Tax Matters: Only 8 days left to get to grips with the new medical tax credit system. Are you ready?

Dear reader,

For months, we’ve been waiting for SARS to explain exactly how its new medical tax credits system will work. It comes into effect on 1 March 2012.

FINALLY, SARS has published a document, setting out guidelines for you.

The experts from Tax Watch newsletter have distilled all the important bits of this document. So read on to find out exactly what to do!

If your employees aged younger than 65 belong to a medical scheme…
then they’ll get a credit each month of:

·         R216 each for the main member (your employee) and one dependent;

·         R144 for each additional dependent.

If your employee is aged older than 65 but hasn’t retired…
and you’re paying the contribution amount on his behalf, then this becomes a taxable fringe benefit. This means that from 1 March 2012, you’ll have to treat your 65-year-old employees the same way you treat the 25-year-olds, for employees’ tax.

BUT the 65 year old can claim the full medical scheme contribution as a deduction. So he won’t suffer any impact in his personal income taxes.

If the 65 year old (and older) employee has retired, but you’re still paying the medical scheme contributions…
then the fringe benefit remains non-taxable.

Update your payroll system before 1 March 2012 to avoid penalties
SARS won’t accept excuses from you! The onus is on you to make sure that the company’s payroll system is updated, specifically to show:

·         The correct credit amounts (as stated above);

·         The correct tax treatment of employees older than 65 (make sure the system is calculating and deducting employees’ tax, as well as UIF and SDL levies correctly).

Caution!If you don’t update your system, you’ll be declaring and withholding the incorrect amounts of employees’ tax. SARS will pick this up, and you will be penalised!
 

Your employees will probably take home less pay
This change may not be very kind to your employee’s pocket… Some employees will take home less pay, because you’re withholding more tax from their salary. Plus, because of the increased withholding tax, they’ll be paying more employees’ tax.

It’s a good idea to alert your staff to the changes. Send them a letter or an email explaining this new process and be prepared to answer their questions.

Use these NEW source codes on your employee tax certificates
SARS has made some changes to the existing source codes for deductions relating to medical aid contributions paid by the employer.

Tax Watch is giving you all the source codes – if you’re a subscriber to the newsletter!

Clickhere to sign up for a trial subscription toTax Watch, and get the February issue at no cost!

Remember: Your staff will only really see the impact of the changes in 2013, when they have to submit their tax returns for the 2013 tax year (i.e. 1 March 2012 to 28 February 2013).

Likewise, you’ll see the changes when you prepare the IRP5s and IT3(a)s for your employees in 2013, before you submit the company’s documents to SARS in 2012.

Don’t delay! You’ve only got a few days left to update your payroll system and get to grips with these changes.

Until next week,

Fulvia Stoltz
Product Manager: Tax

P.S. I’ve got the scoop of the century!