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Thread: Medical Deductions and Tax

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    New Member alistervz's Avatar
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    Post Medical Deductions and Tax

    Are you going to pay more tax on your employer’s contribution?


    Who pays your medical aid?

    The big news this week is the change in taxation of medical aid contributions.

    Over the last few years we’ve relied on cap amounts to determine what portion of the employer’s contribution is taxed as a fringe benefit.

    In 2009/2010, for example, the cap amount on employer contributions for employees younger than 65, was R625. So let’s imagine your employer contributed R1 000 to your medical aid; R625 of this was tax-free. The difference (i.e. R375) was taxed as a fringe benefit, in your hands.

    From March 2010, however, the cap amounts no longer apply when calculating income tax fringe benefits, and in particular, the tax on the employer’s contribution.

    The company’s contribution is now taxed in full. The only guys who get relief from this are taxpayers who are older than 65 (or have been forced to retire early due to illness).

    Employee contributions to medical aid will still be tax deductible, and subject to a cap amount to limit the benefit to the employee. For the 2011 tax year, the cap amounts are as follows:


    R670 for the employee only (previously R625)
    R1 340 for the employee and one dependent (previously R1 250).

    How much tax relief will you get this year?

    Let’s look at an example to see this in practice. Ted, aged 34, pays R800 to his medical aid (his employer pays in another R1 000). Ted has one dependent, which means the benefit cap is R1 340.
    The employer contribution will be taxed in full as a fringe benefit. But, because his own contribution is tax deductible, Ted will get a R340 tax deduction.

    So you may want to look at your salary structure, to see if your medical aid contributions and associated allowances are going to cost you more in taxes this year.

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    Hi there

    I know you meant well when you decided to post this, but what you're saying is completely wrong. (I searched for a euphemistic way to say that, but failed! ) Don't worry, it's understandable. I think I read the confusing article where you got your information from - it was a press release by VIP Payroll that was published on a few sites.

    The key bit of information that you're missing is that, even though the full amount of an employer contributon to medical aid is now taxable, you can now also get a tax deduction for a contribution made by your employer - something that wasn't possible in the past.

    So, to correctly calculate the example you gave:

    Ted will actually get a R 1,340 tax deduction, not just R 340 as you said. The full amount of R 1,800 (his R 800 contribution + the employer's R 1,000 contribution) is now elegible for tax deduction, but is limited to the capped amount of R 1,340.

    So what is the net effect of this change on tax payers whose employers contribute to medical aid?

    The change has absolutely no effect on the tax you pay. It may slightly increase your UIF contribution. I guess that's the reason SARS made this change - employees whose employers paid their medical aids used to pay less UIF than those who who paid it themselves.

    Asking your employer to restructure your package so that you get a higher salary and then pay your own medical aid will have no effect. That's been a trend with SARS over the years - they try to keep taxation the same now matter how you structure things.

  3. Thank given for this post:

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    Medical Aid fringe Benefit. . .

    Dave U,

    I was also thinking the same not to offend the previous poster, but it was bothering me and I had to look for an example to put the theory in perspective!

    So just to clarify a few things

    1) If an employer contributes R1000
    that R1000 is fully taxable as a fringe benfit
    The Family limit 'Cap' falls away from 1 March 2010

    2) If an employEE contributes R800
    His tax deduction will be R1800 but limited to R1340


    3) Now what is the medical aid deduction allowed in taxable income??

    Previously it was:

    Fringe benefit
    + Expenses paid by employee less amounts claimed
    + Contributions paid by employee less contributions allowed to be deducted
    Reduce by: Taxable income before Medical aid contributions but after Donations (s18A) x 7.5%

    is it still the same now??
    1000 + 0 (assuming no expenses paid less amounts claimed) +( 800 -1340)
    Last edited by AccPacc; 02-Apr-10 at 02:09 PM. Reason: made a typo error

