In South Africa, personal income tax is structured around tax thresholds—the minimum level of income at which individuals are required to pay tax. These thresholds play a crucial role in determining the amount of PAYE (Pay As You Earn) tax that gets deducted from your salary. If your income falls below the threshold, no PAYE is deducted, but if it exceeds the threshold, you will be taxed according to progressive tax brackets. Understanding these thresholds is key to managing your finances and tax obligations effectively.
What is a Tax Threshold?
A tax threshold refers to the minimum income level at which you are required to start paying personal income tax. If your earnings fall below the threshold, you will not have any tax liability, and consequently, no PAYE deductions will be made. Conversely, if your income exceeds this threshold, you will be taxed based on the applicable tax brackets.
Each year, SARS publishes an updated list of tax thresholds and tax brackets, which are subject to changes based on inflation and government fiscal policies. These thresholds are set to ensure that those with lower incomes are not burdened by excessive tax liabilities while higher-income earners contribute a fair share to public finances.
Learn More: Understanding the PAYE and UIF Calculator: A 2025 Guide for South Africans
How Tax Thresholds Impact PAYE Deductions
PAYE deductions are calculated by your employer based on the monthly income you earn. SARS provides a formula for determining how much tax should be withheld, depending on the amount of money you make. Here’s how tax thresholds affect the PAYE process:
Income Below the Tax Threshold: If your total annual income is below the prescribed threshold, you will not be subject to income tax. Consequently, no PAYE will be deducted from your salary. For example, if the tax threshold for the year is set at R95,000 (for an individual under 65), and your total income for the year is below that, you will not pay any tax.
Income Above the Tax Threshold: Once your income surpasses the tax threshold, you will fall into one of the progressive tax brackets. In South Africa, the tax system is progressive, meaning the higher your income, the higher the percentage of tax you pay. The more you earn, the greater the portion of your income that will be subject to higher rates of tax.
Monthly PAYE Calculation: If you are above the threshold, your employer will apply the relevant tax rates to your salary and deduct the appropriate PAYE. The tax is paid to SARS on your behalf, so you do not need to submit monthly payments yourself. The amount of PAYE deducted each month depends on your income level and tax bracket.
Tax Brackets and the Annual Taxable Income
South Africa uses a progressive tax system, which means there are different tax brackets based on your earnings. The more you earn, the higher the tax rate on your income. Below is an example of tax brackets that were in place in 2024, though it’s essential to check each year’s tax table as these can change.
| Annual Income | Tax Rate |
|---|---|
| R0 to R237,100 | 18% |
| R237,101 to R370,500 | 26% |
| R370,501 to R512,800 | 31% |
| R512,801 to R673,000 | 36% |
| R673,001 to R857,900 | 39% |
| R857,901 to R1,817,000 | 41% |
| R1,817,001 and above | 45% |
How the Threshold Works for Different Individuals
The tax threshold varies depending on age and filing status. For example, in the 2024 tax year, individuals under 65 had a tax threshold of R95,000. Those aged between 65 and 74 had a higher threshold of R151,100, and individuals 75 years and older had an even higher threshold of R160,200. These variations exist to ensure that older citizens, who may have limited income or are retired, are taxed at a lower rate.
Key Considerations:
Tax-Free Allowance: South Africa also has a tax-free allowance for certain types of income, such as interest earned on savings, within a certain threshold. As of 2024, this amount is R23,800 for individuals under 65 and R34,500 for those over 65. If you earn interest below these amounts, you will not pay tax on that income.
Tax Deductions and Credits: It’s essential to understand that there are several deductions and credits that could lower your overall taxable income, such as pension fund contributions or medical aid tax credits. These can reduce the amount of PAYE that gets deducted from your monthly salary.
Additional Income and PAYE Adjustments: If you have secondary income—such as rental income, freelance work, or investment income—this might push you into a higher tax bracket, and additional PAYE deductions may be necessary.
Check also: PAYE vs. Provisional Tax: What’s the Difference?
Understanding tax thresholds in South Africa is crucial for managing your income and ensuring that you meet your tax obligations. If your income is below the threshold, you won’t have PAYE deductions, while those above the threshold will be taxed according to progressive tax rates. Keep in mind that the thresholds and tax brackets are updated annually, so it is always wise to consult the latest information from SARS.
It is also essential to stay aware of any available tax deductions, exemptions, and rebates that can help reduce your tax liability. If you are uncertain about how much tax you should be paying or how to optimize your PAYE deductions, it may be beneficial to seek advice from a tax professional or financial advisor.
