Important Medical Aid Legislation for the 2012/2013 Tax Year

Effective the 1st of March 2012, Medical Aid Contributions will no longer be allowed as tax deductible for employees under the age of 65.

The Medical Aid Capped Amounts are being replaced with Medical Aid Tax Credits.

Employees who contribute towards a medical aid or whose employers contribute on their behalf will qualify for the following monthly Tax Credits:

• R230 for the Main Member

• R230 for the First Dependant / Spouse

• R154 for Each Additional Dependant

To implement the new Medical Aid Legislation on Pastel Partner Payroll it is imperative that you install Pastel Payroll 2013 Update 1 before processing your first Payroll Run for March 2012.  

IMPORTANT: You must have Pastel Payroll 2012 Update 2b installed before you can upgrade to Pastel Payroll 2013 Update 1.

68 Comments

Filed under Legislative Updates

68 responses to “Important Medical Aid Legislation for the 2012/2013 Tax Year

  1. Kobus

    Ha, so we can talk to you. Great.

    How exactly will this credit work. Will it be part of the PAYE calculation process. ie, the PAYE that will be displayed on the deduction tab will be after the deduction of the credits.
    Or will it be a separate item?

    PS: When is the 2013 update coming?

  2. madeleinv01

    Hi Kobus

    Thanks for your comment.
    The PAYE deducted from the employee’s gross earnings must be the total after allowing the tax credit.
    Here’s a sneak preview of what to expect from Pastel Partner Payroll 2013 Update 1 (available 01 March 2012).

    The PAYE amount, transaction 8001, will be the final deduction after allowing the tax credit. This is also the amount that will reflect on the employee’s payslip as the PAYE deduction for the period. A new transaction code, 8002, will however, display the total tax credit calculated for the period. This transaction will not print on the payslip or affect the total deductions at all as the portion of the credit that can be applied will already be taken into account in the PAYE calculation. We do show this value separately for reporting and reconciliation purposes and most importantly, for reporting on the employee’s tax certificate against the new
    deduction source code for medical aid tax credits, code 4116.

  3. Kobus

    Thanks for the detailed reply.

    Mostly thanks for replying, and so fast. Keep it up.

    Regards

  4. Hester

    Dear Pastel-team, how do I go about processing the tax credit if all employees have private medical aid but the company does not pay any part? Do these employees get the tax credit refunded into their accounts at financial year-end Feb 2013?

    • madeleinv01

      Hi Hester

      You will make use of exactly the same approach as you do now, by processing the private contributions against transaction code 7085. Although the value processed against this transaction is not deducted from gross earnings, it currently allows the capped amount and tax deduction to be applied. On Pastel Payroll 2013 Update 1, the only difference is that the credit will be applied instead.

      • Hester

        That is awesome news, thank you!

      • Hester

        Must I physically add in the amount the employee currently pays for private medical aid eg. R1863 under code 7085? Or must I merely add code 7085 under the mastefile?

      • Maritsa

        Dear Hester
        You must physically add in the amount of R1863 the employee currently pays for his private medical aid on his Default tab on Process…Payslip.

      • Hester

        Is it wrong if the payslip indicates under code 7085 “R1863” and under code 8000 “R-460” and under code 8002 “R460”? Or should I leave out code 8000 or 8002?

      • Madelein van der Watt

        Hi Hester

        Code 7085 – Private Medical Aid Contributions, will reflect the amount you loaded as the contribution paid by the employee directly to the medical aid.
        Code 8002 – Medical Aid Tax Credits, will display the value of the medical aid tax credit calculated based on the number of beneficiaries specified on the Employee Masterfile (R230 for the member, R230 for the spouse and R154 per each additional dependant). If code 8002 calculates a value of R460, I assume you have a number of 2 beneficiaries specified on the masterfile, in which case, the calculation is correct.
        Code 8000 – Medical Aid Tax Credit Applied, will calculate the portion of code 8002 that can be used to reduce the PAYE calculated for the period. In this case, it seems that the PAYE calculated is sufficient for the full credit of R460 to be applied. The value of R(460) that you see is then used to reduce the PAYE calculated for this period.

