How PAYE is calculated in South Africa

PAYE (Pay-As-You-Earn) is the income tax your employer withholds from your salary each month and pays over to SARS on your behalf. It's not a separate tax; it's a running pre-payment of your annual income tax, designed so that by the end of the tax year you've paid roughly what you owe.

Here's how the monthly figure is actually worked out.

1. Annualise the period's income

PAYE is calculated on an annual-equivalent basis. Your employer takes the remuneration for the month and projects it over the full tax year (for a regular monthly salary, that's simply × 12). This is why a once-off bonus is taxed more heavily in the month you receive it; it temporarily pushes your annualised income into a higher band.

2. Apply the tax tables (marginal rates)

South Africa uses a marginal (progressive) rate system. Your income is sliced into bands, and each band is taxed at its own rate; only the portion of income that falls inside a higher band is taxed at the higher rate. A common misconception is that "moving into the next bracket" taxes all your income at the higher rate. It does not.

3. Subtract the rebates

Everyone gets a primary rebate: a flat amount subtracted from the tax due. Taxpayers 65 and older get an additional secondary rebate, and those 75+ a tertiary rebate. The rebates are why there's a tax threshold: an income level below which no tax is payable at all.

4. Subtract medical scheme credits

If you contribute to a registered medical scheme, a fixed medical tax credit per member further reduces the tax due (see our separate guide on medical credits).

5. De-annualise

The annual tax is divided back down to the period to give the month's PAYE.

Where people get caught out

• Bonuses and commission spike PAYE in the month received.
• Changing jobs mid-year can lead to under-deduction, because each employer applies the rebates afresh.
• Multiple sources of income (two employers, or salary plus a pension) are each taxed in isolation, so the combined annual liability is often higher than the sum of the PAYE withheld, leaving an amount owing on assessment.

TaxRationale runs this exact computation (annualisation, the current SARS tables, rebates and credits) for your specific situation, and shows you each step.