I worked for less than a year: Do I still need to submit a tax return?
Posted 10 April 2020
If you worked for less than a year, you may be confused as to whether or not you are required to submit a tax return. It seems like a tedious task for someone who only worked for a few months of the year and was unemployed for the rest. However, the answer is YES, you must definitely submit a tax return, even if you’ve worked for less than twelve months.
The reason is that, if you only worked for a few months of the year and paid tax, it's likely that you are due a refund. Read some other reasons here, why we recommend you always submit a tax return.
You probably wondering why you might be due a refund in these circumstances? Logic dictates that if you worked for a period shorter than a year you would pay less tax. Unfortunately, this is incorrect.
The reason boils down to the fact that your monthly salary is grossed up to an annual amount (i.e. it is multiplied by twelve) and the tax tables are applied to this annual amount to work out the total tax you owe for the year. The annual tax amount is then divided by twelve to arrive at your monthly tax bill. However, if you didn't work for the full year, the tax you will be paying will be too high (because it's assumed you earned a salary for twelve months) and therefore you'll need to file a tax return to claim a refund.
Let’s look at an example:
During the 2020 tax year, James took on a three month contract role at a company for July, August and September where he earned R25,000 per month. He then took on a permanent position at another company from December 2019 where he earned R30,000 per month. He therefore only worked for six months of the year and was unemployed for the rest of that tax year. Both of his employers deducted PAYE from his salary on a monthly basis.
Using TaxTim’s calculator (enter monthly salary) to calculate his monthly tax deduction, the results are as follows:
July, August and September: R4,009.33 X 3 = R12,027.99 December, January and February: R5,534.96 X 3 = R16,604.88 Total tax paid for 2020: R28,632.87
However, if we look at his actual tax liability for the year based on his annual income:
Total annual taxable income: (R25,000 X 3) + (R30,000 X 3) = R165,000 Tax on actual annual income: (18% X R165,000) – R14,220 = R15,480
Based on the above, you can see that James has in fact overpaid tax for 2020 by R13,152.87 (R28,632.87 – R15,480). This is due to the fact that when his monthly PAYE was calculated, his monthly salary was grossed up to twelve months because it was assumed that he earned that salary for every month of the year i.e. 12 months. However, in actual fact, this wasn’t the case as he ended up only working for six months of the year and therefore paid too much tax.
James will need to do the following in order to claim a refund:
- Obtain an IRP5 from each of his employers; - Submit BOTH IRP5s in his 2020 tax return; - In the opening wizard of his ITR12, he will need to indicate that he was unemployed for two periods of the tax year (1 March 2019 to 30 June 2019; 1 October 2019 – 30 November 2019).
Please note, the last step is very important. If you don’t declare the periods you were unemployed, SARS may simply assume you worked for the full tax year and gross up your income to represent 12 months. This could take a long time to dispute and resolve. So be sure to disclose your unemployed periods correctly. Fortunately, when filing your tax return with TaxTim, simply answer our easy questions and we will make sure this information is reflected correctly.
- If you worked for less than 12 months of the year and paid tax, always file a tax return! - Obtain an IRP5 for each job you had in the year (even if it was as short as one month!) - You can submit multiple IRP5s per tax year - Remember to indicate the periods you were unemployed