Payroll Concepts > Statutory Deductions and Contributions (ZA) > Tax Averaging vs Periodic

The tax averaging method calculates the tax for an employee more accurately. This will be illustrated in this article using an example.

Scenario

Suppose that an employee earns no income in March 2022. They then earn R10 000 per month thereafter. The tax payable for the year is calculated as follows:

  • Income for the year = R110 000 (R10 000 x 11 months)
  • Tax for the year = R3 375 [(R110 000 x 18%) – R16 425 rebate]

Periodic Method – Monthly tax tables (not supported by SimplePay)

Using the 2022 monthly tax tables, the PAYE payable will be as follows:

Month Remuneration Tax for the Month
1 January
2 February 10 000 432
3 March 10 000 432
4 April 10 000 432
5 May 10 000 432
6 June 10 000 432
7 July 10 000 432
8 August 10 000 432
9 September 10 000 432
10 October 10 000 432
11 November 10 000 432
12 December 10 000 432
TOTAL 110 000 4 752

As you can see, the employee overpaid tax for the year.

Tax averaging method (Used by SimplePay)

Use the tax averaging method, the tax would be calculated as follows:

[A]
Month Number
[B]
Month
[C]
Remuneration
[D]
YTD Income
[E]
Annual Equivalent
[F]
Tax on AE
[G]
YTD Tax Liability
[H]
Tax for the month
[D] / [A] x 12 According to tax tables [F] / 12 x [A] [G] current month – [G] previous month
1 March
2 April 10 000 10 000 60 000
3 May 10 000 20 000 80 000
4 June 10 000 30 000 90 000
5 July 10 000 40 000 96 000 855.00 356.25 356.25
6 August 10 000 50 000 100 000 1 575.00 787.50 431.25
7 September 10 000 60 000 102 857 2 089.29 1 218.75 431.25
8 October 10 000 70 000 105 000 2 475.00 1 650.00 431.25
9 November 10 000 80 000 106 667 2 775.00 2 081.25 431.25
10 December 10 000 90 000 108 000 3 015.00 2 512.50 431.25
11 January 10 000 100 000 109 091 3 221.36 2 943.75 431.25
12 February 10 000 110 000 110 000 3 375.00 3 375.00 431.25
TOTAL 110 000 TOTAL FOR THE YEAR 3 393.00

As you can see, the employee doesn’t pay tax in March, April and May. This is because the annual equivalent is under the tax threshold. This is different to the periodic tax method. By the end of the year, the employee has paid exactly the amount of tax owed to SARS for the year under the tax averaging method, whereas they have overpaid tax under the periodic method.

You are using the help system of SimplePay, a payroll system that simplifies the payroll process. Designed just for South Africa, it's a fully online solution. Read more.