To calculate PAYE, annualise the employee's monthly remuneration by multiplying by 12, apply the income tax table to that annual figure, subtract the tax rebates the employee qualifies for and any medical scheme fees tax credits, then divide the result by 12. On a R30,000 monthly salary for someone under 65 with no dependants, that comes to R4,681 a month.
Every payroll system does this automatically. Knowing how it works still matters — because when an employee queries their payslip, when a bonus month produces an alarming deduction, or when you are checking whether your payroll software has been set up correctly, you need to be able to reproduce the number by hand.
TL;DR
The five steps:
Annualise: monthly remuneration × 12
Apply the 2026/27 tax table
Subtract the rebates (primary R17,820, plus age-based rebates)
Subtract medical scheme fees tax credits
Divide by 12
Tax threshold under 65: R99,000 a year, about R8,250 a month
Primary rebate 2026/27: R17,820 (up from R17,235)
Medical credit: R376 a month for each of the first two members, R254 for each additional dependant
PAYE and UIF are separate calculations — do not combine them
The 2026/27 income tax table
For the year of assessment ending 28 February 2027. Brackets were adjusted 3.4% for inflation — the first inflationary relief since 2023/24.
| Taxable income | Rate of tax |
|---|---|
| R0 – R245,100 | 18% of taxable income |
| R245,101 – R383,100 | R44,118 + 26% of the amount above R245,100 |
| R383,101 – R530,200 | R79,998 + 31% of the amount above R383,100 |
| R530,201 – R695,800 | R125,599 + 36% of the amount above R530,200 |
| R695,801 – R887,000 | R185,215 + 39% of the amount above R695,800 |
| R887,001 – R1,878,600 | R259,783 + 41% of the amount above R887,000 |
| R1,878,601 and above | R666,339 + 45% of the amount above R1,878,600 |
Maximum marginal rate remains 45%. Trusts other than special trusts are taxed at a flat 45%.
Rebates
| Rebate | Who qualifies | 2026/27 | 2025/26 |
|---|---|---|---|
| Primary | Everyone | R17,820 | R17,235 |
| Secondary | Age 65 and over | R9,765 | R9,444 |
| Tertiary | Age 75 and over | R3,249 | R3,145 |
Rebates are cumulative. Someone aged 76 gets all three: R17,820 + R9,765 + R3,249 = R30,834.
The primary rebate increase saves a taxpayer under 65 approximately R585 a year compared with 2025/26.
Tax thresholds
| Age | You pay no tax below |
|---|---|
| Under 65 | R99,000 |
| 65 – 74 | R153,250 |
| 75 and over | R171,300 |
Medical scheme fees tax credits
| Per month 2026/27 | 2025/26 | |
|---|---|---|
| Main member | R376 | R364 |
| First dependant | R376 | R364 |
| Each additional dependant | R254 | R246 |
A member with a spouse and two children: R376 + R376 + R254 + R254 = R1,260 a month.
Medical credits reduce tax, not taxable income. They come off after the tax and rebates are calculated, which makes them worth the same to every employee regardless of their marginal rate.
Worked example 1: R30,000 a month, under 65, no medical aid
Step 1 — Annualise R30,000 × 12 = R360,000
Step 2 — Apply the table R360,000 falls in the R245,101 – R383,100 bracket: R44,118 + 26% × (R360,000 − R245,100) = R44,118 + 26% × R114,900 = R44,118 + R29,874 = R73,992
Step 3 — Subtract rebates R73,992 − R17,820 = R56,172
Step 4 — Medical credits None. Still R56,172.
Step 5 — Divide by 12 R56,172 ÷ 12 = R4,681.00 monthly PAYE
The full payslip:
| Amount | |
|---|---|
| Gross salary | R30,000.00 |
| PAYE | (R4,681.00) |
| UIF (1% of R17,712 cap) | (R177.12) |
| Net pay | R25,141.88 |
| Employer UIF | R177.12 |
| Employer SDL (1%, if payroll > R500,000) | R300.00 |
| Total cost to company | R30,477.12 (plus SDL) |
Worked example 2: R45,000 a month with medical aid for three
Employee under 65, on a medical scheme covering themselves, a spouse and one child.
Step 1 — Annualise: R45,000 × 12 = R540,000
Step 2 — Apply the table: R540,000 falls in the R530,201 – R695,800 bracket R125,599 + 36% × (R540,000 − R530,200) = R125,599 + R3,528 = R129,127
Step 3 — Rebates: R129,127 − R17,820 = R111,307
Step 4 — Medical credits: (R376 + R376 + R254) × 12 = R1,006 × 12 = R12,072 R111,307 − R12,072 = R99,235
Step 5 — Divide by 12: R8,269.58 monthly PAYE
Without the medical credits the PAYE would have been R9,275.58. The medical aid is worth R1,006 a month in reduced tax.
