Medical Tax Credit to Benefit Lower Earners

Medical aid tax creditAccording to Yusuf Dukander, the project director of financial services at the South African Institute of Chartered Accountants (SAICA), most South Africans can’t afford medical aid. To be specific, about 84% of South African citizens live their entire lives without any medical cover at all. For many of those who do have medical aid, high monthly contributions are a significant strain on the budget.

Starting from the 2013 tax year, the South African Revenue Service (SARS) introduced the concept of medical tax credit. At least to some degree, this may ease the burden on those struggling to afford medical aid.

What is the medical tax credit?

The medical tax credit (MTC) is a fixed amount that’s deductible from payable tax. It replaces part of the tax deduction that was previously granted specifically for medical scheme contributions.

How does it work and how does it benefit low earners?

Previously, medical aid members deducted the value of their medical aid contributions, up to a specified limit, from their taxable earnings. With the MTC scheme, however, everyone receives exactly the same tax credit for belonging to a medical aid scheme, irrespective of their taxable earnings. The result is that low earners come out with more of a tax savings than they did in the past. For higher earners, the tax savings is likely to be lower.

The current MTC rate is R257 for the main member and the first dependant on a medical scheme, and R172 for each additional dependant.

Potentially, this is a strong incentive to join a medical aid scheme. For a family of four, for example, the tax credit for belonging to a medical aid will total R858 (calculated as R257 each for the main member and the first dependant, and R172 for each of two additional dependants) – a significant savings on the total cost of belonging to a medical aid.

If you’re considering joining a medical aid scheme or switching to a new one, contact IFC for help in finding the best option possible, given your needs. IFC provides medical aid quotes and comparisons of leading South African medical aid providers.