There is a misconception that bonus amounts are taxed at a higher rate but this is not the case. The bonus amount forms part of your total taxable income for the year which may impact on your tax bracket. The amount of tax deducted in the month you receive your bonus depends on how your income is taxed in the month you receive this amount.
There are two methods that the additional income can be taxed on 1) annualisaton of income and 2) balance of remuneration. Should you be taxed on the balance of remuneration, this is a more accurate view and we detail below how the calculation is done.
Payroll will calculate the tax for the year when no bonus is involved, then you determine the tax with the bonus amount added. The difference between the two becomes the tax payable on the bonus amount and will be added to the normal tax amount. For example if you have an annual income without a bonus of R240,000.00 per annum, tax will be R33,860.00. If we add a bonus amount of R10,000.00 to the annual amount the tax will increase to R36,460.00. Therefore the additional tax payable on the R10,000.00 bonus amount is R2,600.00. The misconception that the bonus is taxed at a higher rate is that the tax is added to the normal tax amount and it does look out of sync.
Tips on smart ways to spend your bonus
Before rushing off to spend your annual hard-earned income on expensive gifts or unnecessary purchases, review your current situation and decide on how you can use these additional funds to make the following year easier. Some of the things to think about is to pay off credit card and debt, top up your home loan, pay school fees upfront or think about emergencies or large expenses that may happen in the next year such as new appliances or car services. If you are in the fortunate position of being debt-free, you can boost your retirement savings or invest the money. It is important to reward your hard work within reason so budget a portion for a holiday or splurge a bit on yourself with a new hairdo or a night out.
Trupay is a company that specialises in payrolls and if your payroll is becoming a nightmare, we have the solution for you. Our systems are cloud based which ensures security of data and can be used on any device. Should you wish to outsource your payroll, contact:
For professional payroll services contact:
George Guirguis
Director
T +27 10 599 0224
