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PAYE on Medical contributions - Effective March 2012
As applied to employees who are not retired and younger than 65
- With effect from the 1st March 2012, the Governmemt and SARS has changed the way in which Medical Aid contributions give you a reduction in your Income Tax.
+ Previously Medical Aid contributions were allowed as an Allowable Deduction against Taxable Income. The amounts per month were for the YE Feb'2012 ......R720 for the 1st and 2nd beneficiaries, and R440 for each subsequent beneficiary.
+ Now it has been changed to a Tax Credit against your actual Tax. The amounts per month are .... R230 for the 1st and 2nd beneficiaries, and R154 for each subsequent beneficiary. This equates to approx. 30% of the previous Allowable Deductions.
This essentially means that everyone now gets the same Tax benefit from their Medical Aid contributions irrespective of the level of income and Tax Rate.
It also means that people with a Average Tax rate above 30% would now get less of a Tax benefit, and people with an Average Taxe rate below 30% would now get a greater Tax benefit iro. their Medical Aid contributions.
EFFECT ON PAYROLL PROGRAMS
-A major change must be made to payroll programs to facilitate this Tax reduction as a Tax Credit. These changes were made in our REMUNERATOR payroll software. Herewith the settings that must be further changed in the program ....
+In the Organisation Profile, activate a new PayField no.39 with,
Description: 'Med Tax Credit', CalcFactor: '1', Inc/NonP/Ded:'N' (for Non Payment).
TaxCode: '4116', SpecPurpose dropdownbox: 'MRB'.
+When doing the employee's payslip, must the applicable value for the MedTaxCredit be entered against this FieldNo 39 under the Input Column. This will have the effect of deducting the applicable MedTaxCredit from the PAYE, and will show such adjustment at the bottom of the payslip.
Contact Serendipity Software for more details of these changes.
ON A MORE PHILOSOPHICAL NOTE
-There is an inherent truth in the saying that if you repeat a lie often enough, people will start believing it.
First SARS did it by saying that this change will lead to a more equitable Tax regime...
Then many other publications jumped on the bandwagon, and repeated this.
Let me explain.....
Because of "progressive" tax rates which is acceptable practise world wide, you could say that the rich is fairly unfavoured.
Medical Allowable Deductions against Taxable Income by logical extension, could be said thus to fairly favour the rich..... because at higher tax rates represents a higher tax reduction.
Now Government has changed the rules by making the Medical Aid contribution tax benefit the same for everybody, thus you can now say that the rich is being unfairly unfavoured.
Clearly is this Government's way of disincentivizing people from belonging to Medical Aids, to the point where they will as a desperate resort actually welcome the newly proposed National Health Insurance (NHI) scheme.
But, this all is rather hypothetical because the Tax benefits from Medical Aid contributions are really insignificant since they are so much lower than the actual premiums.... unless you have more than 10 dependents, in which case you probably cant afford medical aid anyway.
-Are Tax Benefits on Medical Aid premiums iro. only the Employer's contributions, or the Employee's contribution, or both?
+This is not an unreasonable question because in the past, only the Employer's contribution was taken into account (to encourage the Employer to contribute, by being able to claim it as a deduction from it's own Taxable Income). More recently, only the Employee's contribution was taken into account (who after all had the expense), and most recently was it extended to the contributions by both parties, ie. the whole Medical Aid premium and hence the term 'Employee Deemed Contribution'.
+With regards to documentation effective 1st March 2012...
*SARS - Conversion of Medical Scheme Contribution deductions to .....tax credits (Jan'2012), refers to 'Tax Credit will be available to TAXPAYERS ...'
*SARS BRS - Medical Scheme Fees Tax Credit v100 (26/10/2011) in section 2) Medical Tax Credits, refers to 'the medical scheme fees paid by the EMPLOYEE...'
+One can only imagine that the status quo will continue where the whole premium (contributed by both the Employer and the Employee) will be eligible for the Tax Benefit. This implies that the Employee / Taxpayer will get the same tax benefit on Medical Aid contributions, irregardless whether it was made by the Employer or the Employee.
*Bear in mind however that contributions by the Employer represents a benefit on top of the Employee's salary which is Taxable, but that the Employer can deduct such contributions from it's own Taxable Income.
*Lastly, with the advent of a Tax Credit on Medical Aid contributions, does much of the above become academic, because the Tax Credit is a Tax amount, and largely unrelated to the contribution amount of the premium.
Pierre Leon Myburgh