Worked example 3: R12,000 a month
Annualise: R144,000 Table: 18% × R144,000 = R25,920 Rebates: R25,920 − R17,820 = R8,100 Divide by 12: R675.00 monthly PAYE
Note how sharply the effective rate falls at lower incomes. R675 on R12,000 is an effective rate of 5.6%, against a marginal rate of 18% — because the primary rebate is doing most of the work.
Worked example 4: below the threshold
Employee earning R8,000 a month.
Annualise: R96,000 — below the R99,000 threshold PAYE: R0
But the payroll obligations do not disappear:
UIF is still payable: R80 employee, R80 employer
The employee still needs an IRP5
They still count towards the R500,000 SDL threshold
They still need a valid income tax reference number, or your EMP501 will be rejected outright
How bonuses are handled
This causes more payslip queries than anything else in payroll.
A bonus is not taxed at a special "bonus rate". It is added to remuneration and the annual calculation is redone — but because the bonus arrives in one month, it can push the employee into a higher bracket for that month's calculation, producing a deduction that looks punitive.
Example: R30,000 a month plus a R30,000 December bonus
Without the bonus: annual R360,000, PAYE R4,681 a month.
With the bonus: annual remuneration becomes R390,000. R390,000 falls in the R383,101 – R530,200 bracket: R79,998 + 31% × (R390,000 − R383,100) = R79,998 + R2,139 = R82,137 Less rebate: R82,137 − R17,820 = R64,317 annual tax
Tax already deducted over the other 11 months at R4,681 = R51,491. December PAYE = R64,317 − R51,491 = R12,826
The employee sees R12,826 deducted instead of R4,681 and assumes a mistake. It is not — the bonus pushed R6,900 of income into the 31% bracket, and the whole year's tax is being trued up in one month.
Tell staff before the payslip lands. A one-line note explaining the calculation prevents most of the December payroll queries a business receives.
What is included in remuneration
PAYE is calculated on remuneration, which is broader than basic salary:
Included: basic salary and wages · overtime · commission · bonuses and incentives · leave pay and leave encashment · directors' remuneration · most taxable allowances · taxable fringe benefits such as company cars, low-interest loans and employer-provided accommodation.
Travel and subsistence have their own rules:
Fixed travel allowance: 80% is included in remuneration for PAYE purposes, reducing to 20% where at least 80% of vehicle use is for business. A logbook is required.
Reimbursive travel: no PAYE on amounts up to R4.95 per kilometre for 2026/27, where the employer reimburses actual business kilometres travelled and a logbook is kept.
Subsistence, overnight domestic travel: R595 a day deemed for meals and incidentals, or R184 a day for incidentals only.
Company car fringe benefit: the taxable value is 3.5% per month of the cash cost including VAT, or 3.25% where the vehicle was under a maintenance plan when acquired. 80% of that fringe benefit is included in remuneration for PAYE, reducing to 20% where 80% or more of use is for business.
Deducted before applying the table: pension, provident and retirement annuity contributions, deductible at 27.5% of the greater of remuneration or taxable income, capped at R430,000 a year for 2026/27 — up from R350,000, the first adjustment since 2016.
UIF and SDL are calculated separately
Do not fold these into the PAYE calculation.
UIF: 1% from the employee and 1% from the employer, on remuneration up to the ceiling of R17,712 a month. Maximum R177.12 from each side, R354.24 combined. An employee on R60,000 pays the same R177.12 as one on R17,712.
SDL: 1% of total gross remuneration, paid entirely by the employer, with no per-employee cap. Employers with total annual remuneration below R500,000 are exempt.
All three — PAYE, UIF and SDL — are declared together on the monthly EMP201, due by the 7th of the following month.
Mid-year joiners, leavers and salary changes
The annualisation method assumes the employee earns the same amount for the full year. When they do not, PAYE has to be recalculated — and the direction of the adjustment surprises people.
An employee who joins in September
Someone starting on 1 September at R40,000 a month earns R240,000 in the tax year, not R480,000. If PAYE is calculated by simply annualising R40,000 × 12, they will be over-deducted for the whole period and get a refund on assessment — an interest-free loan to SARS for up to a year.
Good payroll software handles this by calculating on a year-to-date basis: total remuneration for the year so far, projected to year-end based on actual months of employment. Check that yours is configured for it.
An employee who resigns in July
Their final payslip should reflect the tax on what they actually earned in the year, not on an annualised figure. Where leave pay or a severance amount is included, the calculation changes again.
Severance benefits are taxed under the retirement and severance lump sum table, not the ordinary tables, and require a tax directive from SARS before payment. Paying a retrenchment package without obtaining the directive is a common and expensive error.
A mid-year increase
An increase from R25,000 to R32,000 in September does not mean the employee's PAYE simply moves to the R32,000 rate. Their year-to-date position is recalculated, and PAYE for the remaining months adjusts to true up the year — which usually means a slightly higher deduction than the R32,000 rate alone would suggest.
