Why do tax differ on the same salary?

Let's look at how tax can be different on the same salary using different methods.

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 some other tax calculator show a different tax than what is on my payslip?

This is a bit of 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), is just contributions to your annual tax liability. In other words, even if your monthly tax is off by a few rand, it is the yearly total that is important.

When employers do their reconciliation at the end of the year, they do their final correction of your tax in the last pay period of the tax year. Some of the methods used are designed to minimise this difference during the last pay period.

Prorated by month vs number of days

Since tax is a yearly liability and employees are paid in more intervals, salaries and wages must be prorated up to a full year to calculate the tax. The tax is then prorated down to the pay period again to get the PAYE deduction for that period.

For example:
Daily Weekly Monthly
Daily wage: R 200 x 365.
Calculate tax on R 73 000.
Divide the resulting tax by 365.
Weekly wage: R 2 000 x 52.
Calculate tax on R 104 000.
Divide the resulting tax by 52.
Monthly salary R 10 000 x 12.
Calculate tax on R 120 000.
Divide the resulting tax by 12.

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 with salary / 31 x 365

When doing the pro rate calculation using the number of days, it is easy to see how the tax can be different because of the difference in number of days per month during the year.
Below is an example of two employees earning the same salary, but using different methods of calculation, number of days per month vs monthly. You will notice slight differences during the year, but since there is a correction on the last pay period and tax is a yearly liability, you will notice that both employees pay the exact same amount in total.

Month Salary Prorated
Months
Prorated
Days
Mar (31) R 15 000.00 R 1 527.75 R 1 505.27
Apr (30) R 15 000.00 R 1 527.75 R 1 543.81
May (31) R 15 000.00 R 1 527.75 R 1 505.27
Jun (30) R 17 000.00 R 1 942.08 R 1 976.03
Jul (31) R 17 000.00 R 1 942.08 R 1 894.56
Aug (31) R 17 000.00 R 1 942.08 R 1 894.56
Sep (30) R 17 000.00 R 1 942.08 R 1 976.03
Oct (31) R 17 000.00 R 1 942.08 R 1 894.56
Nov (30) R 17 000.00 R 1 942.08 R 1 976.03
Dec (31) R 17 000.00 R 1 942.08 R 1 894.56
Jan (31) R 17 000.00 R 1 942.08 R 1 894.56
Feb (28) R 17 000.00 R 1 625.11 R 1 789.76
Total R 198 000.00 R 21 745.00 R 21 745.00
The difference between the average and predictive methods when calculating tax.

Let's look at the different methods of monthly tax calculations. As stated in the previous section, the idea behind the different payroll tax methods, is to minimise the correction on the last pay period for the employee. You can look at the table as reference for each method.

The simplest method, is the monthly tax. This is the one where you just take the salary, multiply by twelve, calculate the tax and then divide by twelve again. You will see in the example that this employee pays more tax during most of the months, but then pays less in the final pay period when the employer makes the correction.

Then next method is the average, or also cumulative, method of calculating tax during the year. With this method, the employee's total earnings for the year to date are prorated up to a full year. Tax are calculated on that amount and prorated down to the period worked. Then all cumulative tax already paid are deducted to get the current month's tax. The problem with this method is that it doesn't take future earnings into account and only looks at the current earnings. Notice the bump in tax in December using the average method. The reason is that the average up to November was in one tax bracket and from December was in the next.

The predictive method is the almost the same as the average, but instead of just prorating the current year to date earning up to a full year, takes the last pay period earnings and use that to fill in the blanks for the rest of the year. This method shows the most stable distribution of tax during the year and you will also notice that it has the smallest correction in the final pay period.

Month Salary Tax
Monthly
Tax
Average
Tax
Predictive
Mar R 15 000.00 R 1 527.75 R 1 527.75 R 1 527.75
Apr R 15 000.00 R 1 527.75 R 1 527.75 R 1 527.75
May R 15 000.00 R 1 527.75 R 1 527.75 R 1 527.75
Jun R 17 000.00 R 1 942.08 R 1 887.75 R 1 906.86
Jul R 17 000.00 R 1 942.08 R 1 887.75 R 1 906.86
Aug R 17 000.00 R 1 942.08 R 1 887.75 R 1 906.86
Sep R 17 000.00 R 1 942.08 R 1 887.75 R 1 906.86
Oct R 17 000.00 R 1 942.08 R 1 887.75 R 1 906.86
Nov R 17 000.00 R 1 942.08 R 1 896.75 R 1 906.86
Dec R 17 000.00 R 1 942.08 R 1 942.08 R 1 906.86
Jan R 17 000.00 R 1 942.08 R 1 942.09 R 1 906.86
Feb R 17 000.00 R 1 625.11 R 1 942.08 R 1 906.87
Total R 198 000.00 R 21 745.00 R 21 745.00 R 21 745.00

Hopefully this clears up the questions related to differences in tax on the same salary.

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