Medical Tax Credits
What are Medical Tax Credits?¶
The Medical Scheme Fees Tax Credit (also known as an “MTC”), applicable from 1 March 2012, is a rebate that reduces the normal tax a person pays. These tax credits are non-refundable and any portion that is not utilised in the current year (usually that amount which exceeds the normal tax payable) falls away and cannot be carried over to the next year of assessment.
The MTC value that an individual can deduct from their normal tax is determined by the number of dependents on the medical scheme plan.
The following table details the Medical Tax Credit Rate for the 2019 – 2024 tax years:
| Per month (R) | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 |
| For the taxpayer; or for a dependant who is a member of a medical scheme or fund, where the taxpayer him- or herself is not a member of a medical scheme or fund | R364 | R347 | R332 | R319 | R310 | R310 |
| For the taxpayer and one dependant; or in respect of two dependants where the taxpayer him- or herself is not a member of a medical scheme or fund | R728 | R694 | R664 | R638 | R620 | R620 |
| For each additional dependant | R246 | R234 | R224 | R215 | R209 | R209 |
If the monthly MTC exceeds the PAYE for the month, then the excess MTC which cannot be used, can be carried over to a subsequent month where the PAYE exceeds the MTC, provided that it is still within the same tax year. In other words, the YTD medical aid tax credits can be set off against the YTD PAYE. This is due to the annual equivalent method calculation used.
Example:¶
Larry, 35 years old, has worked for his employer since 1 April 2022 and earns R17 000 per month, the tax on which is usually R1 691.25. He belongs to a medical aid with a monthly premium of R2 500. The payment of the medical aid premium is administered by the company, but there is no employer contribution. The medical aid plan covers him, his wife and their child.
The MTC impacts the PAYE due as follows:
| Step | Amount (R) | Workings |
| Step 1: Calculate the PAYE before MTC | 1 691.25 | Given |
| Step 2: Calculate the monthly MTC for 3 members | 928.00 | R694 + R234 |
| Step 3: Calculate the PAYE liability after MTC | 763.25 | R1 691.25 – R928 |
As can be seen, the MTC reduces Larry’s PAYE liability – he will pay R762.25 per month instead of R1 691.25 per month.
How does it work on SimplePay?¶
SimplePay automatically calculates the MTCs for you once you add the Medical Aid system item to an employee’s payslip. It is, therefore, especially important that you enter the correct number of dependents when setting up the medical aid system item – an error could result in the employee underpaying PAYE.
For more information on adding the medical aid system item to a payslip, please see the following help page:
Please note that the system will automatically use the correct year’s MTC rate, depending on the tax year that the payslip falls into.
To view the impact that MTCs have on an employee’s PAYE for a particular payslip, navigate to an employee’s profile and click on Tax (PAYE) under Payroll to view the tax trace.
Claiming MTCs on Assessment¶
SARS stipulates that where an employer administers the medical aid payments for an employee, the MTC must be taken into account by the employer when calculating the amount of employees’ tax to be deducted or withheld from the employees’ remuneration. Employees may therefore not choose to defer the tax credits until the end of the year in order to receive a refund from SARS on assessment.
Individuals who have not had their MTC taken into account by an employer (for example, an individual who is retired and receives a pension or an individual who is self-employed) can claim the MTC on assessment by submission of an annual income tax return.
Additional Medical Aid Tax Credits¶
What are Additional Medical Aid Tax Credits?¶
An Additional Medical Tax Credit (AMTC), which further reduces PAYE payable for employees aged 65 and up, is included in payroll PAYE calculations. Previously, it could only be claimed as a refund on assessment. It is reported separately from the Medical Tax Credit on the IRP5. It is calculated using the following formula:
AMTC = [MAC – (3 x MTC)] x 33.3%
Where:
- AMTC is the Additional Medical Tax Credit
- MAC is the total Medical Aid Contributions made to the scheme
- MTC is the total Medical Tax Credit applicable to the individual
- 33.3% is a given fixed rate
Example¶
Wendy, 67 years old, has worked for her employer since 1 March 2022 and earns R25 000 per month, the tax on which is usually R2 874.58. She belongs to a medical aid with a monthly premium of R3 500. The payment of the medical aid premium is administered by the company, but there is no employer contribution. The medical aid plan covers her, her husband and their child.
The MTC impacts the PAYE due as follows:
| Step | Amount (R) | Workings |
| Step 1: Calculate the PAYE before MTC | 2 874.58 | Given |
| Step 2: Calculate the monthly MTC for 3 members | 928 | R694 + R234 |
| Step 3: Calculate the Additional MTC | 238.43 | [MAC – (3 x MTC)] x 33.3%= [3 500 – (3 x 928)] x 33.3% |
| Step 3: Calculate the PAYE liability after MTC | 1 708.16 | R2 874.58 – R928 – R238.43 |
Reporting¶
Medical Scheme Fees Tax Credits are reported under code 4116 on an employee’s IRP5 / IT3(a). The total value reported under this code should be equal to the amount that PAYE was reduced by.
More information on Medical Tax Credits can be found on SARS’ website here.