practitioner and acquired from a pharmacist.

The SARS Medical Tax Credits

In 2012, SARS changed the way it treats medical expenses and introduced a medical scheme fee tax credit. Originally, your medical aid contributions would be a deduction against your taxable income. Now, this medical credit is a tax credit which is deducted from your overall tax liability. The medical tax credit consists of the following two amounts:

  1. The medical scheme fees tax credit; and
  2. The additional medical expenses tax credit

What is the medical scheme fees tax credit?

This rebate applies to the fees that you have paid in the tax year towards a registered medical scheme, for yourself and any dependants. The main member, as well as the first dependant on the medical scheme, will receive a monthly tax credit of R319 (for the 2020-2021 tax year). All additional dependants will receive a monthly tax credit of R215.

If you are paying your contributions via your employer, i.e., as a deduction from your salary or wages, your employer is obliged to use the credit system to adjust your monthly PAYE tax accordingly. If you contribute to a medical scheme independently from your employer, you will receive the tax credit on assessment when you complete your tax return.

What is the additional medical expenses tax credit?

This is a tax rebate, which means that the overall amount of tax you need to pay at the end of the tax year is reduced. The amount of your tax rebate is made up of all the extra money (out-of-pocket expenses) you have spent on qualifying medical expenses that weren’t covered by your medical scheme. This amount accumulates throughout the tax year.

Calculations for additional medical expenses tax credit

The calculation for the additional medical expenses credit differs based on your age and whether you or a dependant have a disability. Here are the 3 variations of the calculation for the Additional Medical Tax Credit (also known as AMTC):

Aged 65 or older (irrespective of disability status)

A person who is 65 years of age or older may claim the following AMTC:

  • 33,3% of the fees paid by the person to a registered medical scheme (or similar qualifying foreign fund) as exceeds three times the amount of the Medical Tax Credit to which that person is entitled; plus
  • 33,3% of the qualifying medical expenses paid by the person (for example out-of-pocket expenses).

Person(s) with a disability (under the age of 65)

A person who is, or whose spouse or child is a person with a disability, may claim the following AMTC:

  • 33,3% of the fees paid by the person to a registered medical scheme (or similar qualifying foreign fund) as exceeds three times the amount of the Medical Tax Credit to which that person is entitled; plus
  • 33,3% of the qualifying medical expenses paid by the person (for example, certain out-of-pocket expenses).

Note that this concession is only available where the person, or his or her spouse or child is a person with a disability. It is not available in respect of any other dependant with a disability (for example, the person’s mother).

Everyone else under the age of 65

All other persons who do not qualify in the two categories above, may claim the following AMTC:

  • 25% of the amount by which the sum of the amounts listed below exceeds 7,5% of the person’s taxable income (excluding retirement fund lump sum benefits, retirement fund lump sum withdrawal benefits, and severance benefits) before taking into account this AMTC:

(i) All fees paid by the person to a registered medical scheme (or similar qualifying foreign fund) as exceeds four times the amount of the MTC to which that person is entitled; and

(ii) The qualifying medical expenses paid by the person (for example, certain out-of-pocket expenses).

Some Examples

Confused lady

Wow, that all sounds complicated. Let’s have a look at two examples.

EXAMPLE 1:

Twaha is 48 years old and contributes R60 000 to a medical scheme for the year for himself, his wife and their two daughters. Neither he nor any of his dependants have a disability. His taxable income for the year was R400 000. He paid R36 000 for medical treatments which could not be claimed from his medical scheme, as he is on a hospital plan without a medical savings facility.

The calculation of his total medical credit for the tax year will be as follows:

Medical scheme fees tax credit: 
(R319 + R319 + R215 + R215) x 12 = R12 816

Additional medical expenses tax credit:
Excess medical aid contributions:
R60 000 – (R12,816 x 4) = R8 736 (why multiplied by 4? See the section for persons below the age of 65)
Out-of-pocket expenses:
R36 000 – (R400 000 x 7.5%) = R6 000
(R8 736 + R6 000) x 25% = R3 684

So all the additional medical expenses of R60 000 only resulted in an additional R3 684 credit (6%) in this specific case. It’s not much but as the saying goes “it all adds up”.

Total medical credit:
R12 816 + R3 684 = R16 500

EXAMPLE 2

Nasiefa is 66 years old and contributes R24 500 to a medical scheme for the year. She has no dependants. Her out-of-pocket expenses were R16 000.

The calculation of her total medical tax credits for the 2020-2021 tax year will be as follows:

Medical scheme fees tax credit:
R319 x 12 = R3 828

Additional medical expenses tax credit:
Excess medical aid contributions:
R24 500 – (3 x R3 828) = R13 016
Out-of-pocket expenses:
33.3% x (R13 016 + R16 000) = R9 662.33

In this example the tax credit for the additional medical expenses is quite favcorable.

Total medical credit:
R3 828 + R9 662.33 = R13 490.33

Who qualifies as a dependant?

  • Your husband or wife
  • Your child or stepchild
    • who is younger than 18 years of age.
    • younger than 21 years of age and is/was partly or entirely dependent on you and is/was not yet liable to pay normal tax for the year.
    • younger than 26 years of age and is/was partly or entirely dependent on you, is/was not yet liable to pay normal tax and is a full-time student.
    • is any age and is/was unable to care for themselves because of a disability, is not liable for normal tax for that year and is partly or entirely dependent on you.
  • Any family member you are financially responsible for.
  • A person who your registered medical scheme or fund recognises as a dependant.

What counts as a disability?

Moderate to severe mental, physical, hearing, intellectual, communication or vision disabilities count as “disabilities” for tax purposes. You and a registered medical professional must complete and submit the ITR-DD form in order to qualify as having a disability.

TLTR: Do I really need to know this?

No. You really don’t need to know this. Here are the highlights:

  1. Ensure that you capture the details from your medical aid certificate on your SARS assessment.
  2. Keep track of your expenses and keep receipts for qualifying medical expenses not paid for by medical aid or gap cover.
  3. SARS will give you a little bit back.
  4. If you need help to submit your tax return then TaxTim is the place to go! And if you use this voucher you’ll get a 10% discount! Use voucher: WELLSPENT020 (expires 2020-12-31)

For more information on SARS Medical Tax Credits

Once you know the basics, medical scheme fees tax credits are actually quite simple and easy to understand.

Please consult the SARS website for more information

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