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Avoid penalties and use these 4 steps in calculating medical tax credits correctly

by , 08 January 2016
If your company contributes to medical aid schemes on behalf of your employees, you must ensure that you deal the contributions correctly. If you get it wrong, then you'll face consequences.

And in stating this, it's worth noting that previously, you'd let you employees deduct their own medical aid contributions, based on the SARS allowable amounts. But now, as you know, your employees now get medical tax credits.

And instead of using the SARS amount as a deduction, and reducing the employees' remuneration as you calculate their PAYE, you know use the medical tax credit to reduce the PAYE itself.

Having said that, here are 4 steps on how to calculate medical tax credits...


Start with how many people are on an employees' medical aid.  In other words, this could include the main member as well as her beneficiaries.


Calculate her medical tax credit based on the total number of beneficiaries multiplied by the SARS monthly tax credit amounts.

The medical tax credit system changed on 1 March 2014

Are you calculating your employee's PAYE correctly?

Discover what the medical tax changes are and how to implement them to avoid SARS' 200% penalty

Click here for more details…



Work out her pay as you normally would.

You must leave out deductions for medical expenses.

Credit his PAYE with the tax credit amount, to lower his monthly PAYE liability.


Minus the medical tax credit you calculated in step#2 from his PAYE calculated in step#3.
CAUTION: If you contribute an amount to cover an employee's medical expenses, you must include these amounts as a fringe benefit for PAYE purposes. Except where there's a 'no-value' provision. SARS auditors will analyse your payroll records very intensely to see that you've done this correctly.

If you haven't, it means you either have under-declared PAYE and there'll be penalties and interest. Or even worse, SARS will think you're trying to fraudulently hide the benefit which the employee received.

Do you still have important questions, with regard to this, that require answers? Then subscribe to the Practical VAT Loose Leaf Service today
and find out ALL there is to know on medical benefits and taxation. 

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