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Are your employee's out of pocket medical expenses greater than 7.5% of their taxable income? Here's how you can help him claim this tax deduction...

by , 16 July 2013
SARS announced changes to the treatment of medical aid contributions on your payroll early last year. One of the changes is that your employees can deduct out of pocket medical expenses IF they're greater than 7.5% of their taxable income. Follow this method to help your employees claim this deduction...

As from 1 March 2012, capping amounts as well as the deduction that your employee can claim on their medical aid contributions fell away. From now on, employees will get a tax credit, says FSPBusiness.

The new monthly credit amounts are:

  • R230 each for the main member (your employee) and one dependent;
  • R154 for each additional dependent.

This means if your employee is less than 65 years of age and none of his dependents are disabled, he can claim out-of-pocket medical expenses, if they're greater than 7.5% of his taxable income. This excludes lump sum amounts like a retirement lump sum, says the Practical Tax Loose Leaf Service.

Use this method to help your employees deduct out-of-pocket medical expenses if they're greater that 7.5% of their taxable income

Here's an example of how Joe Bloggs claimed his out-of-pocket medical expense rebate to help you do this: Joe Bloggs, age 45, is married and has three children. His medical scheme contributions and expenses are as follows:

  • Medical scheme contributions – employer R11 600
  • Medical scheme contributions – Joe R11 600
  • Medical expenses not recovered from the medical scheme R6 200

Joe's taxable income before taking into account any deductions for medical expenses is R100 000.

The amount that can be deducted is calculated as follows

Medical scheme contributions

  • Total employee contributions: R11 600
  • Less: Limitation: (R230 +230 +154 + 154 +154) x 12) x 4) R22 128

Negative number so Joe has no deduction for his medical subs. However, the medical tax credit is R11 064 (R922 x 12)

Medical expense deduction

Joe's medical scheme deductions: R11 600

Fringe benefit on employer contribution is deemed expenditure - R11 600
Medical expenses not recovered from the medical aid -R6 200

Total: R29 400

Claim limited to amount in excess of 7.5% of taxable income before medical

Expenses: R100 000 x 7.5% - R7 500

Deductible medical expenses: R21 900

Taxable income calculation

  • Taxable income before medical deduction -R100 000
  • Less: Medical scheme contributions - R nil
  • Less: Medical expenses after 7.5% deduction R1 220 - R21 900

Taxable income after medical deduction - R78 100

It's as simple as that. The Practical Tax Loose Leaf Service advises you educate and help your employees claim these deductions.



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Comments
1 comments


Michele Hills 2013-07-18 08:45:42

If the employee has a handicapped dependent what is the procedure. With regards to claim medical expenditure

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