DANIEL BAINES: Income tax and its effect on your year-end bonus
It is commonly thought that a bonus is taxed at very high rates; this may be the case as the tax payable on a bonus does not take into account any of your available tax rebates or deductions, as they are already taken into account as part of the tax calculation on your normal salary.
The percentage of tax that you pay on your bonus depends on how much your normal salary is - if it is high, you will pay a high tax percentage on your bonus.
A bonus is not a separate type of income that is taxed differently; your bonus is added on to the rest of your salary and taxed accordingly.
The effect of the taxation of a bonus is best illustrated by means of examples.
Example 1 - Income of R30,000 a month and bonus of R30,000
You are taxed at the marginal tax rate of 31% on your salary as your yearly income is R360,000 and you fall within the 31% tax bracket in terms of the individual tax table.
Your bonus will, therefore, be taxed at 31% - that is, added to your salary and taxed.
The tax on your bonus amounts to R9,300 (31% of R30,000) and you will receive R20,700 after tax.
The general rule is that you are taxed at the rate of the marginal tax bracket in which you fall: if your salary puts you in the 18% tax bracket (between R1 and R195,850), your bonus will be taxed at 18%. If your salary puts you in the 45% tax bracket (R1,500,001 and above) your bonus will be taxed at 45%. This is presuming your bonus does not push you into the next tax bracket - discussed below.
Your employer should withhold the tax payable before the amount is paid to you. However, some employers will tax you more than you should be taxed each month during the year to ensure you do not pay tax on your bonus when you receive it. In other words, you pay too much tax during the year so that you can get your full bonus at the end of the year.
You may find yourself in a situation where your bonus pushes you into the next tax bracket. If this occurs, the tax on your bonus will work as follows:
Example 2 - Income of R25,000 a month and bonus of R25,000
You are taxed at the marginal tax rate of 26% on your salary as your annual income equates to R300,000 and you fall within the 26% tax bracket.
However, your bonus of R25,000 pushes you into the next tax bracket, 31%.
A portion of your bonus will therefore be taxed at 26% (up to the point where you are in the next tax bracket) and the remainder will be taxed at 31%.
In these circumstances you will pay tax of R7,457 on your bonus, broken down as follows:
* R1,521 tax at 26%; and
* R5,936 at 31%.
* Total tax - R7,457, which equates to a 30% overall tax on the bonus.
You will thus receive an amount of R17,543 after tax.
You may also find yourself in a situation where you have unused leave that gets paid out to you.
You will be taxed when this leave is paid out in a similar manner to how your bonus is taxed - the leave payout is added to your salary and taxed accordingly.
Example 3 - Income of R50,000 a month and leave payout of R20,000
Since you, with an annual salary of R600,000, fall within the 39% tax bracket, you are taxed at the marginal tax rate of 39% on your salary.
Your leave payout is added to your salary and therefore also taxed at 39%.
You will pay R7,800 (39% of R20,000) in tax on your leave payout and will receive an amount of R12,200 after tax.
Depending on your tax bracket it may be better for you to use the leave rather than have unused leave paid out.
• Baines, a tax consultant at Mazars, is the author of How to Get a Sars Refund