How PAYE Is Calculated in South Africa — Step-by-Step (2026/2027)

Reviewed & Verified

Written by the Independent Editorial Team · Reviewed & Verified by Solly Maanaso, CA(SA)

PAYE (Pay As You Earn) is the income tax your employer deducts from your salary every month and pays to SARS on your behalf. The calculation follows a specific 7-step method set out by SARS — the same method your employer's payroll system uses. This guide explains each step, with worked examples for common salary levels.

Employers: Understanding the PAYE calculation method you are legally required to apply (Fourth Schedule to the Income Tax Act)

Employees: Understanding why the deduction on your payslip is what it is

JUMP TO: The 7-step method Step-by-step formula Worked examples RA deductions Medical credits Travel allowance Common questions FAQ

The 7-step PAYE calculation method

SARS requires employers to calculate PAYE using an annualisation method — monthly remuneration is multiplied up to an annual equivalent, tax is calculated on that annual amount, then divided back by 12 to get the monthly deduction. This ensures the correct progressive tax bracket is applied regardless of pay frequency.

Source: SARS — Guide for Employers in respect of Tax Deduction Tables (PAYE-GEN-01-G01) — sars.gov.za

1
Determine gross remuneration for the month

Add together all taxable payments made to the employee in the month:
- Basic salary
- Overtime pay
- Commission (employee-specific rules apply)
- Bonuses (handled separately)
- Taxable allowances (travel, subsistence)
- Cash equivalent of fringe benefits (company car, low-interest loans, employer-owned assets)
What does NOT count as remuneration for PAYE:
- Reimbursive travel at the prescribed rate (R4.95/km from 1 March 2026) — tax-free
- Pension/provident fund contributions paid by the employer on the employee's behalf (added as fringe benefit separately)
Source: SARS PAYE-GEN-01-G01; SARS PAYE-GEN-01-G02 (Fringe Benefits); SARS PAYE-GEN-01-G03 (Allowances)

Deduct allowable pre-tax contributions

Certain employee contributions reduce taxable income before PAYE is calculated:

Deduction	Limit	Notes
Pension / provident / RA fund contributions	27.5% of remuneration, capped at R430,000/year	The deductible amount is the lower of the 27.5% or R430,000 limit

Result: Taxable remuneration = Gross remuneration − Retirement fund contributions

Source: SARS Budget 2026 FAQ; Section 11F of the Income Tax Act 58 of 1962

3

Annualise the taxable remuneration

Multiply the monthly taxable remuneration by 12 to get the annual equivalent.

Annual equivalent = Monthly taxable remuneration × 12

Why annualise? The income tax brackets are annual thresholds. Annualisation ensures that a taxpayer earning R30,000/month is treated as someone with R360,000 annual income — and placed in the correct bracket — rather than having a different bracket applied to a single monthly figure.

Calculate annual tax using the income tax brackets

Apply the 2026/2027 income tax brackets to the annualised taxable income.

Taxable income (annual)	Rate of Tax
R0 – R245,100	18% of taxable income
R245,101 – R383,100	R44,118 + 26% of taxable income above R245,100
R383,101 – R530,200	R79,998 + 31% of taxable income above R383,100
R530,201 – R695,800	R125,599 + 36% of taxable income above R530,200
R695,801 – R887,000	R185,215 + 39% of taxable income above R695,800
R887,001 – R1,878,600	R259,783 + 41% of taxable income above R887,000
R1,878,601 and above	R666,339 + 45% of taxable income above R1,878,600

Source: SARS Budget 2026 FAQ — sars.gov.za (effective 1 March 2026)

Deduct applicable rebates

Subtract the tax rebates from the annual tax calculated in Step 4:

Rebate	Amount	Who qualifies
Primary rebate	R17,820	All individual taxpayers
Secondary rebate	R9,765	Age 65 to 74
Tertiary rebate	R3,249	Age 75 and older

Annual tax after rebates = Annual tax − Applicable rebates

Source: SARS Budget 2026 FAQ; SARS PAYE-GEN-01-G01

Deduct the medical scheme fees tax credit

If the employee contributes to a private medical scheme, deduct the monthly medical credit × 12 from the annual tax:

Beneficiaries	Monthly credit	Annual credit
Member (taxpayer)	R376	R4,512
First additional dependant	R376	R4,512
Each further dependant	R254	R3,048

Annual PAYE after all credits = Annual tax − Rebates − Medical credits

Source: SARS Budget 2026 FAQ

7

Divide by 12 — the monthly PAYE deduction

Divide the annual PAYE (after rebates and credits) by 12.