        If medical aid contributions are processed, you must make use of both codes 8000 and 8002 unless the employee is aged 65 or older.

        Regards

        Madelein

      • Hester

        Great stuff! I was about to panic big time when I sent you my query. Thanks.

      • Hester

        Does code 8000 and 8002 also apply when the employee is the only one on a private medical aid? Should the amount then eg. be 8000 -R230 and 8002 R230? Or does just 8002 apply?

      • Madelein van der Watt

        Hi Hester

        The Medical Aid Tax Credit applies to any person younger than 65 who contributes towards a medical aid fund – regardless of whether the contribution is paid by the employer on behalf of the employee or deducted from the employee’s earnings or paid directly by the employee as a private contribution. In any of these cases, when a payroll administrator processes a medical aid contribution the medical aid tax credit must be applied by processing transaction codes 8000 and 8002. The value of the medical aid tax credit is always determined based on the number of beneficiaries covered by the fund that the contribution relates to. If only one member listed on the medical aid, then the medical aid tax credit will only be R230. If two members listed, the credit will be R460. If three members listed, the credit will be R614 and then keep adding R154 for each additional member.

      • Hester

        Thank you.

  5. Saroj

    Hi There!
    Please inform how do we enter the no. of dependants that an employee have in order to get the right tax credits against the medical aid contributions.
    Saroj

    • madeleinv01

      Hi Saroj

      The medical aid dependants can be specified on Edit Employee Masterfile…Statutory…Medical Aid. Please remember to include the main member in the total that you provide.

    • Hi Saroj,

      In the Edit Employee Masterfile in the Personal Tab you have the option to add the number of dependants.

      Hope this helps.

  6. Kobus

    Hi

    Can you tell us more about the new ‘Frictionless Update’ technology.
    I assume it will happen automatically in the background.

    Do you have to be “in the program” for this to happen, or does it happen in the background without you even having to be in the payroll software.

  7. madeleinv01

    Hi Kobus

    If you have installed Pastel Payroll 2012 Update 2b and you have an active internet connection, each time you open Pastel Payroll it will first check for new updates online. If a new update is available you will be prompted to download this update. If you select yes,the latest version will be downloaded and installed for you. Once Pastel Payroll launches after the download, you will have te latest version installed.

  8. Kobus

    Cool🙂

  9. Hi
    I need to be crystal clear about the new medical aid tax credits. Our medical aid contributions form part of the total salary package, before tax. There are no company contributions. So if an employee earns R9000 per mth with a medical aid contribution of R892 per month. Then their basic salary will reflect R8108 and the medical aid contribution will reflect in a code created for it. How does the new tax credits affect this and do I need to change the way the salary is set up?

    • madeleinv01

      Hi Romy

      The fact that the medical aid contribution forms part of a total package and that you are reducing the employee’s salary amount by the medical aid portion, defines the contribution as a company contribution. The contribution of R892 must be included in gross taxable earnings as a fringe benefit. The medical aid tax credit will then be applied based on the number of beneficiaries covered by the medical aid.
      If the employee received a simple basic salary of R9000 and you deducted R892 for his medical aid, it would mean that the employee is taxed on the full salary of R9000 before the credit is applied. The employee cannot receive a greater benefit just because his pacakge is structured to include a medical aid portion – in this scenario the employee must still be taxed on R9000 before the credit is applied by adding the fringe benefit of R892 to the cash component of R8108.

  10. Thank you very much. This makes it much easier for me to explain to our employees.

  11. Yvonne

    Some of our employees have a private medical aid, it doesn’t show on their payslips as the company doesn’t pay towards it. What happens with them?

    • madeleinv01

      Hi Yvonne

      You may still allow the medical aid tax credit even if the employee pays the medical aid contribution privately.
      Once you have upgraded to Pastel Payroll 2013 Update 1 and you have processed a Legislative Release to activate the new transactions and calculations, please make sure that the total number of medical aid beneficiaries are loaded on the employee’s masterfile. Process the private medical aid contribution against transaction code 7085 and remember to also load transactions 8000 and 8002 to allow the credit and allowable portion to calculate.

