It's bonus time!
UITENHAGE - This last year has been a tough one, and many people would have got to the end of it thankful to still have their jobs, never mind any prospect of a bonus. But for those fortunate few who will be receiving a little extra in the November or December pay packet this year, be warned - for this is also "bonus time" for the South African Revenue Service (Sars).
What shocks many people is the amount of tax that is deducted from a bonus - an amount seemingly disproportionate to the amount of the bonus, and certainly significantly more than the tax one pays on a normal monthly salary.
So how is the tax on the bonus calculated? To understand this, we need to briefly overview how our tax system works.
The first thing to remember is that tax is calculated based on annual earnings. The tax that you pay each month is based on an estimate of annual earnings, and assumes that you will be earning the same amount every month throughout the year.
This means that, for instance, if your monthly salary is R20 000, your payroll department assumes that this will be your monthly income for the full year, and bases its calculations on this amount, being R240 000 for the year.
According to the tax tables published for the year ended 28 February 2010, the annual tax payable on R240 000 is calculated as follows:
| Tax on the first R210 000 | 43 260.00 |
| Tax on balance (R240 000 - R210 000) x 30% | 9 000.00 |
| 52 260.00 | |
| Less: Primary rebate | (9 756.00) |
| Tax liability for the year | R42 504.00 |
The monthly equivalent, which will be deducted from your normal salary, is R3 542.
Now let's look at what happens when your bonus is taken into account. Bear in mind, as we have already mentioned, that tax is calculated annually. This means that if your bonus is equal to one month's salary, ie, R20 000, your annual taxable income now becomes R260 000 and your tax is calculated as follows:
| Tax on the first R210 000 | 43 260.00 |
| Tax on balance (R260 000 - R210 000) x 30% | 15 000.00 |
| 58 260.00 | |
| Less: Primary rebate | (9 766.00) |
| Tax liability for the year | R48 504.00 |
The difference in tax is R6 000, which is the amount that will be deducted from your bonus. In this particular scenario, the tax on your bonus is some 69% more than the tax deducted on your normal salary.
One way to soften the blow, assuming that your 13th cheque is guaranteed, is to have an additional R500 in tax deducted each month, which will then enable you to receive your full bonus. A good option if you are not disciplined and don't mind lending money to Sars, interest-free!
A far better option is to take this extra R500 and pay it into your bond, and then withdraw this amount once you receive your bonus. Better still, leave it in the bond, take the medicine on the bonus, and pay your house off early.
Write to Steven Jones: steven@moneywebtax.co.za
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Comments
South- African-Redistribution- Service....casue that money aint ending up where it's supposed to....
by Johnny V on December 02 2009, 12:56
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We just paid our employee her bonus and will forward this article to her so she can understand why it was taxed as it was. I never was much good at explaining things.
Copy & paste...
Cheers!
by Johnny B on December 02 2009, 15:01
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it's absolutely ridiculous... a bonus or 13th cheque is supposed to be enjoyed, it's given and earned as a good gesture based on work performance, so why should SARS benefit from it? many taxpayers are unhappy and opposed to these hectic deductions, it . .more
by Jessie on March 26 2010, 11:39
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