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 are reminded that the employees’ tax (PAYE) deducted by the respective employers or pension funds may not be enough to cover their final tax liability on assessment. The reason for this is the manner in which a taxpayer’s tax liability is calculated on assessment.
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 final tax liability of the taxpayer on assessment. A progressive tax rate system means that the more income is earned, the higher is the marginal tax rate and more tax is paid on assessment.
By deducting PAYE every month, the employer or pension fund is assisting a taxpayer to pay his or her tax liability, determined on assessment, in advance. When only one employer or pension 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 assessment. However, where more than one employer or pension fund is involved, each of them deducts the correct amount of PAYE on only the salary or pension they each pay. When all the sources of income are added together and the correct tax rate is applied this may result in 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 R280 000 and a pension of R220 000 during the tax year.
| | Salary | Pension | Assessment |
| Taxable income | 280 000 | 220 000 | 500 000 |
| Normal tax payable | 35 352 | 19 752 | 106 095 |
| Less: Tax paid in the form of PAYE withheld by employer and pension fund | 35 352 | 19 752 | 55 104 |
| Additional amount of tax to be paid on assessment | | | 50 991 |
As you can see, after submission of the annual income tax return by this individual, the total tax liability on assessment is significantly higher than the total PAYE that was correctly deducted by the employer and pension fund during the year. This results in a large amount that has to be paid in on assessment because too little tax was deducted monthly by way of PAYE.
To assist taxpayers who are in this situation, the Income Tax Act allows a taxpayer to make additional voluntary tax payments. Taxpayers receiving a salary or pension may make a written request to 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 is to increase the amount of PAYE deducted by one or more employers or pension funds but is slightly more complex to calculate. The taxpayer may need 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 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 tax 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 at which to deduct PAYE from 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 employers and pension funds for the 2018 tax year (1 March 2018 to 28 February 2019) |
||
| Under the age of 65 | 65 years and older but under the age of 75 | 75 years and older | |
| Up to R78 150 | 0% | 0% | 0% |
| R78 151 to R121 000 | 3% | 0% | 0% |
| R121 001 to R135 300 | 7% | 1% | 0% |
| R135 301 to R195 850 | 9% | 4% | 3% |
| R195 851 to R305 850 | 14% | 10% | 9% |
| R305 851 to R423 300 | 18% | 16% | 15% |
| R423 301 to R555 600 | 22% | 21% | 20% |
| R555 601 to R708 310 | 26% | 25% | 24% |
| R708 311 to R1 500 000 | 31% | 30% | 29% |
| R1 500 001 to R10 000 000 | 39% | 39% | 39% |
| R10 000 001 and above | 45% | 45% | 45% |
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 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 2018/19 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 195 850 | 18% of taxable income |
| 195 851 to 305 850 | 35 253 + 26% of taxable income above 195 850 |
| 305 851 to 423 300 | 63 853 + 31% of taxable income above 305 850 |
| 423 301 to 555 600 | 100 263 + 36% of taxable income above 423 300 |
| 555 601 to 708 310 | 147 891 + 39% of taxable income above 555 600 |
| 708 311 to 1 500 000 | 207 448 + 41% of taxable income above 708 310 |
| 1 500 001 and above | 532 041 + 45% of taxable income above 1 500 000 |
| Age | rebate |
| Below 65 | R14 067 |
| 65 to below 75 | (R14 067 + R7 713) = R21 780 |
| 75 and over | (R14 067 + R7 713 + R2 574) = R24 354 |