Monthly PAYE = Annual PAYE ÷ 12

This is the amount the employer deducts from the employee's salary each month and pays to SARS via the EMP201 by the 7th of the following month.

PAYE Formula Summary Box:

Gross remuneration − Retirement fund contributions (≤27.5% / ≤R430,000) = Monthly taxable remuneration × 12 = Annual taxable income → Apply 2026/2027 brackets = Annual tax before rebates − Primary rebate (R17,820) − Secondary rebate if 65+ (R9,765) − Medical credits (R376 × 12 per person, first 2) = Annual PAYE ÷ 12 = Monthly PAYE deduction

Source: SARS PAYE-GEN-01-G01 — Guide for Employers in respect of Tax Deduction Tables

Worked examples — PAYE calculation for common salary levels

All three examples use the 2026/2027 SARS rates — primary rebate R17,820, brackets effective 1 March 2026.

Base case — salary only, under 65

Step	Calculation	Amount
1. Gross remuneration	Monthly salary	R20,000
2. RA deduction	None	R0
Monthly taxable remuneration		R20,000
3. Annualise	R20,000 × 12	R240,000
4. Annual tax (Bracket 1: 18%)	R240,000 × 18%	R43,200
5. Less: Primary rebate		(R17,820)
6. Medical credit	None	R0
Annual PAYE		R25,380
7. Monthly PAYE	R25,380 ÷ 12	R2,115/month
Effective annual rate	R25,380 ÷ R240,000	10.6%

Typical professional

Step	Calculation	Amount
1. Gross remuneration	Monthly salary	R35,000
2. RA deduction	R3,500/month = R42,000/year
— 27.5% test	27.5% × R420,000 = R115,500 within cap
— R430,000 test	R42,000 well within cap
— Deductible: lower of	R42,000	(R3,500)
Monthly taxable remuneration		R31,500
3. Annualise	R31,500 × 12	R378,000
4. Annual tax	R378,000 is in Bracket 2
— Tax on R245,100	18%	R44,118
— Tax on R132,900 (R245,101–R378,000)	26%	R34,554
Total annual tax before rebates		R78,672
5. Less: Primary rebate		(R17,820)
6. Less: Medical credit	R376 × 2 × 12	(R9,024)
Annual PAYE		R51,828
7. Monthly PAYE	R51,828 ÷ 12	R4,319/month
Effective rate on gross salary	R51,828 ÷ R420,000	12.3%

Without the RA deduction and medical credit, the same employee would pay approximately R60,420/year (R5,035/month). The RA and medical combined save R8,592/year (approx R717/month).

Senior employee

Step	Calculation	Amount
1. Gross remuneration	Monthly salary	R70,000
2. RA deduction	R7,000/month = R84,000/year
— 27.5% test	27.5% × R840,000 = R231,000
— R430,000 test	R84,000
— Deductible	R84,000	(R7,000)
Monthly taxable remuneration		R63,000
3. Annualise	R63,000 × 12	R756,000
4. Annual tax	R756,000 is in Bracket 5 (R695,801–R887,000)
— Apply bracket formula:	R185,215 + 39% × (R756,000 − R695,800)
— 39% of R60,200		R23,478
Total annual tax before rebates		R208,693
5. Less: Primary rebate		(R17,820)
6. Less: Medical credit	R376 + R376 + R254 × 12 months
— R376 (member) + R376 (spouse) + R254 (child) = R1,006/month × 12		(R12,072)
Annual PAYE		R178,801
7. Monthly PAYE	R178,801 ÷ 12	R14,900/month
Effective rate on gross salary	R178,801 ÷ R840,000	21.3%

These examples assume no fringe benefits, no travel allowances, and no other deductions beyond those shown. Actual PAYE will differ if additional amounts are included or excluded. Employers should use the SARS tax deduction tables or PAYE-GEN-01-G01 for precise monthly calculations.

