Many employees don’t understand the complex tax calculations made by their companies and they often question these deductions.
According to tax specialist Tanya Tosen, there are five key things an employee needs to understand when it comes to their tax.
Cost-to-company is taxed higher than a basic-plus remuneration structure
This is untrue. The model used makes no difference. According to Tosen, when converting a company payroll from basic-plus to cost-to-company, neither the employee nor the business should be worse off in the end.
My entire income is taxed according to my current marginal tax rate
This is a common misconception and completely wrong.
South Africa has a progressive tax system. This means an employee’s total remuneration is divided into several portions called “tax brackets”.
The first portion is taxed at the lowest rate of 18% and subsequent portions are taxed at progressively higher rates, up to 45%.
For example, for the 2022 year of assessment a worker earning above R467 500 per annum is taxed at 36% only on the portion exceeding that base amount.
Portions below that base are taxed according to their lower associated marginal tax rates. It is more helpful to look at your average tax rate.
If my increase pushes my income into a higher tax bracket, I’m losing money because of a higher tax rate.
Because of the progressive tax system, if an increase pushes an employee’s income into a higher tax bracket, only that portion exceeding the bracket’s base amount will be taxed at the higher rate.
Any amount below it continues to be taxed at the rates tied to each lower bracket.
My annual bonus is taxed differently from the rest of my income
Employees are taxed on their total yearly earnings, which can include a bonus or other benefits.
While their bonus increases their total annual earnings and may even push them into a higher tax bracket, companies typically factor this into their calculations in advance.
I’m supposed to get an age-dependent rebate
South African tax offers three age-related rebates, but most working people only qualify for the first, namely the primary rebate, which applies to everyone below the age of 65.
For the 2022 tax year (i.e. the tax year ending on 28 February 2022) the primary rebate is R15,714. Those over 65 receive an additional rebate of R8,613, and those over 75 get another R2,871 off their annual tax bill.
The government usually increases these rebate amounts each tax year (usually in line with inflation).