Medical Expenses You Can Claim Back from Income Tax

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Medical expenses can be claimed back from tax through a tax credit.

A tax credit is a non-refundable rebate. This means that a portion of your qualifying expenses, in this case medical related spend, is converted to a tax credit, which is deducted from your overall tax liability (the amount of tax you have to pay SARS). You can’t carry any unused credit over to the next tax year and it won’t ever result in a negative amount or standalone refund from SARS. This means that if you don’t earn an income, but do contribute a medical aid, you can’t claim the medical credit.

Who are dependents for medical expense claims

It is likely you’re not only paying for your own medical expenses but probably for those of your immediate and sometimes extended family too. For this reason, it’s important to understand what SARS considers as dependents.

SARS sees the following as dependents:

  • A spouse (husband or wife)
  • A child and the child of a spouse (e.g. son, daughter, stepchild or children, adopted child or children) who was alive during any part of the year of assessment, and provided that on the last day of the year of assessment he / she was unmarried and:
    • a minor, i.e. under the age of 18, or
    • under 21 years of age, but partly or entirely dependent on you for maintenance and not yet liable for normal tax themselves, or
    • under 26 years of age, but partly or entirely dependent on you for maintenance, not yet liable to pay normal tax themselves and a full-time student at a publicly recognised educational institution such as a university or technicon
  • Any other member of your family who relies on you for family care and support (e.g. mother, father, sibling, mother or father-in-law, grandparent or grandchildren)
  • Any other person recognised as a dependent in terms of the rules of a medical scheme or fund

The two types of medical tax credits

  1. Medical Aid Contributions

SARS calls this rebate the Medical Schemes Fees Tax Credit and it applies to the fees paid by a taxpayer to a registered medical scheme for you (as the taxpayer) and your dependants. The credit (for 2019) is a fixed monthly amount of R310 for you as the primary member, a further R310 for your first dependent and R209 for each of your additional dependents.

If John pays for medical aid for himself, his wife and his 3 children, his tax credit will be calculated as follows.

R310 for John
+ R310 for John’s wife
+ (R209 x 3) for his 3 children
= R1,247 tax credit per month

John’s tax liability is therefore decreased by R1,247 per month. Note that this is a flat rate per month and doesn’t take your taxable income into consideration.

If you’re paying your contributions via your employer, i.e. as a deduction from your salary or wages, your employer is obliged to use the credit system to adjust your PAYE tax accordingly. If not, completing the medical aid contributions section of your annual tax return will apply the permitted credit for your advantage.

  1. Additional Medical Expenses Tax Credit

The Additional Medical Expenses Tax Credit is in place to provide some credit for excess medical expenses and comprises 2 parts:

  • Excess medical aid contributions, and
  • Out-of-pocket medical costs (i.e. those not reimbursed by the medical aid or were not claimed from medical aid)

Excess medical aid contributions are relatively straightforward to work out as you’ll use the total amount you paid towards medical aid as your base amount and then apply the formula applicable to your individual situation. We’ll get to this in just a moment.

Out-of-pocket expenses are a bit more complex. Out-of-pocket medical costs, as per SARS, are those expenses that you’ve paid for yourself, which have not been reimbursed from medical aid. (If you submit ALL your medical expenses to your medical aid, this amount is normally reflected on your tax certificate from the Medical Aid as ‘claims not paid’, ‘amount not reimbursed’ or something similar. Remember this won’t include expenses you incurred but didn’t submit to medical aid. You’ll have to tally those up separately.)

What are qualifying medical expenses for tax purposes?

Examples of qualifying medical expenses are any amounts that were paid by you, as the taxpayer, during the year of assessment:

  • For professional services rendered and medicines supplied by a registered medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthopaedist to you or any of your dependant(s)
  • To a nursing home or hospital, or any duly registered or enrolled nurse, midwife or nursing assistant (or to any nursing agency in respect of the services of such a nurse, midwife or nursing assistant) in respect of the illness or confinement of the person or any dependant of the person
  • For medicines prescribed by a registered medical practitioner and acquired from a pharmacist
  • Medical expenses incurred and paid outside South Africa

It’s important to note that “over the counter” medicines – such as cough syrups, headache tablets or vitamins don’t qualify as medical expenses – unless specifically prescribed by a registered medical practitioner and acquired from a pharmacist.

Calculation of Medical Tax Credits

The formula you need to use depends on two factors:

  • Your age – whether you’re older or younger than 65, and
  • If you or your dependent(s) have a disability.

