How is backpay taxed in South Africa
Backpay is taxable, but if it is arrear salary that relates to earlier years, it does not have to be taxed as though you earned it all in the year it was paid. Section 7A of the Income Tax Act lets antedated salary be apportioned back to the years the accrual actually relates to, provided that period started not more than two years before the start of the year you receive it. Spreading it that way stops a single lump from pushing you into higher brackets in one year. Your employer applies for a SARS tax directive, and SARS sets the tax to deduct.
There is a real distinction here. A late bonus or a raise backdated within the current tax year is just normal income this year. Section 7A is for arrear salary that spans previous years, for example an amount paid out after a settlement, an arbitration award, or a court order.
Two kinds of "backpay", taxed differently
- Backdated in the current year. A salary increase effective from earlier in the same tax year, paid as a catch-up, accrues in the current year and is taxed as ordinary income now. It appears on your IRP5 under the normal income code.
- Antedated over previous years. Arrear salary that relates to one or more earlier years of assessment, typically flowing from a settlement, an arbitration award or a court order. This is where section 7A apportionment applies, and it is reflected under a separate source code (3623/3673) with a SARS directive behind it.
The difference matters because bunching several years of pay into one year can cross bracket boundaries that spreading it would not.
How section 7A apportionment works
Where arrear salary accrues in the current year but the accrual period began not more than two years before the start of this year, section 7A lets that amount be treated as if it accrued proportionally across each year the period covers. The total is split reasonably between those years, and each slice is taxed as part of that year's income rather than piled on top of this year's.
Because the individual tax table for the 2026 year of assessment is unchanged from 2024 and 2025, an arrear amount spread across those years is taxed on the same brackets in each year, which makes the benefit easy to see: each slice is taxed from where that year's income left off, instead of the whole lump starting from your current top rate.
Your employer, not you, requests the directive. SARS calculates the tax to withhold on the arrear amount, and the employer deducts that.
A worked example
Suppose you earn R200,000 a year. After a dispute, in the 2026 year of assessment you are paid R150,000 in arrear salary that relates to the past three years, R50,000 for each. R200,000 sits in the first bracket (up to R237,100, taxed at 18%).
Taxed all in 2026, on top of your R200,000:
- The R150,000 runs from R200,000 up to R350,000.
- R200,000 to R237,100 is R37,100 at 18% = R6,678.
- R237,100 to R350,000 is R112,900 at 26% = R29,354.
- Tax on the arrear lump: R36,032.
Apportioned R50,000 into each of the three years, each on top of R200,000:
- Each R50,000 runs from R200,000 up to R250,000.
- R200,000 to R237,100 is R37,100 at 18% = R6,678.
- R237,100 to R250,000 is R12,900 at 26% = R3,354.
- Tax per year on the R50,000: R10,032, times three years = R30,096.
Apportioning saves R36,032 less R30,096, which is R5,936. The saving comes entirely from keeping less of the arrear amount in the 26% band. The primary rebate applies once in each year in both cases, so it does not change the comparison.
Frequently asked questions
Is backpay taxable in South Africa?
Yes. Backpay is remuneration and is taxable. The question is only how it is taxed: arrear salary relating to earlier years can be apportioned back to those years under section 7A, while a catch-up paid within the current year is taxed as ordinary income this year.
What is antedated salary under section 7A?
It is salary that accrues in the current year but relates to an accrual period that started not more than two years before the start of this year, for example an amount paid after a settlement, arbitration award or court order. Section 7A allows it to be spread proportionally across the years the period covers.
Do I have to apply for the tax directive myself?
No. Your employer applies to SARS for the directive on the arrear amount, and SARS tells the employer how much employees' tax to deduct. The arrear amount is reported under source code 3623/3673 rather than the normal income code.
Why is apportionment usually better than being taxed in one year?
Because tax is charged on rising brackets. Bunching several years of pay into one year can push part of it into a higher bracket, while spreading it lets each slice be taxed from where that year's income ended. When brackets are unchanged across the years, as they are for 2024 to 2026, the spread version simply keeps more of the amount in lower bands.
Does this apply to a backdated pay rise paid within the same year?
No. A rise backdated within the current tax year accrues this year and is taxed as normal income now. Section 7A is specifically for arrear salary that relates to previous years of assessment.
Where this fits
Backpay sits alongside the other lumps that get bunched into one payslip. Our guide to how a bonus is taxed explains the marginal-rate mechanics, and the bonus calculator lets you test the effect of a lump on your own income. For related points, see whether overtime is really taxed more, and what a SARS tax directive is and when your employer needs one.
SARS sources:
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