YOUR MONEY: A taxing two-pot issue

Question:

Please help me understand this part of these two pots. If it pushes you to the next tax bracket, does that mean your whole salary in that tax year will be taxed at the new tax bracket? You can end up creating more costs for yourself as you would owe Sars the tax difference on your salary?

— A Fat Wallet Facebook Community member

Answer:

No, we have a progressive tax system, so as you earn more the extra income is taxed at a higher rate, not the full amount earned. Let’s say you earn R360,000 a year. You’ll pay 18% tax on the first R237,100 of income and on the income above that you pay 26%. If you withdraw the full R30,000 from your pot, that would push your income for the year to R390,000. The 26% tax rate would apply up to R370,501 but above that you’ll pay 31%. So of the R30,000 extra income you’d pay 26% on the first R10,501 (difference between your R360,000 annual income and the R370,501 tax threshold). The remaining R19,499 from the pot would be taxed at the higher 31% rate. So you would pay a higher tax rate for some of the money withdrawn from the new two-pot system. But that would only be on the money withdrawn. It would have no impact on next year’s tax rate nor the income earned in the current tax year.

— Simon Brown, Just One Lap

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