SARS is strict on the definition of a qualifying disability. According to the Income Tax Act, a disability is:

A moderate to severe limitation of that person’s ability to function or perform daily activities, as a result of a physical, sensory, communication, intellectual or mental impairment if the limitation:

  • Has lasted or has a prognosis of lasting more than a year; and
  • Is diagnosed by a duly registered medical practitioner in accordance with the criteria prescribed by the Commissioner

In order to benefit from the full disability-related medical expenses provisions, you’ll need to have an ITR-DD (confirmation of diagnosis of disability form for an individual taxpayer) form completed by a registered medical practitioner.

Age and Disability Status Formula Used to Calculate Additional Medical Expenses Tax Credit
Under 65, No Disability 25% of:
Total contributions paid to the medical scheme
Less (4 x Medical Scheme Fees Credit)
Plus (Qualifying medical expenses paid less 7.5% of taxable income)
Under 65, Disability 33.3% of:
Total contributions paid to the medical scheme
Less (3 x Medical Scheme Fees Credit)
Plus (Qualifying medical expenses paid)
65 or Over, With or Without Disability 33.3% of:
Total contributions paid to the medical scheme
Less (3 x Medical Scheme Fees Credit)
Plus (Qualifying medical expenses paid)

 

Let’s look at a worked example – including the Medical Scheme Fees Credit – to show the different steps in the calculation.

Simon is 50 years old and pays R5,000 a month to a medical aid fund for himself, his wife and their 2 children. His youngest child had been quite ill throughout the year and by 28 February 2018, he’d paid R25,000 for medical treatments that had not been claimed back from his medical aid as his savings had run out. Simon’s taxable income for the year was R360,000.

First, we calculate what Simon’s Medical Scheme Fees Credit is for the 2018 tax year. Remember this is the flat rate of R303 each for him and his first dependent (his wife) plus R204 for each of his additional dependents (their children) so it’s a fairly uncomplicated sum.

Annual medical scheme fees credit = Monthly credits x 12
[(R303 x 2) + (R204 x 2)]x 12
= [(R606) + (R408)] x 12
= R1,104 x 12
= R12,168

Now let’s calculate the excess scheme fees by applying the formula for someone under 65 years old without a disability.

Excess scheme fees credit = Total contributions – (4 x medical schemes credit)

(R5,000 x 12) – (4 x R12,168)
= R60,000 – R48,672
= R11,328

Next we need to determine the Additional Medical expense Credit by subtracting 7,5% of Simon’s taxable income from his total out-of-pocket medical costs plus the excess schemes credit.

Additional Medical Expenses Credit = (Total qualifying spend + excess schemes credit) – (Taxable Income x 7,5%)
(R25,000 + R11,328) – (R360,000 x 7,5%)
= R36,328 – R27,000
= R9,328

Remember the additional medical expenses credits is 25% of the sum of excess fees and qualifying medical expenses, so let’s work that out.

25% x R9,328
= R2,332

Lastly, let’s add the Medical Scheme Fees Tax Credit to the Additional Medical Expenses Tax Credit to see what amount Simon can deduct from his total tax obligation for the year.

Medical Scheme Fees Tax Credit + Additional Medical Expenses Tax Credit
= R12,168+ R2,332
= R14,500

Simon has a medical tax credit of R14,500.

We can also show this calculation in the following way:

  Contribution / Expense Calculation Tax Credit
Medical Scheme Fees Credit
Step 1: Medical Scheme Fees Credit R5,000 per month for himself, his wife and their 2 children Monthly credits x 12
[(R303 x 2) + (R204 x 2)] x 12
= [(R606) + (R408)] x 12
= R1,014 x 12
= R12,168

 

R12,168
Additional Medical Expenses Tax Credit
Step 2a: Excess Medical Scheme Fees R5,000 per month Total contributions – (4 x Medical Scheme Fees Credit)
(R5,000 x 12) – (4 x R12,168)
= R60,000 – R48,672
= R11,328
 
Step 2b: Qualifying Medical Expenses R25,000 for the year Total qualifying spend plus Excess Medical Schemes Fee – (Taxable Income x 7,5%)
=(R25,000 + R11,328) – (R360,000 x 7,5%)
= R36,328 – R27,000
= R9,328
 
Step 3: Additional Medical Expenses Credit   25% x (Excess Medical Scheme Fees + Qualifying Medical Expenses)
25% x R9,328
= R2,332
R2,332
Total Medical Expenses Tax Credit
Step 4: Total Medical Expenses Tax Credit to be applied   Medical Scheme Fees Tax Credit + Additional Medical Expenses Tax Credit
= R12,168 + R2,332
= R14,500
R14,500

 

All credit values and calculations are based on the 2017/2018 tax year, i.e. 1 March 2017 to 28 February 2018.  If you’re completing tax returns for other tax years different amounts, limits and conditions may apply.

ABOUT THE AUTHOR: Des Brown

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