As you may know from 1 March 2012, capping amounts for medical aid contributions as well as the deduction that your employee can claim fell away. As a result your employees now get a tax credit, says FSPBusiness.
What this also means is that your employees can deduct out-of-pocket medical expenses that aren't refunded by their medical aid, or anyone else.
'These deductions will help your employees, so be sure to educate them about these deduction opportunities' says Practical Tax Loose Leaf Service.
Use this tip to help your employee claim back his medical aid contributions
If your employee or his dependents are disabled, he can deduct the full out-of-pocket medical expenditure. PLUS he can claim any medical aid contributions that are four times the monthly credit amounts.
If the medical aid contributions are less than four times the monthly credit amounts, he can't claim back anything at all on the medical aid contributions!
Here's an example of how Ted claimed his out-of-pocket medical expense rebate to help you do this
Ted's wife is disabled. Ted spends R2 400 each month on medical aid contributions. In addition he incurs R1 800 on out-of pocket medical expenses.
Let's look at the medical aid contributions:
Medical aid contributions: R2 400
Less: Limitation (R230 monthly credit amount x 2) x 4) R1 840
Monthly deduction on medical aid contributions: R 560
What about the R1 800 out-of-pocket expenses?
This he can deduct in full as his dependent is disabled. His total medical deduction is therefore R2 360 (R560 + R1 800)
So Ted can claim a deduction in his annual tax return of the monthly expense of R2 360.
If Ted had spent less, say, R1 600 on the medical aid contributions, then he won't be able to claim a deduction at all on the medical aid contributions. However, he can deduct the out-of-pocket expenses, in full. After all, he'd have spent less than R1 840 (4 x R R460 credit amount).
There you have it. Help your employees claim form medical aid contributions, they'll thank you for it.