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Is your payroll in line with changes to the treatment of medical aid contributions?

by , 11 July 2013
Early last year, SARS announced changes to the treatment of medical aid contributions on your payroll. While these changes were made last year, some companies haven't put these changes into place. Here's how to ensure your company is in line with these changes so you can avoid penalties.

'If your company contributes to medical aid schemes on behalf of your staff, you must make sure you treat the contributions correctly', warns the Practical Tax Loose Leaf Service.

And as you may know, in March 2012, SARS introduced new rules for medical aid contributions. It's crucial that your company is compliant with these changes.

So how do you adapt to adapt your payroll to the new changes that relate to medical aid contributions?

How to treat medical aid contributions on your payroll

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

The new monthly credit amounts are:

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

This means you'll handle your employee's tax as follows:

#1: Start with the amount you pay to his medical aid.

#2: Calculate your employees' tax on this new amount.

#3: Credit your employee with the credit amount to lower his final tax liability.

#4: Withhold this amount from his remuneration. Your employee CAN'T deduct the amount in his ITR12 tax return. But he can claim a tax rebate.

Here's an example of how you'll handle medical contributions:

Gurus Inc pays the full medical aid contributions of its staff. Let's see how Gurus Inc handles this for Ted. He has one dependent – his wife.

Gurus Inc pays R2 100 each month for Ted's medical aid. Gurus Inc calculates the employees' tax on this amount. Because Ted falls into the 28% income tax bracket, Gurus Inc must withhold R588 (this is R2 100 x 28%) from Ted's remuneration each month. But it'll credit him R460 (this is R230 x 2).

So the final amount it must withhold from Ted's remuneration is R128 for the medical aid contribution that Gurus Inc pays on Ted's behalf.

Well there you have it. Ensure you treat medical aid contributions on your payroll correctly to avoid SARS penalties.

+++ New change for your Tax return:+++

Find out how to calculate your medical tax deductions correctly

There are now two ways to reduce your tax through medical expenses. Find out how to make sure you get the new medical tax deductions and medical credits correct on your tax return.


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