While waiting for my prescription at the Clicks pharmacy counter, I overheard a conversation at the adjacent stall. The pharmacist asked the customer whether they preferred to charge their purchase to their medical aid or pay in cash. The customer responded, “Just cash because I know my medical aid plan does not cover that type of medicine.” This interaction prompted me to write this article to remind customers always to process pharmaceutical purchases through their medical aid, even if they believe it is not covered. Doing so may qualify you for a tax deduction, particularly for out-of-pocket medical expenses not covered by your medical aid plan.
Claiming medical expenses from SARS is not as difficult as it might appear, and understanding how it works can result in some much-needed tax relief. The Medical Schemes Fees Tax Credit applies to any taxpayer who contributes towards a registered medical scheme and includes a number of components and formulas that work together to provide a tax credit deducted from your overall tax liability. Here’s how it works.
- Medical Aid Contributions
The Medical Schemes Fees Tax Credit provides for a standard monthly credit against your tax owing to SARS. As the primary medical aid member, you are entitled to a medical tax credit of R364 for the 2024/2025 tax year, and R728 per month for the taxpayer and one dependant. Thereafter, you will receive a tax credit of R246 per month for every other member registered on the same medical scheme. These credits will be deducted from the tax you are liable to pay, although it is important to obtain a tax certificate from your medical aid for tax filing purposes, keeping in mind that this certificate will also be used to determine any amounts you paid towards healthcare costs which were not covered by your medical aid.
If you are employed and your medical aid contributions are paid via payroll, your employer may use the Medical Schemes Fees Tax Credit to reduce your monthly tax. On the other hand, if you pay your medical aid premiums in your personal capacity, you are able to claim the tax back as a refund when you file your tax returns. It is important to remember that the tax rebate only applies to taxpayers who are members of a registered medical scheme in South Africa in respect of qualifying dependants as listed by SARS. Qualifying dependants include:
- A spouse, including same-sex partners; and
- A child, a child of a spouse, stepchild or adopted child who was alive during any part of the year of assessment; and
- A parent, sibling, parent-in-law, grandparent, or any other family member who relies on you for financial support; and
- Any other person recognised as a dependant by your medical scheme.
- Additional Medical Expenses
In addition to providing credits in respect of medical aid contributions, SARS also provides credits for excess medical expenses which include (a) excess medical aid contributions, and (b) qualifying medical expenses by way of Additional Medical Expenses Tax Credit.
(a) Excess Medical Aid Contributions
Calculating your excess medical aid contributions is formula-based and depends on your age and whether or not you have a disability (see further detail below).
(b) Qualifying Medical Expenses
In addition to credits for your excess medical aid contributions, you can also get credits for out-of-pocket medical expenses that were not covered by your medical aid. Where you submitted these expenses to your medical aid, but they were not paid by the fund, these amounts will appear on your tax certificate. If you did not submit them to your medical aid, you will need to keep a record of these costs for tax purposes. To make the process easier for e-filing purposes, it is often easier to submit all your medical expenses to your medical aid, even if your benefits are depleted. In this way, all your out-of-pocket expenses will automatically reflect on your medical aid tax certificate. Keep in mind that not all out-of-pocket healthcare expenditure will qualify for a tax rebate. Specifically, over-the-counter medication that can be obtained without a prescription does not qualify in this regard. According to SARS, only the following out-of-pocket costs will qualify:
- Consultations, services and medications from a registered medical practitioner, orthopaedist, physiotherapist, chiropractor, herbalist, homoeopath, optometrist, osteopath or naturopath.
- Care at a patient’s home by a registered nurse, nursing agency, midwife or nursing assistant.
- Medication prescribed by a registered physician and dispensed by a registered pharmacist.
- Admission to a registered hospital or nursing home.
- Medical expenses or services received abroad that are in line with the above,
- Money paid towards treatment of a physical impairment or disability (see below).
To calculate your Additional Medical Expenses, the formula used will apply as follows:
Under age 65 without a disability
If you fall into this category, the formula used to calculate your additional credits is your total contributions to your medical aid, less 4 x your medical scheme fees credit, plus qualifying medical expenses. Then subtract 7.5% of your taxable income, and multiply this figure by 25%.
Under age 65 with a disability
If you are under age 65 with a disability, your credits are calculated as 33.3% of all qualifying medical expenses paid by the individual, plus the amount by which the total medical scheme contributions exceed 3 x medical scheme fee credits.
Over age 65 with or without a disability
Regardless of whether you are disabled or not (including taxpayers with disabled dependants), if you are over the age of 65, your additional credits will be calculated as per the above, i.e. 33.3% of qualifying medical expenses, plus the amount by which medical scheme contributions exceed 3 x their medical scheme fee credits.
- Qualifying Physical Impairment or Disability Expenditure
On 3 October 2022, SARS held a webinar on Allowable Medical Expenses to educate taxpayers and provide clarity as to what qualifies as allowable medical expenses. This webinar was performed in line with SARS’ strategic goals to promote awareness among taxpayers and their tax obligations. For ease of reference, the video can be found here: https://youtu.be/YAAPPDqXb5s
Further to the above, back in March 2020, SARS made available a detailed list of qualifying physical impairment or disability expenses which may be claimed as additional medical tax credits over and above the credits listed in 1 above. This list can be found on the SARS website at: https://www.sars.gov.za/wp-content/uploads/Ops/Guides/LAPD-IT-G08a-List-of-Qualifying-Physical-Impairment-or-Disability-Expenditure-Effective-1-March-2020.pdf
However, in order to qualify, the taxpayer or their dependant must qualify with a disability in terms of the Income Tax Act which describes a disability as ‘a moderate to severe limitation of a 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.
Qualifying expenses that can be claimed include the costs of a personal care attendant (e.g. private nursing or home care), travel and transportation, insurance, maintenance, repairs and supplies, prosthetics and devices, continence products, service animals, and home or vehicle modifications to accommodate the disability. To claim these qualifying expenses, the taxpayer will need to ensure that his medical practitioner completes an ITR-DD form. Keep in mind that an expense will not automatically be treated as a qualifying expense, and it must be proven to be required as a result of the person’s inability to perform daily functions. Taxpayers will need to have the following information available when claiming for such expenditure:
- The details and nature of the physical disability
- Evidence that the expenditure was a result of the disability and that it was inevitable
- Completed ITR-DD Confirmation of Diagnosis Disability form
- Proof of payment for treatments, consultations, medication
Have a wonderful Wednesday.
Warm regards
Sue