  12. michele

    Please advise on the salary sl;ips under benefits should the medical aid fringe benefit still show here?

  13. Zodwa

    Good day Pastel team.

    I just wanna make sure; which code do i use for medical aid if the company pays 40% of the medical aid and pay directly to employees(private medical aid).

  14. Ursula Kerr

    Hi Pastel team,

    For employees that have their own private medical aids – previously we have not processed any of there medical aid details [amounts+ dependents] as they preferred to get the tax credit back from SARS in lump sum rather than see the small difference each month.
    With this new tax credit – will they still be getting a tax refund once they have submitted their personal tax as before ?
    Do we have to process there medical aid details?
    What is the purpose of the tax credits and why did SARS change it?

  15. Kerr

    hi,

    how does the new Tax credit effect people over 65?
    eg – working members of a company?

    • Hi Kerr,

      We have a very nice example in the pdf document attached to this topic. Please download and see details on page 7 of the document.

      Basically the employee older than 65 who is employed that gets medical aid or portion of medical aid paid by the company, becomes a fringe benefit transaction now.

      Full medical aid amount is tax deductible.

      • Sylvia

        What source code should be used on the IRP5 for a person 65+

      • Maritsa

        Dear Sylvia

        You can use transaction code 9092 – Medical Aid – Retired Employee, that is linked to Tax Total 4493 – Medical Aid – Retired Employee for the company contribution.

        Regards

        Maritsa

  16. Hi Madelein

    According to your previous comment on 06/03. I understand how the medical aid should work. I have looked at your publication on the medical aid tax credits and which pastel codes to use, but I’m not 100% sure which ones to use in our situation. Please help.

    • Madelein van der Watt

      Hi Romy

      In your situation, the medical aid contribution must be processed as a company contribution. The company is still paying the amount but instead of towards the basic salary, it goes towards the medical aid contribution. At the end of the day, the money comes out of the employer’s pocket and not the employee’s. Therefore you need to process the contribution using code 9090 and also 6172 to allow the fringe benefit. Process codes 8002 and 8000 to calculate and allow the medical aid tax credits.

  17. Fransie Versfeld

    Thank you so much – problem solved!

  18. Samantha

    Hi, please tell me is the Medical Aid Fringe Benefit still applicable?

    • Madelein van der Watt

      Hi Samantha

      Definitely yes! The fringe benefit is still applicable and must equal the total amount contributed by the employer on behalf of the employee. Effective 01 March 2012, the fringe benefit also applies to employees 65 years and older.

  19. Kobus

    Hi

    As a director Pastel does not calculate site, only PAYE. (I think)

    I noticed that the directors have a negative site value for both months of the year so far.

    By doing a “view calc” of Site it seems to be related to the medical credit.

    So the directors will end up with negative site at year end. I am not even sure if an IRP5 allows for that.

    Is this negative site thing OK. (or am I missing something)

  20. Madelein van der Watt

    Hi Kobus

    Directors tax is always reported as PAYE only and no SITE portion applies to employees’ tax calculated on a director’s actual or deemed earnings.

    Effective 01 March 2012, SITE no longer applies to employees’ tax at all as the income tax threshold now exceeds the SITE limit, therefore the SITE portion of employees’ tax will always be zero.

    As we no longer require the SITE calculation, we now utilise transaction code 8000 for the Medical Aid Credit Applied calculation. PAYE is calculated using transaction code 8001 while the medical aid tax credit the employee is entitled to according to the number of dependents is calculated using transaction code 8002. A credit that exceeds the PAYE liability cannot be allowed, therefore transaction code 8000 allows only the portion of the medical aid tax credit that does not exceed the PAYE calculated.

    The negative value you see is in fact not SITE but rather the portion of the medical aid tax credit allowed to reduce the total employees’ tax.

    • Kobus

      Thank you, you’re a star!

      (still a little unsure of tr code 8002 in your reply)

      • Madelein van der Watt

        Hi Kobus

        No problem, let me explain by using an illustrative example:

        An employee earning R6000 per month contributes R500 towards a medical aid. He has no spouse or dependents.

