HOW TO

STRUC­TURE TAX

Daily News - - LIFESTYLE - | Sume­shan Nair,

PRE­VENT BONUS TAX SHOCK

MANY em­ploy­ees look for­ward to their an­nual bonus, only to be dis­ap­pointed when a large por­tion is de­ducted for tax.

Em­ploy­ees can pay ex­tra tax on a monthly ba­sis to­wards the tax that would be de­ducted from their an­nual bonus, so that no tax is de­ducted when they re­ceive their an­nual bonus.

An amount is in­cluded in an em­ployee’s monthly tax cal­cu­la­tion to com­pen­sate for the tax on the bonus.

This way, the em­ployee ef­fec­tively pays their “bonus tax” month on month to get a full bonus pay-out. Em­ploy­ees can re­quest this op­tion from em­ploy­ers.

One of the main rea­sons for com­pa­nies fail­ing to of­fer this op­tion to staff is be­cause they are un­sure of how it works or how the monthly tax de­duc­tions should be cal­cu­lated.

This has led to em­ploy­ees be­ing un­aware of the op­tion for pro­vi­sion for tax on bonuses and thereby be­ing hit with a large tax de­duc­tion on their an­nual bonus.

Dif­fer­ent com­pa­nies have dif­fer­ent ap­proaches on how they make pro­vi­sion for the tax on bonuses for their em­ploy­ees and that process de­pends on the pay­roll ven­dor or soft­ware that is used.

Lead­ing so­lu­tions providers of­fer very straight­for­ward op­tions to au­to­mate this cal­cu­la­tion.

The pro­vi­sion for tax on bonus is cal­cu­lated over the tax year and not the cal­en­dar year. Em­ploy­ees should be en­cour­aged to re­quest this at the be­gin­ning of every tax year.

Em­ploy­ees should re­quest it for the next tax year should they want to spread out their tax de­duc­tions through­out the year to get their full pay-out of their bonus. ex­ec­u­tive com­mit­tee mem­ber of the SA Pay­roll As­so­ci­a­tion

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