Tax Relief on Medical Expenses

Workers and employers sustain medical costs which negatively affect their disposable income.

To curb this burden on employees and employers, there various tax incentives on medical expenses as well as medical contributions. The tax incentives include tax credits, exemptions and deductions.

Tax exemptions and credits are only applicable to employees whereas tax
deductions are granted to employers. Tax credits refer to the amount of money that a tax payer can subtract from taxable income. It increases disposable income of a tax payer.

Basically, medical cost are categorized into two classes namely medical contributions and medical expenses.

Medical expenses refers to hospitalization cost, treatment costs, drugs as well as purchase, hire, repair of an invalid appliance or fitting. Invalid appliance should be used by taxpayer or his spouse or any child by reason of his or her mental or physical defect or disability so as to qualify for tax credits.

In the case that the employer has paid for medical expenses on behalf of the employee, he/she is granted a tax deduction for the calculation of his tax liability. To the employee, the amount paid by the employer represent a fringe benefit however the law exempts from tax this benefit in the hands of the employee.

On the other hand, an employee gets 50% tax credit in respect of medical expenses incurred by him/her for himself or herself, his/her spouse or child. Only expenditure paid in respect of prescribed drugs are granted tax credit.

The employee should forward the supporting documents such as original invoice of the incurred medical expense, which has not been recovered from any source to the employer to facilitate the claiming of the credit. The bill will be entered in the payroll and the employee’s payable tax will be reduced by 50% of that bill.

When an employer pays medical cost out of his own funds on behalf of his employees it is called a medical contribution. In Zimbabwe medical contributions are made to medical associations such as CIMAS, PSMAS and Fedelity depending on the preference of employers.

Medical contributions on behalf of employees are exempted from PAYE. When computing tax liability in the hands of the employer, medical contributions are deductible which is a benefit as this minimizes tax liability of the employer. However, it should be noted that for medical
contribution to qualify as a deduction they should be paid to approved medical aid society.

Conclusively, when an employee make a contribution to medical aid society from his disposable income he qualifies for 50% tax credit as long the contribution was made to recognized medical aid society. If one is not a permanent resident of Zimbabwe he cannot claim any medical
expense, however he can only claim medical contribution made to a medical aid society.

If the taxpayer is deceased and the estate has made any payment of medical expenses those expenses should be claimed in the person’s pre-death period of assessment.

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