Author: Candice Zulu
Income tax is one of the most common deductions you will see on your payslip, but understanding how it works can be confusing, especially if you are new to the workforce. Here, we break down the essentials that you need to know.
What is income tax?
Income tax is a tax levied by the South African government on the money you earn. This tax is collected by the South African Revenue Service (SARS) and is used to fund public services like education, healthcare, infrastructure and more.
Who pays income tax?
If you earn more than the annual tax threshold, you are required to pay income tax. This threshold is updated annually and depends on your age. For example, if you are under 65, the threshold for the 2025/2026 tax year is R95,750. If you earn less than that in a year, you don’t pay income tax.
How is income tax calculated?
South Africa uses a progressive tax system. This means the more you earn, the higher the percentage of tax you pay. Income is taxed in brackets:
- Income up to a certain amount is taxed at 18%
- The next bracket is taxed at 26%
- Higher brackets go up to 45%
Your employer uses a PAYE (Pay As You Earn) system to deduct the correct amount of tax from your salary each month based on these brackets.
What affects the amount of tax you pay?
- Income level – the more you earn, the more tax you pay.
- Tax deductions – contributions to retirement funds, medical aid tax credits and travel allowances can reduce your taxable income.
- Rebates – these are fixed amounts subtracted from the tax you owe, based on your age and other factors.
Why is it important to understand your income tax?
- It helps you make informed decisions about salary negotiations and benefits.
- You can avoid unexpected tax bills at the end of the tax year.
- You may be eligible for tax refunds by submitting your ITR12 tax return.
Want your team to understand taxes better? We offer easy-to-understand employee tax briefings and payroll breakdowns. Get in touch to help your staff feel confident about what is being deducted from their pay.
Coming next in our series: Tips for managing your first salary effectively