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    New Member alistervz's Avatar
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    65 years and older: May claim all qualifying expenditure incurred and
    medical aid contributions paid by the taxpayer or employer
    • Younger than 65 years: May claim medical aid contributions, paid by
    the taxpayer or employer, up to the capped amount and qualifying
    expenditure to the extent that it exceeds 7,5% of taxable income before
    this deduction
    • Younger than 65 years (but with an immediate family member who
    has a disability): If the taxpayer, spouse or child (including an adopted
    child or stepchild) has a disability, the deduction allowed is all qualifying
    expenditure and medical aid contributions paid by the taxpayer or
    employer
    • The capped amount is calculated at R670 (2010 : R625) for each of the
    first two beneficiaries and R410 (2010 : R380) for each additional
    beneficiary as defined by the medical aid fund
    • Qualifying expenditure includes:
    - own contributions to medical aid funds in excess of capped amount
    - medical aid fringe benefit determined by the employer in excess of
    capped amount
    - payments to medical practitioners, nursing homes and hospitals
    - payments to pharmacists for prescribed medicines
    - payments for physical disabilities, including remedial teaching and
    costs incurred for mentally handicapped persons
    - payments for the benefit of any dependents
    • Disability means a moderate to severe limitation of a person’s ability to
    function or perform daily activities as a result of physical, sensory,
    communication, intellectual or mental impairment, if the limitation lasts
    more than a year and is diagnosed by a registered medical practitioner
    • Recoveries of expenses (including amounts received from medical aid
    savings account) reduce the claim
    • Expenditure paid by a taxpayer on behalf of a spouse or children can
    only be claimed in the taxpayer’s own tax return.

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    Hi
    I'm not sure you answered my question Alistervz
    I am aware of all the information you have bullet pointed above
    Now perhaps answer the question with an explanation to the example in figures

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    Problem

    Hi All,

    I have a problem and I am hoping that someone can shed some light on the issue I have:

    Lets say I earn R 10 000.00 basic a month
    The employer contribution to the medical fund is R448.00
    The employee's contribution to the medical fund is R700.00

    So in effect what happens is that the total contribution to the medical fund is R1 148.00. The employer pays this over to the fund and deducts R700.00 from the employee.

    Now what will the fringe benefit be if there is one and how will this affect the taxable income of the employee? (2010 and 2011 tax year)

    I'm so confused!

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    Quote Originally Posted by Taxibum View Post
    Hi All,

    I have a problem and I am hoping that someone can shed some light on the issue I have:

    Lets say I earn R 10 000.00 basic a month
    The employer contribution to the medical fund is R448.00
    The employee's contribution to the medical fund is R700.00

    So in effect what happens is that the total contribution to the medical fund is R1 148.00. The employer pays this over to the fund and deducts R700.00 from the employee.

    Now what will the fringe benefit be if there is one and how will this affect the taxable income of the employee? (2010 and 2011 tax year)

    I'm so confused!
    Hi Taxibum

    From this year onwards, the R448 employer contribution is a fringe benefit, bringing the employee's taxable income up to R10,448. But from that amount you must deduct the allowable medical aid deduction, which will depend on the number of dependants the employee has. Let's say the employee has no dependants, then the maximum deduction is R670, so he'll be taxed on R10,448 - R670.

    Now, let's say he has 1 dependant. In this case, the maximum deduction is R1,340. But because the total contribution is only R1,148, that will be the deduction. So he'll pay tax on R10,448 - R1,148.
    Last edited by Dave U; 19-May-10 at 10:48 PM. Reason: spacing

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    Thank you Dave U!

    How did this work for the previous year and how does it differ?

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    Quote Originally Posted by Taxibum View Post
    Thank you Dave U!

    How did this work for the previous year and how does it differ?
    Let's pretend the maximum deduction with 0 dependants was also R670 last year. Now, last year a fringe benefit only materialised if the employer contribution was larger than the maximum deduction. In this case, because the R448 employer contribution is less than R670, there is no fringe benefit.

    So, because there is no fringe benefit, the employee's remuneration was R10,000, not R10,448 as it is this year. But the allowable deduction was reduced by the employer contribution amount last year, so R670 - R448 = R222 is the allowable deduction, so the employee was taxed on R10,000 - R222.

    If you work this out, you'll see that the employee will be taxed on exactly the same amount this year as last year! The only difference is in the UIF. Last year, the UIF leviable amount for the month would have been R10,000. This year it is R10,448. That is because the whole employer contribution is now seen as a fringe benefit, which is a form of remuneration, and UIF is calculated on remuneration. (with specific exclusions of course)

    There's a "Thanks" button under my posts, not sure it makes all that much difference, but you might as well use it

  12. Thanks given for this post:

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    Please help!!! A bit out of line- Cellphone allowance and Fuel Allowance, how do I calculate the tax on the 2? Can fuel allowance be interchangeable with Travel Allowance or are they totally unrelated?

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