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Linda says: 4 April 2022 at 9:36 What is the PAYE calculation on basic salary plus commission? |
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TaxTim says: 4 April 2022 at 12:35 Tax on commission is at exactly the same rate as a fixed salary. The confusion comes from the fact that tax is calculated on a different amount each month (depending on your performance, of course), and this can result in different tax rates being applied month to month. To make matters a little more complicated, there are different methods your company can apply to work out your monthly tax amount on your commission. To try clear matters up, let’s have a look at 3 formulas that companies typically use to calculate tax on variable income such as commission payments. 1. Aggregated Annual Taxable Income With this method, your tax is calculated by multiplying out your monthly earnings (i.e. your gross salary including commission) by an annual amount and applying the relevant tax rate. 2. Tax Directive A tax directive is an instruction from SARS to your employer for your tax to be deducted at a set, fixed rate each month. In order for this to be done, you need to apply for a tax directive and you’ll have to supply supporting evidence of estimated earnings and expenses. SARS won’t consider a tax directive if you don’t submit a detailed income and expense statement with your application. Considering a tax directive is based on an income estimation, it’s not your full or final tax liability. Your annual tax assessment, evaluated on actual earnings, will determine the total tax due, which may or may not result in a further amount payable to SARS. A tax directive makes sense in cases where commission due (and subsequently your total income) varies by only a small margin each month, and you have a fairly predictable track record on which to base an estimate. In instances where commission is less stable, it’s probably not such a good idea to consider taxation at a fixed rate, as this is likely to result in a significant difference between estimated and actual earnings, and therefore on final tax liability too. A tax directive is valid only for a maximum of a 12-month period, and as such, you’ll have to reapply each year, or in the event of changing employers. 3. Annualised Amount of Tax Payable The last technique is used less regularly, but we’ve included it here as it is still a valid manner in which tax can be calculated and paid on variable income. It’s slightly more complicated, but it’s said to give you a more accurate tax amount, leaving less room for over or under-taxing. This approach uses an average income amount to determine the tax to pay that month based on the number of pay periods and the total tax already paid. You can make use of our SARS income tax calculator to see what tax will be on your overall income. |
