Personal Income Tax – Income from two sources

What to do if you receive income from two sources?

Taxpayers who receive income from more than one source of employment or pension often mistakenly believe that the employees’ tax (PAYE) deducted by the respective employers or pension funds is enough to cover their ultimate tax liability on assessment.

It is important to understand that 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 in determining the tax liability of the taxpayer on assessment. This means that as more income is earned, the higher the marginal tax rate is and more tax is paid on assessment.

By withholding PAYE, the employer or pension fund is assisting a taxpayer to prepay his or her tax liability on assessment. When only one employer or pension fund is involved, the total PAYE deducted monthly should be equal to the tax liability on assessment, and typically should result in no extra tax due on assessment. However, where more than one employer or pension fund is involved, each of them withholds PAYE on only the salary or pension they respectively pay which may result in an under-deduction and therefore an additional amount of tax to be paid on assessment.

An example

The table below gives an example of how the combined taxable income is calculated in the case of a taxpayer who is over the age of 65 years and receives a salary of R200 000 and a pension of R120 000.
 
​Salary      Pension       ​ Assessment    ​
Taxable income​ 200 000​ ​120 000 ​320 000
Normal tax payable​ ​19 578 ​2 770   ​52 641
Less: Tax paid in the form of PAYE withheld by employer and pension fund​ ​19 578 ​2 770 ​22 348
Additional amount of tax to be paid on assessment​ 30 293
 
 
As you can see, after submission of the annual tax return by this individual, the total tax liability on assessment is significantly higher than the total PAYE that was withheld by the employer and pension fund during the year. This results in a large amount which has to be paid in on assessment because too little tax was deducted monthly by way of PAYE.

To help taxpayers avoid this situation, the Income Tax Act allows a taxpayer to make additional voluntary tax payments. Taxpayers receiving a salary or pension may request one or more employers and pension funds to deduct additional monthly PAYE. A provisional taxpayer may instead pay a higher amount of provisional tax.
In this way a taxpayer is able to reduce the additional amount of tax payable when the annual income tax return is assessed.

How to arrange for a voluntary additional PAYE deduction?

 
A taxpayer has two options to voluntarily pay more PAYE. The first option is a simplified mechanism which involves applying a single percentage at which PAYE should be deducted by all employers and pension funds that pay a salary or pension to the taxpayer. The second option involves increasing the amount of PAYE deducted by one or more employers or pension funds but is slightly more complex to calculate. It may require that the taxpayer get assistance from SARS, their tax practitioner or the payroll personnel at their employer or pension fund.

Option 1 – increasing the percentage at which PAYE is deducted by all employers and pension funds.

To enable the employers and pension funds to implement additional PAYE deductions the following steps are required:
  • Firstly, estimate the total taxable income for the current tax year by combining all your different salaries and pensions.
  • Secondly, identify the recommended percentage at which tax should be deducted, based on the combined estimated taxable income by referring to the table below. The table sets out the percentage at which tax should be withheld at the various combined taxable income levels. This table is simply an estimate of the liability, and it is still possible that there may be an under or over recovery of tax when using these percentages.
  • Thirdly, request the employers and pension funds to apply (as a minimum) the applicable percentage to the salary or pension paid by each of them. For example, if there is an employer paying a salary and two pension funds, then all three should deduct tax at the same percentage.

 

Combined taxable income from all sources     ​ ​
​ Recommended percentage at which tax is to be deducted by employersand pension funds for the 2014 tax year (1 March 2013 to 28 February 2014) ​ ​
​Under the age of 65 ​65 years and older but under
the age of 75
​75 years and older
Up to R67 111​ ​0% ​0% ​0%
R67 112 to R104 611​ ​4% ​0% ​0%
​R104 612 to R117 111 ​7% ​1% ​0%
R117 112 to R165 600​ ​9% ​5% ​3%
R165 601 to R258 750​ ​14% ​11% ​10%
R258 751 to R 358 110​ ​18% ​16% ​15%
R358 111 to R500 940​ ​22% ​21% ​20%
R500 941 to R638 600​ ​26% ​25% ​24%
R638 601 to R1 000 000​ ​30% ​29% ​29%
R1 000 001 to R2 300 000​ ​35% ​35% ​34%
R2 300 001 and above​ ​40% ​40% ​40%

 

 
Option 2 – increasing the amount of PAYE deducted by a specific employer or pension fund.
 
To enable one or more employers or pension funds to deduct additional PAYE the following steps are required:
  • Firstly, estimate the total taxable income for the current tax year by combining all your different salaries and pensions.
  • Secondly, calculate the total estimated income tax liability for the current tax year on the estimated total taxable income using the table below for the 2013/14 tax year and deduct the appropriate tax rebate. You can also contact your employer, pension fund, tax practitioner or SARS to assist in calculating the total income tax liability.
  • Thirdly, calculate the estimated combined total PAYE to be deducted by all employers and pension funds for the tax year (before any additional PAYE) and calculate the shortfall (difference between the total income tax liability for the current year and the estimated combined total PAYE before the additional PAYE).
  • Fourthly, choose one or more employers or pension funds to deduct the shortfall by way of additional monthly PAYE deductions over the remainder of the tax year.

 

Taxable Income
(R)​
Rate of Tax
(R)​
​0 to 165 600 ​18% of taxable income
​165 601 to 258 750 ​29 808 + 25% of taxable income above 165 600
​258 751 to 358 110 ​53 096 + 30% of taxable income above 258 750
358 111 to 500 940​ ​82 904 + 35% of taxable income above 358 110
​500 941 to 638 600 ​132 894 + 38% of taxable income above 500 940
638 601 and above​ ​185 205 + 40% of taxable income above 638 600

 

 

Age​ Tax rebate​
Below 65​ ​R12 080
​65 to below 75 ​(R12 080 + R6 750) = R18 830
​75 and over ​(R12 080 + R6 750 + R2 250) = R21 080

 

 

Who to contact for more information?

 
For more information please contact us, click here.
 

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