If I earned a significantly lower salary for the first half of the tax year and then a significantly higher salary for the second half of the year under PAYE, would the various periods tax be calculated appropriately? I have been advised that because the new salary is much higher it therefore pushes me into a higher tax bracket and that this affects my earnings for the entire year. I. E. I have to total all my earnings and then calculate my tax payable on this higher tax bracket rate. This doesn't seem right... Surely each period's tax as calculated at the time was correct and each period would retain its own tax bracket rate? Which is correct?
The salary you earn per month is grossed up to a year (i.e times by 12) and then the tax payable is calculated based on this annual amount. So initially, you earned a lower salary, and you would have paid tax based on a lower annual equivalent than that which you actually ended up earning. The new salary would push up your annual earnings and thus push you into a higher tax bracket overall and therefore increase the tax you owe for the whole year. Therefore, unfortunately the explanation you received is correct.
Please make use of our SARS income tax calculator to work out tax you would pay based on different monthly salaries and annual earnings.
Therefore, the tax you pay on your monthly salary is completely dependent on your overall earnings for the year.
Hope that clarifies!
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