Focus on medical tax credits

 

Below is information about the medical tax credit system: 1 March 2024 – 28 February 2025.

Medical scheme tax credits – applies to all taxpayers This aspect pertains to the contributions made towards medical schemes, whether these contributions are made directly by the taxpayer or on their behalf by their employers. Starting from 1 March 2024, the monthly tax credits will be structured as follows: taxpayers will receive a credit of R364 per month for themselves and their first dependent. Additionally, there will be a credit of R246 per month for each additional dependent. This system allows taxpayers to receive financial relief for the costs associated with their medical scheme contributions.

Qualifying medical expenses as an additional tax credit – different formulas apply to different taxpayers.

This additional tax credit is designed to provide further financial relief by allowing taxpayers to deduct certain medical expenses from their taxable income. It is important to note that this credit is non-refundable, meaning it cannot exceed the amount of tax owed in that particular year of assessment. To qualify for this credit, taxpayers must pay these expenses out of their own pockets and keep the relevant invoices as proof of payment.

The expenses that are eligible for this credit include a variety of medical costs. Specifically, these include any payments made to registered medical practitioners, dentists, optometrists, homeopaths, naturopaths, osteopaths, herbalists, physiotherapists, chiropractors, and orthopaedists for professional services rendered to the taxpayer or their dependents, provided these amounts were not recovered from the medical scheme. Furthermore, any payments made to nursing homes, hospitals, enrolled nurses, midwives, or nursing assistants for care related to illness or confinement are also eligible. Additionally, amounts paid to pharmacists for prescription medications, as well as expenses incurred outside of the Republic for medicines that are substantially similar to those available domestically, may qualify. The Commissioner may also prescribe other types of expenditures that could be eligible.

Taxpayers under the age of 65 The total tax credit available for taxpayers under 65 is calculated using a specific formula: 25% of the total of (annual medical scheme contributions minus four times the annual medical scheme tax credit plus other qualifying medical expenses minus 7.5% of the annual taxable income). If the result of this calculation is negative, it indicates that there is no tax credit available for that taxpayer.

For example, consider Peter, a 32-year-old earning an annual salary of R250,000. He and his employer contribute a total of R3,500 per month to his medical scheme, which covers both him and his wife, who is his only dependent. Additionally, Peter has incurred qualifying medical expenses totaling R12,100 and has no other qualifying tax deductions. To determine his total medical tax credit, the following steps should be followed:

Step 1 – Calculate the medical scheme tax credits for Peter and his dependent: (R364 + R364 per month) x 12 = R8,736 per annum.

Step 2 – Calculate the additional medical tax credit: 25% x [(R3,500 x 12) – (R8,736 x 4) + R12,100 – (7.5% x R250,000)] = 25% x [R7,056 + R12,100 – R18,750] = R101.50. The total tax credit thus becomes R8,736 + R101.50 = R8,837.50.

Step 3 – Apply the tax credit to reduce the total tax payable. With a taxable income of R250,000, the tax payable (using the 2024/2025 tax rates) amounts to R46,032. After applying the primary rebate of R17,235 and the medical tax credit of R8,837.50, the final tax payable is R19,959.50.

Taxpayers over the age of 65 and those under 65 with a family member with a disability For taxpayers who are over the age of 65, or those under 65 who have a family member with a disability, the total tax credit is calculated differently. In this case, the formula used is 33.3% of (annual medical scheme contributions minus three times the annual medical scheme tax credit plus other qualifying medical expenses). Similar to the previous calculation, if the result is less than zero, there will be no tax credit available.

For instance, let’s take Peter again, but now he is 68 years old and receives a pension of R250,000 annually. He continues to belong to the same medical scheme with a total monthly contribution of R3,500, and his wife remains his only dependent. He has also incurred additional qualifying medical expenses of R12,100, with no other tax deductions. To determine his total medical tax credit, the following steps should be taken:

Step 1 – Calculate the medical scheme tax credits for him and his dependent for the year: (R364 + R364 per month) x 12 = R8,736 per annum.

Step 2 – Calculate the additional medical tax credit: 33.3% x [(R3,500 x 12) – (R8,736 x 3) + R12,100] = 33.3% x [R15,792 + R12,100] = R9,288.04. The total tax credit thus becomes R8,736.00 + R9,288.04 = R18,024.04.

Step 3 – Apply the tax credit. With a taxable income of R250,000, the tax payable (using the 2024/2025 tax rates) is R46,032. After applying the primary rebate of R26,679 and the medical tax credit of R18,024.04, the final tax payable is R1,328.96.

Tax treatment of HealthSaver+ The approach to taxation for HealthSaver is distinct from that of medical scheme savings. While medical scheme savings are included in the overall medical scheme contributions, the contributions made to HealthSaver are funded using after-tax income. Consequently, HealthSaver contributions are not tax-deductible; however, any expenses paid through the HealthSaver account can be deducted in the same manner as other healthcare expenses incurred by the taxpayer.

If a taxpayer maintains a HealthSaver account, they will receive a HealthSaver tax statement that serves as proof of the healthcare expenses incurred during the tax year, allowing for appropriate deductions. This statement is sufficient for tax purposes, provided that the taxpayer did not incur any medical expenses outside of what was covered by HealthSaver and the medical scheme. If there were any additional expenses, it would be necessary to keep all receipts, including those for claims settled through HealthSaver, for tax reporting purposes.

+HealthSaver is a complementary product offered by Momentum Metropolitan Holdings Limited (Momentum). Taxpayers have the option to utilize additional products available through Momentum to enhance their medical aid experience seamlessly. It is important to note that Momentum is not a medical scheme and operates independently from Momentum Medical Scheme. The complementary products provided are not classified as medical scheme benefits. Individuals may be members of Momentum Medical Scheme without subscribing to any of the complementary products.