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“When it comes to employee tax, a little training goes a long way in restoring productivity,” says Tanya Tosen, tax and compensation specialist at Remuneration Consultants.
Many employees do not understand the complex tax calculations that payroll applies to their income each month and often question these deductions. This is fueled by tax myths that have become popular over the years.
Here are 5 basic tax myths:
The cost to the company is more taxed than a Basic Plus compensation structure
This is wrong and, with the right training, employees will learn that tax is calculated on the individual pay components of their compensation. The model used makes no difference. When converting a company’s payroll from Basic Plus to Cost-to-Company, neither the employee nor the company should be worse off in the end.
All of my income is taxed at my current marginal tax rate
This is a common misconception and completely wrong. South Africa actually has a progressive tax system. This means that an employee’s total compensation is divided into several parts called “tax brackets”.
The first tranche is taxed at the lowest rate of 18% and the subsequent tranches at progressively higher rates, up to 45%. For example, for tax year 2022, a worker earning more than Rand 467,500 per year is taxed at 36% only on the part exceeding this basic amount. Portions below this base are taxed based on their associated lower marginal tax rates.
If my increase pushes my income into a higher tax bracket, I lose money because of a higher tax rate
As already stated, if an increase pushes an employee’s income into a higher tax bracket, only the part exceeding the base amount of the bracket will be taxed at the higher rate.
Any amount lower than this continues to be taxed at the rates associated with each lower bracket. Thus, employees can enjoy their raise without worrying about earning less money because of it.
My annual bonus is taxed differently from the rest of my income
Employees are taxed on their total annual earnings, based on the individual components of their compensation.
While their bonus increases their total annual earnings and may even push them into a higher tax bracket, companies usually factor this into their calculations up front.
I’m supposed to get a discount based on age
Many employees understand that they are entitled to a discount based on their age and want to know if this is factored into the payroll system in their PAYE monthly deduction.
In fact, the South African tax offers three age-related discounts, and most people are only entitled to the first one, which is the main discount. The government also typically changes the refund amounts annually each tax year, which provides immediate relief from an employee’s annual tax liability.
For the current tax year, anyone under 65 receives a rebate of Rand 15,714; those over 65 receive a supplement of R8,613; and those over 75 get an additional R 2,871 on their annual tax bill.
Professional training in taxation
Training employees in their taxes helps them understand they are being paid fairly, keeps them motivated, and reduces the number of queries the payroll department has to process.
“However, taxation can be complex and confusing, and the training should be provided by an experienced compensation specialist,” Tosen advises.
5 myths about your taxes that can save you money
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