By Anja van den Berg
Employees’ tax (PAYE) is routinely deducted by the employers or retirement funds. However, SARS reminds taxpayers who receive income from more than one source of employment or annuity that the PAYE may not be enough to cover their final tax assessment.
SARS explains the South African tax system is based on the principle of adding together all sources of income of a taxpayer into a single sum and applying a progressive tax-rate table to determine the taxpayer’s final tax liability on assessment.
A progressive tax-rate system means that the more income is earned, the higher the marginal tax rate, and more tax is paid on assessment.
By deducting PAYE every month, the employer or retirement fund assists taxpayers in paying their tax liability in advance. When only one employer or retirement fund is involved, the total PAYE deducted monthly should be equal to the tax liability on assessment.
Typically, this should result in no extra tax due on appraisal. However, where more than one employer or retirement fund is involved, each of them deducts the correct amount of PAYE on only the salary or pension and/or annuity they each pay.
When the income from all sources are added and the correct tax rate applied, it may result in an additional amount of tax to be paid on assessment.
The Income Tax Act allows a taxpayer to make additional voluntary tax payments to assist taxpayers in this situation. Taxpayers receiving a salary and pension may make a written request to one or more employers (including retirement funds) to deduct extra monthly PAYE. A provisional taxpayer may instead pay a higher provisional tax on estimated income when provisional tax is due.
In this way, a taxpayer can reduce the additional amount of tax payable when the annual income-tax return is assessed.
A taxpayer has two options to pay more PAYE voluntarily:
The first option is a simplified mechanism that involves applying a single percentage at which PAYE should be deducted by all employers and retirement funds that pay a salary or pension and/or annuity to the taxpayer.
The second option is to increase the amount of PAYE deducted by one or more employers or retirement funds, but it is slightly more complex to calculate. The taxpayer may need assistance from SARS, their tax practitioner or the payroll personnel at their employer or retirement fund.