It is becoming common for taxpayers to receive income from more than one source of employment. Often these taxpayers mistakenly believe that employees’ tax deducted by their respective employers is enough to cover their tax liability on assessment.
SARS states that it is important for taxpayers to understand that 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 in determining the tax liability of the taxpayer on assessment. This means that as more income is earned, the higher the marginal tax rate is.
Employers are obliged, in terms of the Income Tax Act, to deduct employees’ tax from remuneration paid to employees. When only one employer is involved, the employees’ tax deducted over the tax year should equal the tax liability on assessment (provided no additional deductions are submitted by the taxpayer).
However, where more than one employer is involved, each employer deducts employees’ tax as required from the remuneration that they are paying. When the incomes are added together, the tax deductible on this combined income is higher than the sum of the individual tax deductions. The tax shortfall would need to be paid on assessment.
To assist taxpayers avoid this situation, the Income Tax Act allows the taxpayer to make additional voluntary tax payments. This is done by either asking one or more of the employers to deduct additional monthly employees’ tax or for the taxpayer to register as a provisional taxpayer and pay over additional tax on a provisional tax return.
The taxpayer has two options when voluntarily paying additional tax through their employer. They can either ask all employers to deduct employees’ tax at a fixed percentage or increase the amount of employees’ tax deducted by one or more of the employers. The second option is more difficult to apply as it requires a detailed tax computation.
To make these processes easier to apply, SARS has introduced the steps that would need to be followed to arrive at the percentage to be deducted if option 1 was followed and the tax amount that would need to be deducted if option 2 was followed.
Should you need assistance in applying either of these options please contact Dave Beattie: [email protected].