Breaking down tax jargon

Last updated on 6th June, 2024 at 03:31 pm

For many, tax can be confusing and anxiety-provoking. It’s hard to understand how tax works, or how much you’re expected to pay, all when you have to figure it out on your own. Take back control by understanding salary tax and getting prepared ahead of tax season in July.

Reading time: 5 minutes

In this article you’ll learn:

• What salary tax is
• How to understand your payslip
• Why you should file a tax return
• What you’ll need to file your tax return

Understand your salary tax

If you’re in full-time employment, tax is deducted by your employer monthly and paid over to SARS on your behalf. This is called Pay-As-You-Earn (PAYE) tax. Effectively, you pay your tax liability every month rather than in one lump sum at year end.

In South Africa, the amount of tax you pay is calculated based on income tax brackets that are published every year by SARS. These brackets apply to your taxable income for the year, which is your salary as well as any additional payments, such as bonuses. SARS and National Treasury update these brackets every year to adjust them for inflation. The amount of tax deducted from your salary depends on the bracket you fall into. You might pay less tax if you contribute to medical aid, have a disability, or contribute to retirement savings, as these contributions reduce your taxable income.

What’s on your payslip

Your payslip provides a record of your earnings. First up is your gross pay, which is the total amount you’ve earned before deductions. This includes your basic salary, overtime, bonuses, and any other allowances such as travel. Then there’s your nett pay, which is the amount paid into your bank account. It also lists all deductions made from your gross pay, including tax, contributions to the Unemployment Insurance Fund (UIF), contributions to a pension or provident fund, life insurance, funeral cover, and medical aid contributions.

It’s compulsory for employers to deduct tax and UIF, while deductions for benefits such as retirement and medical aid are usually voluntary but can sometimes be compulsory. However, not all employers offer benefits.

Finally, it also lists year-to-date totals: how much your taxable income has been so far this tax year, and how much tax you’ve paid so far.

It’s important to know that some of your deductions help to decrease the amount of tax you pay in, because they reduce your taxable income. For instance, if you contribute to retirement savings, you’re allowed to offset this against your tax liability up to a limit of 27,5% of your income or R350 000 a year. Pension contributions are paid before tax, and your tax liability is calculated on your remaining salary.

IRP5 or bust

Your IRP5, which is issued by your employer, is the summary of all your payslips issued during the year. It details your income, deductions, and the tax you have already paid. If you changed jobs during the year, you’ll need an IRP5 from each of your employers.

Usually your company will submit IRP5 to SARS so that your return can be pre-populated, but in case this hasn’t happened, you will need your own copy. It’s usually issued in April or May.

Filing your tax return

If you already pay tax every month, why should you file a tax return? If you earn less than R500 000 a year, and fulfil certain criteria, you might not have to file a return. Instead, SARS will issue an auto-assessment which you can choose to accept. It’s crucial that you understand this properly, because if you skip filing your tax return, you could face a hefty fine, and you might also miss out on other benefits. Some things to keep in mind are:

• Any potential tax refunds can only be paid if you file a return.
• If you don’t file a tax return, you might not be able to borrow money as you won’t have a tax clearance certificate.
• You might not be able to access retirement savings because you may not be tax compliant.
• A complete tax record stands you in good stead and shows you are contributing to society.

Get ready to file your return

Your tax return covers the period from 1 March 2023 to 29 February 2024 and can be submitted from July onwards. SARS will announce the exact filing deadlines for employees. Whether you do your return yourself or ask a tax practitioner to submit on your behalf, there are a few documents you should keep handy to successfully complete your personal income tax return (ITR12).

Most importantly, you’ll need your IRP5, and records of any other income you earned during the year.

If you contributed to retirement savings or a medical aid scheme, or if you earned interest from your investments, you’ll need tax certificates issued to you by these companies. In the case of retirement annuities, you’ll need an RAF Contribution Certificate (IT3F) issued by your financial institution. Contributions to pension or provident funds will show up on your IRP5 and will be automatically pulled into the ITR12.