There are two major methods to calculate bonus tax. The annualization method calculates bonus tax as a part of yearly income, whereas the aggregation method calculates bonus tax separately. We’ll see them in detail in this guide.
The rate of bonus tax is the same as the rate of income tax. To get a better understanding of how much tax you’ll pay on your bonus, you can use our Bonus Tax Calculator or Income Tax Calculator.
How to Calculate Bonus Tax?
There are two ways to calculate bonus tax. Let’s explore them one by one in detail.
1. Annualization Method
The annualization method is used to calculate a bonus when it is part of your income. For example, some companies reward the same bonus amount each month adding it to the salary of employees. The state tax department considers this amount as a part of income and asks a person to pay a certain percentage of the annual income tax in which bonus tax is included.
Example: Subject A monthly salary is R34,000 and his bonus is R21,000.
Formula for Annualization
Annualized income: (Bonus x 12) + Annual Salary
(R21,000 x 12) + R40,8000 = R292,800
Annualized income: R292,800
A person who earns R292,800 has to pay 26% tax according to the state tax department.
R292,800 x 26% = R76,128
Formula
Tax on bonus: Tax amount x (Bonus / Annualized income)
R76,128 x (R21,000/ 292,800) = R5,460
Formula
Bonus after tax: Bonus – Tax on bonus
R21,000 – R5460 = R15,540
The bonus after tax is R15,540.
2. Aggregation Method
The above method is for those who receive bonuses with salaries. But, if a person does not receive a bonus every month, he needs to take an aggregation approach to calculate the bonus tax. Here is a simple way to calculate bonus after tax.
Example: Subject B works in a company where he received a bonus due to achieving a great milestone. His salary is R56,000 and he receives R7,000.
Formula
Total monthly income: Salary amount + bonus
R63,000 = R56,000 + R7,000
According to the tax department of South Africa, a person whose salary is R63,000 must pay 31%.
Formula
Tax amount: Total income x 26%
R16,380 = R63,000 x 26%
Formula
Tax on bonus: Tax amount – Tax on salary
R1,490 = R16,380 – R14,890
Formula
Bonus after tax: Bonus – Tax on bonus
R5,590 = R7,000 – R1,490
The bonus after tax is R5,590
Tax Range Table
|
0 – 237,100 |
18% of taxable income |
|
237,101 – 370,500 |
42,678 + 26% of taxable income above 237,100 |
|
370,501 – 512,800 |
77,362 + 31% of taxable income above 370,500 |
|
512,801 – 673,000 |
121,475 + 36% of taxable income above 512,800 |
|
673,001 – 857,900 |
179,147 + 39% of taxable income above 673,000 |
|
857,901 – 1,817,000 |
251,258 + 41% of taxable income above 857,900 |
|
1,817,001 and above |
644,489 + 45% of taxable income above 1,817,000 |
|
Below age 65 |
R17,235 |
R95,750 |
|
Age 65 to below 75 |
R9,444 |
R148,217 |
|
Age 75 and over |
R3,145 |
R165,689 |
The purpose of providing tax range tables is to help you calculate the tax amount on the bonus as soon as possible. The second table indicates how age affects the income tax. Without tax on income we cannot determine the tax on bonus.
FAQs
Calculating tax on bonuses is simple once you understand the methods. Both annualization and aggregation use similar formulas, and the tax rate can be found in the provided table. Some people think avoiding bonus tax may have no consequences, but the South African tax department warns that failing to pay can lead to severe penalties, including jail time. Use the methods above to calculate your bonus tax and pay it properly.