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Payroll tax methods.


Let's look at the different methods of monthly tax calculations. As stated in the previous article, 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 smaller 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
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