        His PAYE deduction calculated on a salary of R6000 is R126.67, therefore the value of transaction code 8001 will be 126.67
        For one member on the medical aid, he qualifies for a medical aid tax credit of R230, therefore the value of transaction code 8002 will be 230.00

        His total PAYE liability must be the calculated PAYE less the medical aid tax credit which seems to be 126.67 – 230 = -103.33
        The employee is not entitled to a credit of 103.33 as his PAYE liability is only 126.67, therefore the value of transaction code 8000 is limited to the PAYE calculated; -126.67
        When we add transaction codes 8000 and 8001 the end result is zero and this is what you will see as PAYE on the EMP201, EMP501 and IRP5 reports.

        Next month, the same employee might earn a bonus of R6000 which results in an increase in the PAYE calculated. Now he will have enough PAYE to allow the current month’s medical aid tax credit of R230 plus the R103.33 he did not receive as a credit in the previous month. The value for transaction code 8000 will now be -333.33.

        Pastel Payroll is able to allow the recovery of credits not allowed previously because we calculate the full credit entitled using transaction code 8002. This way we can compare the medical aid tax credit an employee is entitled to to-date to the PAYE liability to date.

  21. Hi Madelaine,

    Can you confirm if we can claim back previous months (Mar-May2012), see below
    R230 p/ member
    Can we override code 8000 in June to show R920 (R230X4mths)
    Thanks
    Heather

    • Madelein van der Watt

      Hi Heather

      You are allowed to claim medical aid tax credits for previous months provided:

      1. Those months are within the current tax year
      2. The employee contributed towards a medical aid fund during those months
      3. The correct number of medical aid dependants are used in calculating the medical aid tax credit for each month

      You can override transaction code 8000 on the Deductions tab of the Process Payslip screen to process the additional credits in this month only.

      Regards

      Madelein

  22. Nikki White

    Hi Madelein,

    If I implement the tax credit system, does the company contribution amount fall away, or does the employee receive both the tax credit as well as the company contribution?

    Thank you
    Nikki

    • Madelein van der Watt

      Hi Nikki

      The Medical Aid Tax Credit system is a tax benefit the employee receives according to Income Tax Legislation. The contribution payments are determined by your company policy and the medical aid fund rules. The fact that the employee receives a tax credit should not affcet the way the contribution is made. If the company does pay the contribution on behalf of the employee, the contribution is taxable as a fringe benefit but the employee will receive the medical aid tax credit based on the number of dependants covered by the policy. There is no double benefit because even if the employer does pay the contribution, the employee will still be taxed on the contribution prior to receiving the tax credit.

      Regards

      Madelein

  23. Wasilah

    Hi Madelein,

    Our company does not provide for any medical aid benefits. I am just curious though, how does the new medical aid tax credit affect the manual calculations including the capped amounts and fringe benefit for medical aid?

    Kind regards
    Wasilah

  24. Madelein van der Watt

    Hi Wasilah

    The capped amount calculation that was used to deteremine the tax deduction is no longer applicable. Instead, any amount contributed by the employer on behalf of the employee towards a medical aid is taxed as a fringe benefit while the employee then qualifies for a reduction in PAYE based on the number of dependants covered by the fund. Remember that the tax credit is also applied where employees contribute towards a medical aid themselves.

    Regards

    Madelein

    • Colin

      So If the employer contributes to a medical scheme on behalf of an employee, but there is nothing on the payslip that shows a medical contribution or deduction, does this employee still get the tax rebate?

      • Madelein van der Watt

        Hi Colin

        The contribution won’t show as a deduction and you do not have to display the company contribution value but you have to include the contribution as a taxable fringe benefit. As a result, a medical aid tax credit should be applied as the employee is being taxed on the contribution as required by legislation.

