Why does tax differ on the same salary?

Have you ever heard or asked one of the following questions?

• Why do I pay more tax than my friend when we received the same salary?
• Why is my tax different this month when I earn the same salary as last month?
• Why does YourTax, SARS tax tables, or another tax calculator show a different tax than what is on my payslip?

This is a complicated question with various possible answers. We will discuss the most common ones below.

The most important fact to remember is that tax is based on a yearly income. All tax paid during the year of assessment, called PAYE (Pay As You Earn), represents contributions toward your annual tax liability. Even if your monthly tax varies by a few rand, it is the yearly total that is finalized.

When employers run their reconciliation at the end of the tax year, they make the final correction to your tax in the last pay period. Some payroll methods are designed specifically to minimize this variance during the final period.

Prorated by month vs. number of days

Since tax is a yearly liability and employees are paid at set intervals, salaries and wages must be prorated up to a full year to calculate tax. The tax is then prorated back down to the pay period to establish the PAYE deduction.

You can also use the number of days worked when calculating weekly or monthly tax. For a monthly employee during January, the yearly equivalent can be calculated as: salary / 31 x 365.

When doing the prorated calculation using day counts, tax amounts fluctuate monthly due to varying month lengths. Both methods balance out to the exact same annual total at year-end.

Average vs. predictive tax calculation methods

Let's look at the different methods of monthly tax calculations. The core objective behind different payroll methods is to minimize the final adjustment in the last pay period.

Monthly Tax Method: Takes your base salary, multiplies by 12, calculates annual tax, and divides by 12. This can result in a larger correction in the final pay period if earnings varied.

Average (Cumulative) Method: Prorates total year-to-date earnings up to a full year, calculates tax, prorates down, and subtracts PAYE already paid. If earnings push your cumulative average into a higher tax bracket mid-year, you will see a temporary spike in PAYE.

Predictive Method: Uses current year-to-date earnings along with the latest pay period earnings to project remaining months. This produces the most stable monthly PAYE distribution across the tax year.