Income from two sources

✔ What to do if you receive 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 you’re their 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. 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 final assessment.

For 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 R240 000 and a pension of R180 000.

	Salary	Pension	Assessment
Taxable income	240 000	180 000	420 000
Normal tax payable	26 095	11 286	79 545
Less: Tax paid in the form of PAYE withheld by employer and pension fund	26 095	11 286	37 381
Additional amount of tax to be paid on assessment			42 164

As shown above, 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, which 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.

Choosing to make voluntary payments the 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:

Option 1 is a simplified mechanism that 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.
Option 2 is to increase the amount of PAYE deducted by one or more employers or pension funds, this 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

The following steps are required to implement additional PAYE deductions:

Estimate the total taxable income for the current tax year by combining all your salaries and pensions.
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. Please remember that the 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 2017 to 28 February 2018)
Under the age of 65	65 years and older but under the age of 75	75 years and older
Up to R75 750	0%	0%	0%
R75 751 to R117 300	3%	0%	0%
R117 301 to R131 150	7%	1%	0%
R131 151 to R189 880	9%	4%	3%
R189 881 to R296 540	14%	10%	9%
R296 541 to R410 460	18%	16%	15%
R410 461 to R555 600	22%	21%	20%
R555 601 to R708 310	26%	25%	24%
R708 311 to R1 500 000	31%	30%	30%
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 (in order) are required:

Estimate the total taxable income for the current tax year by combining all your salaries and pensions.
Calculate the total estimated income tax liability for the current tax year on the estimated total taxable income using the table below for the 2017/18-tax year and deduct the appropriate tax rebate.
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, which will be the difference between the total income tax liabilities for the current year, and the estimated combined total PAYE before the additional PAYE.
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 189 880	18% of taxable income
189 881 to 296 540	34 178 + 26% of taxable income above 189 880
296 541 to 410 460	61 910 + 31% of taxable income above 296 540
410 461 to 555 600	97 225 + 36% of taxable income above 410 460
555 601 to 708 310	149 475 + 39% of taxable income above 555 600
708 311 to 1 500 000	209 032 + 41% of taxable income above 708 310
1 500 001 and above	533 625 + 45% of taxable income above 1 500 000

Age	Tax rebate
Below 65	R13 635
65 to below 75	(R13 635 + R7 479) = R21 114
75 and over	(R13 635 + R7 479 + R2 493) = R23 607