Source: SARS Budget 2026 FAQ (rates); SARS PAYE-GEN-01-G01 (method)

PAYE calculator — personalise your calculation → Download SARS tax deduction tables →

How retirement fund contributions reduce your PAYE

Your contributions to a pension fund, provident fund, or retirement annuity (RA) reduce your taxable income before PAYE is calculated. This means every rand you contribute saves you tax at your marginal rate.

The deduction limit (2026/2027):
You can deduct the lower of:
• 27.5% of the greater of remuneration or taxable income, OR
• R430,000 per year
Source: SARS Budget 2026 FAQ; Income Tax Act Section 11F

Salary	RA contribution	Tax saved per year
R360,000/year (26% bracket)	R3,000/month (R36,000/year)	R36,000 × 26% = R9,360
R600,000/year (31% bracket)	R5,000/month (R60,000/year)	R60,000 × 31% = R18,600
R900,000/year (41% bracket)	R8,000/month (R96,000/year)	R96,000 × 41% = R39,360

Higher earners save more per rand contributed because they are in higher brackets.

Important: The deduction is applied by your employer each month when calculating PAYE — you do not need to wait until your annual ITR12 to benefit, provided your employer is told of your RA contribution.

Source: SARS PAYE-GEN-01-G01; Section 11F of the Income Tax Act 58 of 1962

How the medical scheme fees tax credit reduces your PAYE

The medical scheme fees tax credit (Section 6A of the Income Tax Act) reduces your actual tax bill — not your taxable income. It is deducted from the annual PAYE calculated after brackets and rebates.

Who	Monthly credit	Annual credit
Taxpayer (member)	R376	R4,512
First dependant	R376	R4,512
Each additional dependant	R254	R3,048

Source: SARS Budget 2026 FAQ

A tax deduction (e.g., RA)

Reduces your taxable income — the tax saved depends on your bracket.

A tax credit (e.g., Medical)

Reduces your tax bill directly — R376 per month means R376 off your tax, regardless of your income level.

Example: An employee with a spouse and two children on medical aid claims: R376 + R376 + R254 + R254 = R1,260/month = R15,120/year off their tax bill.

Source: SARS Budget 2026 FAQ; Income Tax Act Section 6A

PAYE on travel allowances (2026/2027)

If your employer pays you a fixed monthly travel allowance, PAYE is not calculated on the full amount. The rules are:

Scenario	PAYE calculated on
Fixed travel allowance (default)	80% of the allowance
Fixed travel allowance (if ≥80% is for business use)	20% of the allowance — employer must be satisfied
Reimbursement at prescribed rate New from 1 March 2026 (R4.95/km)	0% — no PAYE on this portion

Source: SARS Budget 2026 FAQ; SARS PAYE-GEN-01-G03 (Guide for Employers in respect of Allowances — 2027 tax year)

At year-end (ITR12): The 80% (or 20%) that was subjected to PAYE is a provisional estimate. When the employee submits their ITR12 with a logbook showing actual business kilometres, SARS calculates the actual deductible travel amount and adjusts accordingly — resulting in a refund or additional tax.

Common PAYE questions — payslip explained

"My PAYE went up this month even though my salary didn't change — why?"

If you received a bonus, commission, or a one-off lump sum in a particular month, PAYE is higher because those amounts are included in your remuneration for that month. After annualisation, the extra income places you in a higher bracket — increasing your monthly deduction. This often normalises in subsequent months. The correct method for annual bonuses is set out in SARS PAYE-GEN-01-G01.

"Why does my employer withhold more PAYE than I expect?"

Employers are required to withhold PAYE at the rate appropriate to your annualised income. If your employer is uncertain about your annual income (e.g., you have commission income that varies monthly), they may use a conservative estimate. You reconcile the exact amount at year-end on your ITR12 — if too much was deducted, SARS refunds the difference.

"What if I work for two employers at the same time?"

