Understanding Basic Medical Tax Benefits in South Africa

Healthcare costs can place a significant financial burden on individuals and families. To help offset some of these expenses, South African taxpayers are allowed certain tax benefits related to medical aid contributions and qualifying medical expenses.

Understanding these benefits can help taxpayers maximise their tax relief when filing their annual returns.

This article explains the two primary tax benefits related to medical expenses in South Africa: the Medical Scheme Fees Tax Credit (MTC) and the Additional Medical Expenses Tax Credit (AMTC).

Medical Scheme Fees Tax Credit (MTC)

The Medical Scheme Fees Tax Credit is the most common form of tax relief available to taxpayers who contribute to a registered medical scheme (medical aid).

Rather than a traditional deduction that reduces taxable income, the Medical Scheme Deduction is a tax credit. This means it reduces the actual amount of tax payable rather than the income on which tax is calculated.

Who qualifies?

Any taxpayer who pays contributions to a registered medical scheme for themselves and/or their dependants may qualify for this credit.

How the credit works

The tax credit is calculated as a fixed monthly amount per beneficiary covered by the medical scheme.

Beneficiaries include:

• The taxpayer

• The taxpayer’s spouse

• Registered dependants on the medical scheme

Typically, the credit structure works as follows:

• One amount for the taxpayer

• The same amount for the first dependent

• A smaller amount for each additional dependent

Currently, the fixed monthly amount is R 376 for the primary member and the first dependant for the 2026/2027 tax year of assessment. Additional dependants thereafter qualify for a benefit of R 254 per month.

The credit is usually applied monthly through the PAYE system if the taxpayer is employed and their employer processes medical scheme contributions through payroll.

Example

If a taxpayer contributes to a medical scheme for themselves, a spouse, and one child, the credit will apply to all three beneficiaries. The total credit reduces the tax payable for that year.

Therefore, a medical scheme member plus a spouse and one child will thus qualify for a medical tax credit of (R 376 + R 376 + R 254 = R 1 006) per month for 12 months. Thus, amounting to R 12 072 per year for the 2027 year of assessment.

Additional Medical Expenses Tax Credit (AMTC)

The Additional Medical Expenses Tax Credit provides further relief for taxpayers who incur qualifying out-of-pocket medical expenses or who contribute significantly to medical aid.

This credit applies in situations where:

·      Medical scheme contributions exceed certain thresholds, or

·      The taxpayer incurs unreimbursed medical expenses.

Qualifying medical expenses

Expenses that may qualify include:

·      Payments to medical practitioners such as doctors, dentists, and specialists

·      Hospital expenses

·      Prescription medication

·      Medical services such as physiotherapy, psychology, and occupational therapy

·      Medical devices such as hearing aids, wheelchairs, and prosthetics

·      Certain disability-related expenses

Calculation of the credit

The AMTC is calculated using a formula that considers:

·      Medical scheme contributions

·      Out-of-pocket medical expenses

·      The taxpayer’s taxable income

·      Whether the taxpayer or their dependant has a disability

·      The taxpayer’s age (special rules apply for taxpayers aged 65 and older)

The calculation differs across three main groups:

1.     Taxpayers under age 65 without disabilities

• Relief is limited and generally applies only when qualifying expenses exceed a certain percentage of taxable income.

• For taxpayers under 65 without a disability, the AMTC is calculated as:

• Medical scheme contributions exceeding four times the MTC, plus

• Qualifying medical expenses.

• The total of these expenses must exceed 7.5% of taxable income, and 25% of the excess may be claimed as a credit.

For Example, Lerato (age 40) had a taxable income of R400 000 for the year. She also had medical aid contributions of R70 000 per year and out-of-pocket expenses of R50 000. Lerato, her spouse, and 2 children are members of the medical aid.

The medical tax credit is thus (R 376 + R 376 + R 254  + R 254) X 12 = R 15 120 per year.

Step 1: Calculate four times the MTC

4 × R15 120

= R60 480

Step 2: Determine excess contributions

R70 000 – R60 480 = R 9 520

Step 3: Add qualifying medical expenses

R9 520 + R50 000 = R59 520

Step 4: Calculate 7.5% of taxable income

7.5% × R400 000

= R30 000

Step 5: Calculate the portion qualifying for deduction

R59 520 – R 30 000 = R 29 520

Step 6: Calculate 25% credit

25% × R29 520 = R7 380

Result: Lerato qualifies for an Additional Medical Expenses Tax Credit of R7 380.

2.     Taxpayers aged 65 and older

• A more favourable calculation applies.

• A larger portion of medical expenses may qualify for the credit.

• 33.3% of qualifying medical expenses, plus

• 33.3% of medical scheme contributions exceeding three times the MTC.

Assume Mr Naidoo (age 68) had medical scheme contributions of R70 000, out-of-pocket medical expenses of R20 000 and an MTC of R14 640.

Step 1: Calculate three times the MTC  3 × R14 640 = R43 920

Step 2: Calculate excess contributions  R70 000 − R43 920 = R26 080

Step 3: Add qualifying expenses  R26 080 + R20 000 = R46 080

Step 4: Apply 33.3% credit  33.3% × R46 080 = R15 346

Result:

Mr Naidoo qualifies for an Additional Medical Expenses Tax Credit of approximately R15 346.

3.     Taxpayers or dependants with disabilities

• The most favourable calculation applies.

• If the taxpayer, spouse, or child has a recognised disability, the same favourable calculation as for taxpayers over 65 applies. This means that the 7.5% income threshold does not apply.

• A broader range of expenses may qualify, including disability-related costs such as special schooling, home modifications, and assistive devices.

Disability vs Physical Impairment

For tax purposes, a distinction is made between disability and physical impairment.

A disability generally refers to a moderate to severe limitation in a person’s ability to function or perform daily activities due to a physical, sensory, communication, intellectual, or mental condition.

To claim disability-related tax benefits, the condition must usually be confirmed by a registered medical practitioner and supported by the relevant documentation.

A physical impairment, while still limiting, does not meet the threshold of a disability and therefore qualifies for fewer tax benefits.

Record-Keeping Requirements

Taxpayers should keep proper records of all medical expenses in case supporting documents are requested during verification or audit.

Important records include:

• Medical aid tax certificates

• Receipts for medical services

• Pharmacy invoices

• Proof of payments

• Disability confirmation forms where applicable

Generally, taxpayers should retain these documents for at least 5 years from the date the income tax return is submitted.

Common Mistakes to Avoid

When claiming medical tax benefits, taxpayers should be mindful of common errors, including:

• Claiming expenses already reimbursed by the medical scheme

• Claiming non-qualifying expenses such as cosmetic procedures

• Failing to keep supporting documentation

• Confusing tax deductions with tax credits

Understanding the difference between these benefits helps ensure that claims are submitted correctly.

Conclusion

Medical tax benefits in South Africa provide important financial relief for individuals who incur healthcare expenses. The Medical Scheme Fees Tax Credit reduces tax payable for taxpayers who belong to a medical scheme, while the Additional Medical Expenses Tax Credit offers further relief for high medical costs.

By understanding how these credits work and keeping accurate records, taxpayers can ensure they receive the full tax benefit available to them when submitting their annual tax returns.