If you’ve just landed your first ever job, or your first job in a long time (say more than a year), you could be in for a nice cash lump sum from the taxman!
That’s because there is a good chance you have been “overtaxed” and are eligible for a refund from SARS.
How it works
Most of us in formal employment receive our monthly salaries net of tax – that is, with tax already taken off. Now, since tax is deducted from your salary as you receive it, it’s easy to think that you are taxed on what you earn every month. In actual fact, how much tax you should pay in a particular year is calculated based on how much you have earned over that entire year.
…But not a calendar year (1 Jan to 31 Dec), a tax year (that is 1 March to 28 Feb).
Let’s look at a quick example:
Example (for illustration purposes only)
James started working on 2 Jan 2020 and earned a gross monthly salary of R10 000. Let’s assume the tax that’s automatically removed from his salary is R1 800 per month. James’ net is, therefore, R8 200.
Assuming this is his only source of income, for Jan and Feb, James would then pay R3 600 tax in total (R1 800 in Jan plus R1 800 in Feb).
Now, when James submits his tax return in July 2020, he would be due for a nice tax refund.
How is that possible? Well, what he earned in the entire 2020 tax year – that’s from 1 March 2019 to 28 Feb 2020 – is only R20 000, since he only started work in 2020. In SA, if you are under the age of 65, you are only eligible to pay tax if you earn more than R79 000 a year. Since R20 000 is below this, James should get back all the tax he paid for the 2020 tax year. That’s a cool R3 600!
This should encourage you to file your returns as soon as you can.
Steps to get your refund
It’s very simple: Register for e-filing, and file your tax return as soon as tax season opens (usually in July)
…and enjoy your tax return!