Don’t Spend It Until It’s In Your Bank Account!
There may be a lucky few in South Africa this December who receive a 13th cheque or bonus as part of your December pay.
It’s important that you understand what you are actually going to receive in your bank account:
- A bonus is generally an amount given to employees because of either their personal performance within the organisation, or because the organisation as a whole has done well;
- A 13th cheque will have been calculated as part of your annual company cost, and is a way of splitting an annual amount into 13 payments.
Both amounts need to be taxed, and you need to understand how this is done. Usually, the amount is taxed when it is paid out. However, some companies allow employees to pay additional tax during “normal” months, and then the bonus / 13th cheque is seen to be “tax free”.
In South Africa, the more you earn, the higher the rate of tax that you pay. So it is possible that a bonus / 13th cheque would push you into a higher tax bracket,which would result in less income than expected. For example, if you earned R188 000 in a year in normal earnings you are paying R18 for every R100 earned over R75 000. If you earn another R10 000 in December, you will pay R26 for every R100 of the R10 000, i.e. R2 600. This comes as a nasty surprise, if you are not expecting it.
Check your company policy and decide whether they allow the tax on the bonus / 13th cheque to be deducted over the year, and then decide whether you want to go home with a little less every month so that you can enjoy the extra in December without paying the extra tax. Remember that if this is the case, and you leave this employer before the end of February, depending on the structure you may need to pay in additional tax to ensure that the bonus / 13th cheque tax is covered.
And remember that there are school fees to pay in January – try to save some of the extra income!