In this article, we wish to simplify and explain when and how claimed medical expenses – SPECIFICALLY out-of-pocket expenses – will be allowed as a deduction.

Medical expenses (NOT the tax credits) are based on taxable income AFTER ALL OTHER deductions (RA, Pension, Rental profit/loss and trading profit/loss.)

Medical tax credits (MTC):

MTC is technically the last calculation, but the most well-known and the reason a salary-earner will most likely not see a tax refund, purely based on the Medical Tax Credits.

As an employee of a company and with a medical aid benefit (it forms part of your salary package), the Medical Tax Credits, will cause a reduction in your monthly PAYE.

Example:

• Your monthly PAYE (before the MTC) is R3,000.
• You and your spouse are on your medical aid.
• The monthly MTC for you both is : R664 (R332 for main member and R332 for 1st dependent).
• Your monthly PAYE will be reduced to R2,336.
• You get a monthly benefit.

Should your medical aid be out of your own pocket and /or you pay on behalf of someone who is related and dependent (Either on your medical aid or they are on their own medical aid), your MTC will be a lump sum at the end of year.

For sole proprietors:

You can always set-up a payroll system for yourself and bring these into calculation. MTC is a TAX reduction, NOT an expenses. Meaning, it comes off the actual Tax portion.

Example:

• If your annual tax was : R20,000.
• PAYE was R11,000.
• MTC = R332 (just you) x 12months = R3,984.
• Your tax payable would be : R5,016 (R20,000 – R11,000 – R3,984).

A MEDICAL TAX CREDIT CANNOT CAUSE A TAX REFUND AND IS THEREFORE LIMITED TO YOUR MAXIMUM TAX LIABILITY.

Medical tax credits after the 1st dependent is calculated at R224 (2021 to 2022 tax years) per dependent. A dependent is someone who is related to you or, in the case of children, also adopted. A dependent also includes your spouse or parent and in the latter, some rules do apply.

As for children:

On the last day of assessment (28/29 February) was alive and NOT:
Married and

• Over the age of 18 years.
• Over the age of 21, except:

– Wholly or partially dependent on their parents for their livelihood
– Did not become liable for income tax.

• Over the age of 26, except:

– Wholly or partially dependent on their parents for their livelihood.
– Did not become liable for income tax.
– Full-time student and an educational institution.

The exception to all of the above, is when a child has a disability and wholly or partially dependent, on the taxpayer, for their livelihood and well-being.
– Also, did not become liable for tax.

Also allowed are:

• Nursing homes.
• Mid-wives.
• Stay-in caregiver salaries and

– Stay-in expenses are limited to 20% of the national minimum wage for electricity, food and water.
– Training and related expenses.

Medical aid contribution:

Only contributions paid to any registered medical scheme OR a “registered under provisions similar to the provisions of the MS Act in the laws of any other country” {SARS LAPD-IT-G07, ISSUE 13}”. Meaning even if you belong to a foreign medical scheme and its Legislation is similar to South Africa’s Medical Scheme Act, you can claim the contributions. THEREFORE: medical insurance, will NOT be allowed. This also includes GAP covers, however, if you had to make a co-payment, to a hospital and this was NOT recovered from your medical aid, then it can be claimed under OTHER MEDICAL EXPENSES PAID OUT-OF-POCKET.
But do not expect this co-payment claim, to make a difference in your tax calculation.

Medical expenses paid out-of-pocket:

Let us get through what does qualify:

• Any amount NOT recovered from the medical aid.

– If you are not on a medical aid this is not applicable and the below would be:

• Paid out of your own pocket (or your spouse’s if on the same medical aid).
• Medicine, which a registered medical practitioner, provided a prescription for.

– Lenses also fall under this section.

• Payments made to a hospital for hospitalisation.
• Payments to registered medical practitioners:

– GP
– Paediatrician
– Other specialists (oncology, anaesthetist, dentist, cardiologist, etc.).

The above ONLY qualify for the calculation to determine what can be deducted from Taxable income.

For any disabilities:

• The relevant medical practitioner needs to complete an ITR-DD.

– This form is for mental and physical disabilities.
– The expense will only qualify if it was necessarily incurred and paid by the taxpayer.
– And either the taxpayer or a dependent, must have the disability.
– For more information look on SARS’s website for:

• List of Qualifying Physical Impairment or Disability Expenditure; Annexure B.

Some exception which does get included:
Physical impairment (broken arm, leg, eye injury etc) expenses can be claimed, even for over the counter medicine, as long as the medicine is on the Prescribed medicine list of the Act. Your medical practitioner would most likely have provided a script, if not, have proof of your impairment and the related medical expenses.

Calculation for allowed medical expense portion:

For a taxpayer that is:

• Over 65 and/or
• Has a disability.

– You do not have the worry about the 7.5% rule.
– The 7.5% rule is for all other taxpayers.
– The 7.5% relates to all medical expenses paid (out-of-pocket and not recoverable), must exceed 7.5% of your taxable income, BEFORE being taken into account for the ALLOWED portion calculation.

Calculation for taxpayers Over 65 and/or with disability:
All qualifying expenses are brought into the calculation as follows:

• Allowed medical expense deduction = 33.3% x {[A – ( 3 x B )] + c}.
• A = Fees paid to medical scheme.
• B = Medical tax credits (annual amount).
• C = Qualifying medical expenses.

As you note, if your medical aid contributions are less than Three (3) times your medical tax credits, you are already at a disadvantage when it comes to your medical expenses.

Calculation for all other taxpayers (Under 65 and/or without disability):
All qualifying expenses are brought into the calculation as follows :

• Allowed medical expense deduction = 25% x {([A – ( 4 x B )] + C) MINUS (7.5% x D) }
• A = Fees paid to medical scheme.
• B = Medical tax credits (annual amount).
• C = Qualifying medical expenses.
• D = Taxable income (Excl. lump sum retirement or severance).

As you note, if your medical aid contributions are less than FOUR (4) times your medical tax credits, you are already at a disadvantage when it comes to your medical expenses. ONLY the medical expenses OVER AND ABOVE 7.5% of taxable income is considered as a deduction, but limited to 25%.

Example:

• Taxable income = R150,000
• Medical expenses = R25,000
• Tax credits = R3,984

– R150,000 x 7.5% = R11,250 : All medical expenses over and above this amount will be brought into calculation; therefore
– R25,000 – R11,250 = R13,750 of your medical expenses are now considered.

NOT on medical aid:

Medical expense allowed:

= 25% x {( A – ( 4 x B) + C }
= 25% x {( zero – (4 x zero) + 13,750}
= 25% x 13,750
= R3,437.50 is allowed as a medical expense.

ON medical aid:

• Contributions = R25,000 for the year.
• One member – no depedants.

Medical expense allowed

= 25% x {( A – ( 4 x B) + C }
= 25% x {( 25,000 – (4 x 3,984) + 13,750}
= 25% x {( 25,000 – (15,936) + 13,750}
= 25% x {9,064 + R13,750}
= 25% x 22,814
= R5,703.50 is allowed as a medical expense.

Should the 7.5% be MORE than {( A – ( 4 x B) + C }; the answer is ZERO and no NEGATIVE amount can be claimed.

– Salim Khan