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:
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:
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
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 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.