[Question] Medical Aid and IRP Codes with new Tax Credit system

[craighug]

We have some staff on medical aid paid for by the company on a cost to company basis. When changing our payroll system (industry specific software) to account for the new tax credit system I maintained the Medical Aid addition as part of their package (IRP code 3810) but removed any deductions (IRP code 4005) as I thought the deduction components were replaced by the tax credit system. When trying to import into Easyfile I get the error message: "Source code 4005 is mandatory if 3810 is specified".

I have asked an ex colleague payroll specialist who advised that I should add the deduction as a "deemed deduction" on the payroll, which allocates the deduction for IRP purposes but doesn't affect the Net Pay of the individual. Unfortunately
our system does not allow such a "deemed deduction". When I queried it with our software help desk I was informed that there is no longer a need to specify the addition as medical aid contribution and I can simply incorporate it on the normal remuneration of the individual (IRP code 3601). This however doesn't make sense to me as SARS would surely still need to know the breakdown of remuneration of the individual between its various components?

Please can someone assist me in determining the correct way of treating medical aid contributions by employers in the payroll system?

[tax$$$]

Hi Craig

After receiving the error message, does EasyFile close or did it import the files anyway?

I would advise against including anything in 3601 that should be disclosed separately. The payroll system should accommodate for all benefits received by employees, so I would call the software admin team to clear this up. There should be:

3810 Medical fringe benefit
4005 Medical paid by employee (employee premiums + deemed contribution by employer)
4474 Medical paid by employer