For months, we’ve been waiting for SARS to explain exactly how its new medical tax credits system will work, when it comes into effect on 1 March 2012. And finally, on 24 January 2012, SARS published a document, setting out guidelines for employers.

 

The Tax Watch experts have distilled all the important bits of this document, so read on to find out exactly what to do!

 

If your employees aged younger than65 belong to a medical scheme…

…Then they’ll get a credit each month of:

 

• R216 each for the main member (your employee) and one dependent;
• R144 for each additional dependent.

 

If your employee is older than 65 but hasn’t retired…

…And you’re paying the contribution amount on his behalf; this becomes a taxable fringe benefit. BUT the 65-year-old can claim the full medical scheme contribution as a deduction through the payroll and as such would not suffer any impact.

 

If the 65 year old (and older) employee has retired, but you’re still paying the medical scheme contributions…

The fringe benefit remains non-taxable.

 

Update your payroll system before 1 March 2012 to avoid penalties

SARS won’t accept excuses from you! The onus is on the employer to make sure the company’s payroll system is updated, specifically to show:

 

• The correct credit amounts (as stated above);
• The correct tax treatment of employees older than 65 (make sure the system is calculating and deducting employees’ tax, as well as UIF and SDL levies correctly).

 

Caution! If you don’t update your system, you’ll be declaring and withholding the incorrect amounts of employee’s tax. SARS will pick this up, and you’ll be penalised!

 

Your employees will probably take home less pay

This change may not be very kind to your employee’s pocket… Some employees will take home less pay, because you’re withholding more tax from their salary. It’s a good idea to alert your staff to the changes. Send them a letter or an email explaining this new process and be prepared to answer their questions.

 

Use these NEW source codes on your employee tax certificates

SARS has made some changes to the existing source codes for deductions relating to medical aid contributions paid by the employer. SARS has also added two new source codes, which you can use.

 

Code 4474 is now for: Employer’s medical scheme contributions for employees not included under code 4493. As of 1 March 2012, the contributions paid by an employer on behalf of an employee 65 years and older and who hasn’t retired from that employer should also be reflected under this code.

 

Code 4493 is now for: Employer’s medical aid contributions for an employee who qualifies for the “no value” provisions in the 7th Schedule. PLUS SARS has re-activated source codes that it had previously deactivated. So you can start using these again! In fact, they’ll be made

available on eFiling again from August 2012.

 

Download these new source codes (www.centsaccountability.co.za) today!

 

Remember: Your staff will only really see the impact of the changes in 2013, when they have to submit their tax returns for the 2013 tax year (i.e. 1 March 2012 to 28 February 2013).

 

Likewise, you’ll see the changes when you prepare the IRP5s and IT3(a)s for your employees in 2013, before you submit the company’s documents to SARS in 2012.

 

Don’t delay! You’ve got a few weeks left to update your payroll system and get to grips with these changes.

 

Send us your tax questions!

Send your Tax and Vat queries to info@centsaccountility.co.za  and we will answer them  in the next issue.

 

Carrie-Anne Diniz

CentsAccountability

Source: Tax Bulletin – For more tax and VAT tips from some of SA’s top tax experts.

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