When you need a tax directive
A tax directive is an instruction from SARS telling you exactly how much tax to withhold on a specific payment. You must obtain one before paying:
Severance and retrenchment packages
Retirement and withdrawal lump sums from a pension or provident fund
Certain backdated payments covering more than one tax year
Death benefits
Paying any of these without a directive means you have almost certainly withheld the wrong amount — and the shortfall is yours.
Retirement and severance lump sum table 2026/27 (unchanged from 2024/25):
| Lump sum on retirement, death, reaching 55 or redundancy | Rate |
|---|---|
| R0 – R550,000 | 0% |
| R550,001 – R770,000 | 18% above R550,000 |
| R770,001 – R1,155,000 | R39,600 + 27% above R770,000 |
| R1,155,001 + | R143,550 + 36% above R1,155,000 |
All lump sums received since 1 October 2007 aggregate cumulatively when determining the rate — so an employee who took a withdrawal five years ago will not get the full R550,000 at 0% again.
The payslip queries you will get, and the answers
"Why is my tax higher than my colleague's when we earn the same?" Medical aid dependants, age, retirement contributions and any additional income sources all change the calculation. Two people on identical gross salaries frequently have different PAYE.
"My salary went up by R2,000 but my take-home only went up by R1,200." Because the increase is taxed at their marginal rate. Someone in the 31% bracket keeps 69% of an increase before UIF. This is normal and not an error.
"I got a refund from SARS, so my employer over-deducted." Not necessarily. Refunds usually arise from medical expenses, retirement annuity contributions or donations claimed on assessment that payroll could not account for.
"Why is UIF the same as last month when I earned more?" Because UIF is capped at R17,712 of monthly remuneration. Anyone earning above that pays a flat R177.12 regardless.
Checking your payroll software is set up correctly
Payroll software is only as good as its configuration. Reproduce one employee's PAYE by hand each March, when the new tax year starts, and check it against the system.
The four things most often set up wrong:
Tax year not rolled over. Running February's tables in March produces wrong numbers all year.
Age-based rebates not applied. An employee who turned 65 mid-year should be getting the secondary rebate.
Medical credits counted on dependants rather than members. The first two people covered get R376 each; only the third and beyond get R254.
UIF cap not applied, so 1% is calculated on full salary rather than on R17,712.
Frequently asked questions
How is PAYE calculated in South Africa? Annualise the monthly remuneration by multiplying by 12, apply the income tax table to that annual figure, subtract the applicable rebates and any medical scheme fees tax credits, then divide the result by 12 to get the monthly PAYE.
How much PAYE is deducted on R30,000 a month? Approximately R4,681 a month for a person under 65 with no medical aid, on the 2026/27 tables. Annual tax on R360,000 is R73,992, less the R17,820 primary rebate, divided by 12.
What is the tax threshold in South Africa for 2026/27? R99,000 a year for a person under 65, R153,250 for ages 65 to 74, and R171,300 for 75 and over. That is roughly R8,250 a month for someone under 65.
Why was so much PAYE deducted from my bonus? A bonus increases annual remuneration, which can move part of the income into a higher tax bracket. Because the whole year's tax is recalculated and trued up in that month, the deduction looks much larger than usual. There is no special bonus tax rate.
What is the primary rebate for 2026/27? R17,820, up from R17,235. The secondary rebate for those 65 and over is R9,765, and the tertiary rebate for those 75 and over is R3,249. Rebates are cumulative.
How much is the medical tax credit in 2026/27? R376 a month for each of the first two people covered, and R254 a month for each additional dependant. Credits reduce tax payable, not taxable income.
Is UIF included in the PAYE calculation? No. UIF is a separate calculation of 1% from the employee and 1% from the employer, capped at R17,712 of monthly remuneration, giving a maximum of R177.12 each. It is declared alongside PAYE on the EMP201 but calculated independently.
How much can I contribute to retirement funds tax-free? Contributions are deductible at 27.5% of the greater of remuneration or taxable income, capped at R430,000 a year for 2026/27 — up from R350,000. Excess contributions carry forward and are not lost.
Payroll that reconciles
The calculation is mechanical. The failures are not — a tax year that never rolled over, an employee whose age rebate was never switched on, medical credits configured against the wrong dependant count, and nobody noticing until the EMP501 will not reconcile.
Smartbook runs payroll monthly with the calculations checked against the current tables, payslips issued, EMP201s submitted by the 7th, and EMP501 reconciliations that balance. From R750 a month for one to five employees.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Figures are for the 2026/27 year of assessment ending 28 February 2027. Worked examples are illustrative and ignore retirement contributions and other deductions unless stated. General guidance, not advice on your specific circumstances.
Primary sources: SARS — Budget 2026 Frequently Asked Questions · SARS — Budget Tax Guide 2026 · SARS — Pay As You Earn · SARS — Tax Rates