If you have two employers, each employer should be deducting PAYE on their own payment to you — but neither knows about the other's salary. The combined income will likely put you in a higher bracket than either employer assumes. When you file your ITR12, SARS will calculate your actual tax on your total income and you may owe additional tax. Consider submitting a tax directive to SARS to manage this proactively. (Source: SARS — /paye/multiple-employers/)

"Can I ask my employer to deduct less PAYE because I have deductions?"

You cannot instruct your employer to deduct less PAYE informally. However, your employer can apply for a tax directive from SARS (under Paragraph 10 of the Fourth Schedule) to adjust the PAYE deduction — for example, where an employee has a foreign tax credit (Section 6quat) or where over-withholding would otherwise occur. Without a directive, the standard method applies.

Source: SARS PAYE-GEN-01-G01; Fourth Schedule Paragraph 10

"What happens at year-end when I file my ITR12?"

All PAYE deducted during the year is credited against your final income tax assessment. If your employer deducted more than your actual annual tax liability (common with medical credits, RA deductions, or travel logbooks), SARS issues a refund. If less was deducted — perhaps due to additional income — you owe the difference.

Frequently Asked Questions

SARS requires employers to calculate PAYE using the annualisation method: (1) determine gross monthly remuneration, (2) deduct retirement fund contributions, (3) multiply by 12 to get the annual equivalent, (4) apply the 2026/2027 income tax brackets, (5) subtract the applicable rebates (primary R17,820; secondary R9,765 for age 65–74; tertiary R3,249 for age 75+), (6) subtract the monthly medical scheme fees tax credit (R376 per person for first 2 persons; R254 for each additional dependant), (7) divide by 12 to get the monthly PAYE deduction.

For an employee earning R30,000/month (R360,000/year), with no retirement deductions or medical aid, the 2026/2027 PAYE calculation produces: tax on R360,000 = R73,992; less primary rebate R17,820 = R56,172 annual PAYE = R4,681/month. With a R3,500/month RA contribution and medical aid for self and one dependant, the monthly PAYE reduces to approximately R4,319/month — a saving of about R362/month.

The PAYE formula is: (Gross monthly remuneration − retirement contributions) × 12 = annual taxable income → apply 2026/2027 tax brackets → subtract rebates → subtract medical credits → divide by 12 = monthly PAYE deduction.

Retirement fund contributions (pension, provident, or RA) are deducted from gross remuneration before PAYE is calculated. The deductible amount is the lower of 27.5% of remuneration or R430,000 per year (2026/2027 cap). This reduces taxable income, which reduces annual tax, which reduces your monthly PAYE deduction. The saving per rand contributed equals your marginal tax rate.

Not necessarily. PAYE is a monthly prepayment of your estimated income tax. When you file your annual ITR12 return, SARS calculates your actual tax based on all income, deductions, and credits for the year. If more PAYE was deducted than your actual liability, SARS issues a refund. If less was deducted (e.g., due to additional income sources), you owe the balance.

Related guides and tools

PAYE guides

Deductions & credits

Calculators

Essential tax topics

← Back to pillar: PAYE — Complete Guide for Employers and Employees

Sources and references

All PAYE calculation information on this page is sourced from, or verified against, the following official references:

SARS — Pay As You Earn (PAYE) — sars.gov.za/types-of-tax/pay-as-you-earn/ (official PAYE hub; includes employer obligations and filing season guides)
SARS — Tax Deduction Tables — sars.gov.za/tax-rates/employers/tax-deduction-tables/ (weekly, fortnightly, monthly and annual tables; updated 1 March 2026)
SARS — Rates of Tax for Individuals — sars.gov.za/tax-rates/income-tax/rates-of-tax-for-individuals/ (2026/2027 income tax brackets, rebates, and thresholds)
SARS — Primary Legislation — sars.gov.za/legal-counsel/primary-legislation/ (Income Tax Act 58 of 1962 — Fourth Schedule: PAYE obligation; Section 11F: retirement deduction; Section 6A: medical scheme fees tax credit)

Last reviewed: 1 March 2026. Next review: after Budget Speech February 2027.

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