Pay As You Earn (PAYE) is that one line item we see on our monthly payslips that we would love to see disappear as it always seems to increase whenever you get a pay rise. But have you ever asked yourself how your employer arrived at that tax figure showing up on your payslip? I can say with certainty very few of us have any idea of how that figure is determined. Given the tough economic conditions prevailing in our beloved country, most of us have resorted to so many other income-generating initiatives in order to supplement the little that we are still getting from our employers.
The question therefore is, how you can get the most out of your monthly pay check by taking advantage of any available incentives to increase your net salary without going to your employer requesting for a pay increase. In this paper, I am going to discuss tax credits, which are reliefs available to most of us but more often than not we fail to take advantage of these.
So how do tax credits work in reducing your PAYE?
Tax credits come in as a direct deduction against the amount of PAYE that is supposed to be deducted from your monthly salary. Therefore the effect of taking advantage of available tax credits is the reduction of the PAYE amount we see on our payslips resulting in you getting a higher net pay. In terms of the Income Tax Act (Chapter 23:06) the following credits are available to individual taxpayers:
- Elderly person’s credit
This credit is available to taxpayers who would have attained the age of 55 years before the year of assessment in question. The amount of the credit $900. For example, if during 2016 I was supposed to pay PAYE of $4,000, that amount would be reduced by $900, so that effectively my PAYE deduction would only be $3,100. Hopefully, our senior taxpayers are aware and are taking advantage of this credit.
- Blind person’s credits
A blind person’s credit is available to those taxpayers who are permanently blind and the amount of the credit is $900 per year. So who can take advantage of this credit? A taxpayer who is blind and those taxpayers with spouses who are blind and not earning any income.
- Invalid appliances and medical expenses credits
Taxpayers who pay for medical expenses out of their pocket may take advantage of this credit and I believe this is now especially relevant with how medical aid societies have become unreliable. For example, if you pay medical bills of say $2,000 and you do not get a refund from your medical aid or there is a shortfall you will get a credit equivalent to 50% of the amount you would have paid, which in this case it would be $1,000.
- Mentally or physically disabled person’s credits
The above credit is available to those taxpayers who may be mentally or physically disabled and the amount of the credit is $900 per annum. Therefore, effectively taxpayers with the above conditions can reduce their annual PAYE by as much as $900.
So as employees and employers how can we make use of the above information? This knowledge can be used during contract negotiations with your employer, in order to come up with the most tax efficient way of being remunerated. Employers also have a task of educating their employees on these credits as it would go a long way in improving staff morale.
Make use of these credits, that extra dollar per month can take you a long way. Next time you receive your payslip, take time to recalculate your taxes or seek the services of a professional who can assist in this exercise.