How your side gig is taxed depends on how you make the money

As one of the many South Africans who have to juggle multiple jobs to make ends meet, you may be wondering about the tax payable on your extra income.

Well, the taxation of your side hustle will depend on how you are making that extra income, either through an additional job or your own side business.

1. Additional job

You may have your primary job where you work your normal working hours and then have another job in the evenings or on the weekends (a secondary job). If you fall into this category then you need to ensure that your secondary employer is withholding the correct amount of PAYE from your salary. If not, you may find yourself in a situation where you need to pay in tax when you file your tax return. The effect of this is best illustrated by means of two examples.

Example 1 — your secondary employer withholds PAYE

If you earn R26,000 a month in your primary job you would be paying tax at the marginal tax rate of 31%.

You may also be earning R8,000 a month in your additional job. Your secondary employer would probably (unless you inform them of your primary job) tax you at the marginal rate of 18% on this income.

However, as the income from both jobs is added to calculate your overall tax liability, your second employer should withhold tax at the rate of 31%. In other words you would have been underpaying tax on the income from your second job.

Assuming that you are not a provisional taxpayer and have made up for a possible tax shortfall by means of provisional tax, you will have to pay in the difference between the 18% tax that you’ve paid and the 31% that you should have paid when you file your annual tax return. This may come as a nasty surprise.

Example 2 — your secondary employer does not withhold PAYE

You may be earning below the tax threshold (R79,000) in your secondary job and your second employer may not withhold any PAYE at all. In other words, they are only considering your income from them, which is below the tax threshold and are thus not withholding any tax.

In other words, you have paid no tax on income that should have been taxed at the rate of 31% (keeping with the same figures for your primary job as in example 1). So, when you file your tax return you will be liable for tax at the rate of 31% on your secondary income.

Depending on your circumstances, this may result in quite a large amount of tax payable to the taxman upon submission of your annual tax return.

To prevent a situation where you owe the South African Revenue Service, it would be wise to inform your second employer of your other income so that they can tax you correctly. This may involve having to get a tax directive from Sars. Note that when you receive a salary from two employers you are required to submit an annual tax return.

2. You run a side business

You may have your normal job but have a side business that you operate outside of normal working hours.

In this case (assuming that you have not set up a company to operate your business but are operating as a sole proprietor) you must inform Sars of the income and applicable business expenses in your personal tax return.

The details of the income and expenses must be declared on your annual income tax return under a separate trade.

The general rule is that you deduct applicable business expenses from the income that the business earns and tax is paid on the profit. For example, if the income of the business for the tax year is R100,000 and the relevant expenses are R50,000, the R50,000 profit will be included with your salaried income and tax will be payable accordingly.

In other words, if you earn R26,000 a month in your normal job and have an annual profit from your business of R50,000, you will pay tax at the rate of 31% on the R50,000 profit, that is, R15,500 for the tax year.

Please note that you must also file provisional tax returns and pay the applicable tax in terms of the provisional tax returns if you have a side business.