How tax impacts year-end bonuses: 'It will increase your tax liability, there's no escaping that'

 Gugs Mhlungu spoke to resident certified financial planner, Paul Roelofse.

Listen to their conversation in the audio clip below.

If you receive a 13th cheque, performance bonus, or year-end bonus, it's essential to understand the tax implications associated with it. 

Roelofse states in his latest blog post  that additional income is subject to the country's progressive tax system, meaning that as your total income increases, the tax rate also increases.

So, what impact does tax have on your bonus? Roelofse explains:

Increased Tax Liability

Receiving a bonus may raise your tax bracket, increasing taxes owed.

Lack of Deductions

Bonuses are taxed as income without pension deductions, unlike regular salary payments, so you may not receive the same tax benefits.

Planning for Tax Consequences

Plan for tax consequences by setting aside a portion of your bonus to cover added tax liabilities, ensuring readiness for tax season.

"The bottom line is it will increase your tax liability, there's no escaping that."

 - Paul Roelofse, certified financial planner

"This 13th cheque could very well push your tax up and it might even get you into the next band of tax because we have these bands that increase after certain thresholds or limits."

- Paul Roelofse, certified financial planner

For more financial insights, visit Roelofse’s website investforlife.co.za

Scroll up to listen to the full conversation