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Medical Deductions replaced by tax credits - How does this change affects your business?

by , 04 August 2015
Does your company contribute to your employee's medical aid schemes? Then I'm talking to you!

As you're aware, it's that time of year when your employees claim tax deductions for medical expenses.

But from the 1st of March 2015 tax credits have replaced medical deductions.

This means your employees don't get a tax deduction for their contribution when they submit their tax returns. They get a tax credit.

But what's important is how this change affects your business and how you conduct your payroll.

Let's find out how.

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There's nothing better than getting money back from SARS...

But do you know whether you can claim for:

  • The cost of new laptops for your business?
  • 5% of building costs?
  • Stolen assets?
  • Gifts you give your clients to say thank you for their business?

Lucky for you, neither did 7 743 other people on our Accounting and Tax Club Site...

Click here to find out what the answers are to these questions

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How the medical tax credits affect you
 
Previously your employees deducted their medical aid contributions based on the SARS allowable amounts. Your employees now get a tax credit.

And, instead of using the SARS amounts as a deduction and reducing the employee's remuneration where you calculate their PAYE, you now use the medical tax credit to reduce the PAYE itself.
 
The new monthly tax credit amounts for the 2015 tax year are:

  • R257 each for the main member (your employee) and one dependent; and
  • R172 for each additional dependent.
 
Use the correct IRP5 codes, to avoid penalties
 
SARS has systems in place that screen your IRP5s to make sure there's no funny business!
 
Check the source codes you use on your employees' tax certificates are correct.
 
There are two different parts to these codes. The first deals with medical expenses, and the second deals with medical aid contributions and the medical tax credit.
 
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How do I claim a medical deduction on the provisional tax return?
 
We received this question from one of our Accounting and Tax Club site members:
 
On the provisional tax return how do I claim the medical allowance of R460 per month for two medical aid members?
 
To find out the solution click here to get 47 Allowances and Deductions: 47 ways to get your money back from SARS!
 
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Five medical expenses source codes:

Source Code Description
Code 3813
Medical expenses paid by employer (Paragraph 12B fringe benefit). The value of code 3813 must be equal to the sum total of the values of codes 4024 and 4485.
Code 4024 Medical expenses paid by the employee.
Code 4020
Medical expenses paid by employee in terms of Section 18(5) only for the employee, his spouse and children.
Code 4485
Medical expenses paid by the employer for other relatives or dependants (not the spouse and children) of the employee.
Code 4487 Medical expenses paid by the employer if the 'no value' provision applies.
 
Five medical aid contributions source codes:

Source Code Description
Code 3810 Medical aid contributions paid by the employer (Paragraph 12A fringe benefit portion).
Code 4005
Medical aid contributions paid by the employee in terms of Section 18(5). Code 4005 is mandatory if a value for code 3810 is specified.
Code 4474 Employer's full medical contributions.
Code 4493
Medical aid contributions paid by the employer for a retired employee or his/her dependents if the 'no value' provision applies (see below where we discuss the 'no value').
Code 4116 Medical scheme fees tax credit taken into account by employer for PAYE purposes.


P.S. There are new provisional tax provisions and they are complicated. If you'd like to register for the Provisional Tax webinar where we'll get you up to speed on the changes so you're ready for your August submission please send your details to seminars@fsp.co.za and we'll send you more information or click here to find out more


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