What to Do If You Receive Income from Two Sources

Taxpayers who earn income from multiple sources of employment face a unique challenge when it comes to their tax obligations. Here’s what you need to know to manage your taxes effectively in this situation:

Understanding Tax Liability

South Africa operates on a progressive tax system, which means the more you earn, the higher your tax rate and, consequently, the more tax you pay. Each employer deducts Pay-As-You-Earn (PAYE) tax based on the salary they pay you. However, when all sources of income are combined at tax assessment time, your total tax liability may exceed the sum of the PAYE deductions made by each employer.

Example Scenario

Let’s illustrate with an example: Suppose you earn R240,000 from Employer A and R160,000 from Employer B during a tax year. Each employer deducts PAYE according to your salary with them. However, when your total taxable income of R400,000 is assessed, the calculated tax liability might be significantly higher than the total PAYE deducted, resulting in a balance due to SARS upon assessment.

Managing Additional Tax Liability To avoid a substantial tax payment at assessment, taxpayers have options to proactively manage their tax payments:

• Voluntary Additional PAYE Deductions: You can request one or more employers to deduct additional monthly PAYE to cover the potential shortfall. This can be done in two ways:
  1. Single Percentage Application: Estimate your total taxable income for the year and apply a recommended percentage for PAYE deduction across all employers paying you a salary. This simplified method helps ensure more accurate tax deductions throughout the year.
  2. Specific Employer Increase: Estimate your total taxable income and calculate the additional tax liability. Then, request specific employers or pension funds to deduct the additional PAYE needed to cover this liability over the remaining tax year.
• Provisional Tax Payments: If you are a provisional taxpayer (typically self-employed individuals or those with additional income not subject to PAYE), you can make higher provisional tax payments during the year to offset potential tax liabilities.

How to Arrange for Additional PAYE Deduction

• Determine the applicable percentage based on your estimated combined taxable income (referencing the provided tax tables). Request all relevant employers to apply this percentage to their PAYE deductions.
• Calculate the total estimated tax liability based on all sources of income. Identify the shortfall compared to the combined PAYE deductions already made. Then, arrange with one or more employers to increase their monthly PAYE deduction to cover this shortfall.

In conclusion, receiving income from multiple sources requires careful tax planning to avoid surprises at tax assessment time. By proactively managing your PAYE deductions or making appropriate provisional tax payments, you can ensure that your tax liabilities are adequately covered throughout the year. For personalized advice based on your specific circumstances, consult with Tax A Sured Pty Ltd.