Tax and SARS knowledge base
Is a performance bonus taxable in South Africa?
Is a performance bonus taxable in South Africa?
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Direct answer
SARS includes performance-based payments in remuneration in the year they are actually paid. The PAYE method can depend on the facts of the payment. SARS says a production bonus paid in the same pay period in which it is earned is added to salary and taxed using the appropriate pay-period table. An annual payment or bonus has its own annual-payment calculation method.
Do not assume every performance bonus is taxed using one fixed rate or one payroll method.
What this means in practice
The bonus plan and the timing of payment matter. A payment can be linked to performance for a particular period, or it can have the character of an annual payment. SARS's employer guide distinguishes these circumstances when it describes the PAYE method.
For example, the guide says that where a production bonus is paid in the same pay period in which it was earned, it must be added to salary and employees' tax is calculated with the appropriate weekly, fortnightly or monthly table. The guide also sets out an annual-payment calculation for annual payments and bonuses.
SARS's variable-remuneration section gives a further timing rule. Performance-based payments are included in remuneration in the year they are actually paid. That rule does not mean the tax calculation is always identical for every performance scheme. The employer needs to apply the payment facts and payroll rules correctly.
Step-by-step
- Read the bonus plan or payment communication.
Identify what the bonus rewards, the earning period, the payment date and any conditions that apply. Keep the document with the payslip.
- Review the payslip in the payment period.
Check the amount and PAYE deducted. Identify whether the payment was made in the same period in which it was earned or later, because the distinction can be relevant to the payroll treatment described by SARS.
- Ask payroll how it classified the amount.
Ask whether payroll treated the payment as pay-period remuneration or an annual payment, how PAYE was calculated and what IRP5 code will be used. Keep the response.
- Check the IRP5 or IT3(a).
Compare the certificate with the bonus plan, payment record and payslip. Do not change a certificate entry yourself if it appears inconsistent.
- Ask the issuer to correct an error.
If the certificate does not match the payroll records, ask the employer to investigate and correct its submission to SARS where necessary.
- Review the annual assessment after filing.
Keep the ITR12 and ITA34. The final assessment is based on the annual return, so it should not be inferred solely from the PAYE on one bonus payment.
Documents and records to keep
- Bonus plan, award letter or payment communication.
- Payslip and payment record.
- Payroll explanation of classification and PAYE calculation.
- IRP5 or IT3(a) certificate.
- Employer correction correspondence.
- ITR12 and ITA34 assessment.
Important limits and exceptions
This guide does not say that every performance bonus is an annual payment. SARS's guidance distinguishes a production bonus paid in the same period in which it is earned from the annual-payment approach. The actual payment and earning-period facts matter.
Do not use a fixed "bonus tax rate". SARS's guide describes methods, not a universal percentage that applies to every employee and payment.
This article does not determine whether you met the conditions for a performance award or resolve a contractual dispute with an employer. It focuses on the PAYE reporting questions once a payment is made.
When to get tailored advice
Get tailored help if the bonus plan is complex, payment was delayed, the employer's payroll explanation does not match the plan, the certificate is wrong or the payment relates to more than one year. Help is also useful where you have multiple income sources and want to understand the eventual annual assessment.
TaxProof can help organise the plan, payslip, certificate and assessment records for a tax review. The employer applies payroll PAYE and corrects its certificate, while SARS determines the final assessment.
Related TaxProof guides
- Employer IRP5 and EMP501 guide
- Is a 13th cheque taxed differently from my salary? (B02-IND-010)