[If you would like to access previous articles scroll the bottom of the “About the author” section and click on the link]
A reader recently drew my attention, once again, to the complexities of the tax ‘medical rebate’. Fortunately, I was able to answer my reader’s question quite easily – “I am retired (over 65) and my previous employer still pays towards my medical aid, is this amount taxable in my hands?”, the answer being “No” because there is a specific provision in the tax law that means it won’t be taxable if the person is over 65, or he/she retired from the employer due to old age, ill-health or infirmity. (Generally, otherwise it would be). However, in looking at this, I also looked again at how the ‘medical fees tax credit’ and ‘additional medical expenses tax credit’ work. The former is, generally, quite easy, but for people who have paid medical costs which have not been reimbursed by their medical aid fund it is far from simple.
A “tax credit” or “rebate” in our tax law is not an amount that can be deducted from your other taxable income in order to calculate your tax but rather an amount that is deducted from the actual tax calculated on your taxable income. Thus, under normal circumstances, if you pay to a medical aid scheme you will put the number of people you are paying for on your tax return and the SARS system will calculate the rebate. Currently, this amounts to R310 each a month for you as the main member and one dependent and then R209 per month for each additional dependent. So, if you pay for you, your spouse and one child a rebate of R829 per month (R9948 for a full year) will be deducted from the actual tax that has been calculated on your income. Fairly straight forward.
But, what if you have paid significant medical costs not covered by the medical aid scheme? In that case you may qualify for the “Additional medical expenses credit” .
If you are over 65 this amounts to:
- 33.3% of the total amount of fees paid to the Medical Aid scheme as exceeds 3 times the normal medical schemes fees tax credit plus
- 33.3% of the total qualifying medical costs paid by the person.
Wow! Not only must you deal with being over 65, and ill (which also means you have to deal with trying to get your medical scheme to pay for your medical costs) but you must also cope with this tax complexity if they won’t. In addition, because this additional rebate only applies if you actually paid the costs yourself and the medical costs qualify as such per the tax legislation (i.e. genuine medical expenses), SARS is likely to want to see the medical invoices and proof of payment (e.g. bank statements) that prove you actually paid them, so your admin has to be organized as well.
And what about if you are under 65?
You can only claim the additional medical rebate to the extent of 25% of the excess that:
The total of the fees paid by you to the medical scheme which are more than 4 times the normal medical rebate you are claiming plus the medical expenses you yourself paid (again you will probably need to give invoices and proof of payment to SARS)
are more than 7.5% of your taxable income (the amount before you calculate the tax and before any lump sums).
Again, Wow! And let’s face it, the additional medical expenses tax credit is probably one of the few provisions that apply to many people with taxable income and, sadly, especially to many people over 65.
An example is illustrative but not particularly helpful, but here goes: Mr A pays R1500 a month to his medical aid; he has taxable income of R240 000 for the tax year; and has spent an additional (not recovered from the medical aid) R50 000 on medical expenses this tax year (ending 28 Feb 2019).
Mr A’s normal tax (after primary rebate) on his taxable income is R32 665. He qualifies for a normal medical fees rebate of (R310 x 12) ie R3720. His actual costs to the medical scheme are (R1500 x 12) R18000. To calculate his additional medical expenses tax credit one must look at this R18000 against 4 times the normal medical fees tax rebate (4 x R3720) ie R14880- the excess is thus (R18000 less R14 880) R3 120. To this must be added the R50 000 Mr A paid in medical expenses which was not recovered i.e. R53 120. Then ask is this more than 7.5% of Mr A’s taxable income of R240000, which amounts to, coincidentally, R18000. The excess is (R53 120- R18 000) R35 120. The additional medical expenses tax credit will be thus be 25% of this amount:R8 780. And Mr A’s final tax for the year will be R20 165 (tax: R32 665 less medical fees tax credit:R3720 less additional medical expenses tax credit: R8 780).
And if you aren’t feeling ill after all that …..well done. Perhaps time for SARS to make things a bit simpler.