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Revealed: How your employment tax incentive will be calculated

by , 13 December 2013
In October this year, the National Assembly adopted the Employment Tax Incentive Bill. The Bill is aimed at encouraging employers, through tax incentives, to create job opportunities for young people aged between19 and29 years. Read on to find out how the tax incentives will be calculated.

The South African Institute of Tax Practitioners explains that the employment tax incentive is essentially a cost-sharing mechanism between the private sector and Government.

The incentive operates by reducing the amount of tax owed by you, the employer, through the Pay-As-You-Earn (PAYE) system.

This means if your hire a 'qualifying employee', you'll be entitled to deduct the amount of the incentive from the amount of PAYE which you're required to remit to SARS.

It's important to note that the 'qualifying employee' won't receive an additional monetary benefit relating to PAYE (i.e. the PAYE credit of the employee remains unaffected).

In addition, the deduction is limited and may not exceed the total amount of tax you owe SARS through the PAYE system.

Here's how the calculation of the employment tax incentive will work

The determination of the incentive SARS will deduct from your PAYE obligation must take place on a monthly basis.

It's calculated as the aggregate of the incentive available for that month together with any roll-over amounts from previous periods.

The South African Institute of Tax Practitioners explains how this process works: The value of the incentive is prescribed by way of a formula with three different components, which utilises different wage levels.

For example, for monthly wages of R2000 or less, the incentive is 50% of the monthly remuneration of the employee.

For monthly wages between R2001 and R4000, the value of the incentive is R1000 per month per "qualifying employee' in the first twelve months.

And for monthly wages between R4001 and R6000, the value of the incentive tapers down from R1000 to zero.

In the first year of employment, you can deduct the full value of the incentive, but in the second year of employment, the incentive is halved throughout the wage bands.

Remember not all employers qualify for the employment tax incentive. Find out here if you qualify. If you do, keep this article handy so you'll know how make your calculations when the Government officially introduces the tax incentive in January.

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