        Regards

        Madelein

  25. Karen

    Hi Madelein

    We are a very small company and it’s the first time we dealing with medical aid contributions and have no idea what the regulations are towards deductions/tax credits. One of our staff members earn a Gross Salary of R20K his monthly medical aid contribution is R944.00 (paid by the employee himself) Please explain what the breakdown would be on his payslip and what the PAYE should be calculated on. .his the only member on his medical aid.

    • Madelein van der Watt

      Hi Karen

      You are able to allow the medical aid tax credit based on his personal contribution. Process the private medical aid contribution against code 7045 and specify the one dependant on the Statutory tab of the Employee Masterfile. Remember to load codes 8002 and 8000 to calculate and allow the appropriate tax credit which will reduce the PAYE liability

      Regards

      Madelein

  26. Anne

    Hi Madelein

    If a particular employee has had the wrong medical aid amount loaded on the system for the last 3 months (paid by the employer), how does one correct this?
    Thanks,
    Anne

    • Maritsa

      Dear Anne

      All you need to do is load the correct amounts on the default tab and then calculate the under\ overpayment and add this to the transaction on the deduction and company contribution tabs. Pastel Payroll will automatically correct the medical aid tax credits and deductions associated with them.

      Kind Regards

      Maritsa

      • Anne

        thanks, Maritsa. Just to clarify, it was the incorrect medical aid contribution and fringe benefit loaded, even though the employer was paying the correct amount to the medical aid monthly.

  27. Hi Anne

    You will still have to do the correction in the payroll to correct the benefit and tax portion for the employee. Just remember not to pay the incorrect amount over to the medical aid when you pull the reports at the end of the month.

    Kind regards

    Maritsa

  28. wendy

    Hi,

    I’d like to find out if medical aid which is fully contributed by the company for a member/director, and doesn’t affect his basic salary, is still taxable. This is truly confusing, please help. Thanks.

    • Madelein van der Watt

      Hi Wendy

      Yes, anything the company contributes on behalf of an employee (including a director or member) towards a medical aid fund is 100% taxable as a fringe benefit. The employee will however qualify for a tax credit based on the number of medical aid dependants to reduce the PAYE liability.

  29. arliet

    Hi

    Medical aid contribution (private medical aid – no company contribution) amount was posted using code 7085 for the first 2 periods of this financial year.
    The employee never reported that he cancelled his medical aid how do I do the correction in period 12

    arliet

    • Madelein van der Watt

      Hi Arliet

      You can process a corrective transaction in period 12. Add transaction code 7085 to the Deductions tab of Process Payslips. Take the YTD amount displayed on the transaction line and enter the same amount as a negative in the Amount column to reverse the total contribution processed to date. The negative deduction will result in the total value of the contribution for the year to revert to zero and the necessary tax adjustments will be calculated automatically. The employee will see an increase in the PAYE deduction for period 12 as the medical aid tax credits allowed in the first two periods of the year will be reversed as a result of the corrective transaction processed.

      Regards

      Madelein

      • Kavita

        Hi Madelein
        I was wondering if u can maybe assist me.
        I’m studying payroll and sars returns, I have an old text book with the old medical aid rates of 720 & 440. I hav a question where I have to calculate the taxable value of medical aid. The question reads, The followin tax rebates apply to medical fund contributions: R230 for sole member, R230 for first additional dependent, an additional R154 is allowed as a REBATE for each additional dependent other than the first dependant. Question: G.Snel(49) has 4 dependants and his monthly contribution paid to medical aid is R3961. Calculate his taxable value of medical aid?

        I would appreciated your help.
        Tnx
        Kavita

      • Madelein van der Watt

        Hi Kavita

        The text book you have still refers to older legislation where a tax deduction was allowed for medical aid contributions based on the monthly capped amounts. The latest legislation no longer caters for a reduction in taxable earnings but rather a reduction of PAYE by allowing medical aid credits or rebates.
        Based on the rebate system, you need to include the full medical aid contribution in taxable remuneration, determine the PAYE value and then reduce the PAYE with the medical aid tax credits allowed.

        In this case, the taxable value is the full medical aid contribution of R3961 but a tax rebate of R768 will be allowed after calculating the PAYE liability.

        Good luck with your studies!

        Regards

        Madelein

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