A medical aid contribution is the amount paid, by the employee and often the employer, toward membership of a registered medical scheme covering the employee and their dependants.
What it means
Unlike retirement contributions, which reduce taxable income before PAYE is calculated, medical aid contributions work through a Medical Tax Credit (also called Medical Scheme Fees Tax Credit) - a fixed rand amount per member and dependant that is subtracted directly from the PAYE otherwise payable, rather than from taxable income.
Where it fits in
Payroll applies the credit during the monthly PAYE calculation, reducing the tax withheld rather than the income it is calculated on. Where the employer pays all or part of the contribution on the employee's behalf, that portion is generally treated as a fringe benefit forming part of taxable income, with the credit then applied against the resulting PAYE.
Key rules
- Generates a Medical Tax Credit - a fixed amount per member and dependant - applied to reduce PAYE directly, not taxable income.
- Employer-paid contributions are typically a fringe benefit included in taxable income before the credit is applied.
- Credit amounts are set annually by SARS and differ for the first two members versus additional dependants.
- Distinct from out-of-pocket medical expenses, which an employee claims separately on their own tax return.
