I would like to find out if your medical aid contribution that gets deducted from your salary is included when being taxed?
Cost to Company R 16000
Provident Fund R 1600
Medical Aid R 3860
Basic Salary R 14400
What should the taxable earnings be?
Based on the information provided in the question, it is clear that the Provident Fund Contribution of R 1600 is included in the total package of R 16000 as a Company Contribution, leaving an amount of R 14400 to be paid out as Basic Salary.
In this case, the medical aid contribution is deducted from the Basic Salary and is not contributed by the employer therefore the taxable earnings will be R 14400 as medical aid contributions are not tax deductible.
If the medical aid contribution was included in the total package as an employer contribution, we would have seen the Basic Salary reduced to R 10540 but taxable earnings will remain at R 14400 as the employer contribution must be added to the salary as a fringe benefit for tax purposes.
The employee will however receive a reduction in the final PAYE liability in the form of a tax credit. Medical aid contributors qualify for this credit and the value of the reduction is based on the number of dependants covered by the medical aid. For the current tax year, effective 01 March 2015, the value of the medical aid tax credits per month are:
R 270 for the main member
R 270 for the spouse
R 181 for each additional dependent
If we assume that the contribution of R 3860 per month is for a family of 3, this employee will receive a reduction of R 721 on the monthly PAYE deduction