How to apply the new medical tax credits from 1 March 2014
The way you deduct your medical expenses, including your medical aid contributions has changed.
Here's what Gordhan said about the increase in the tax credits for medical scheme contributions
According to iol
, the maximum amount you can deduct from your tax if you're paying contributions to a medical scheme has increased from R242 to R257 a month for the first two dependants and from R162 to R172 a month for any further dependants. The increases take effect from today (the start of the 2014/15 tax year).
The tax credits apply to all contributions rates and are calculated as a credit for tax charged at a rate of 30% on the rand amount that was previously allowed as a deduction for contributions to a medical scheme, but adjusted for inflation.
'The credits therefore benefit those who have lower tax rates, but not those whose tax rates are higher,' reports iol.
Important: Make sure you're aware of the new changes to the tax treatment of medical aid contributions
You might recall that last month, we reported
that the rules regarding the tax treatment of medical aid contributions have changed. That change officially came into effect on the 1st of March 2014.
This means all taxpayers will be on a credit-only system.
That means if you're a taxpayer under the age of 65 and you don't have a disabled dependent, contributions towards medical aid (without regard to the quantum of the contribution) will qualify you to receive a credit of a fixed monthly amount. (You can read more about this here
This will be based on the number of dependents on the medical aid scheme. However, 'to the extent that the sum of qualifying medical expenses and medical aid contributions in excess of four times the fixed credit above exceeds 7.5% of the taxpayer's taxable income, an additional credit arises,' says David Warneke of BDO SA
This additional credit will be calculated by multiplying the excess amount by 25%.
If you're aged 65 years and older and you have a disabled dependent on your medical aid, contributions to a medical aid (without regard to the quantum of the contribution) will qualify you to receive a credit of a fixed amount, based on the number of dependents on the medical aid scheme.
But, medical aid contributions in excess of three times the fixed credit amount above will be converted to additional credits at the rate of 33.3%. Qualifying medical expenses (with no threshold requirement) will also be converted to credits at the rate of 33.3%.
Now that you know about the increase in the tax credits for medical scheme contributions, make sure you record it correctly for Pay As You Earn (PAYE) purposes.
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