PAYE on bonuses: why your bonus month's tax looks wrong

Every December, the same message goes around: “they taxed my bonus at 50%!” Almost always, they didn't. What happened is the difference method — the way PAYE is legally calculated on irregular payments — and once you see the arithmetic, the payslip stops looking like a punishment.

The key fact: income tax is an ANNUAL tax on annual income. Your monthly PAYE is only ever an instalment towards it, and a bonus changes what the year's total will be.

The difference method, step by step

For a once-off payment like a bonus, payroll doesn't tax the bonus at your monthly rate. It does this instead:

• •Annualise your regular pay: monthly salary × 12.
• •Work out the full-year tax on that annual figure using the tax tables and your rebates.
• •Add the bonus to the annual figure and work out the full-year tax again.
• •The PAYE on the bonus is the DIFFERENCE between the two annual tax amounts.

The bonus is effectively taxed as the top slice of your annual income — at your marginal rate, not your average rate. That's why it feels heavy: your ordinary monthly PAYE is an average across all the brackets your salary climbs through, while the bonus lands entirely in the highest bracket you reach.

A worked example

Take a salary of R30,000 a month — R360,000 a year — and a R60,000 bonus, using the 2026 year of assessment tables for a taxpayer under 65. Tax on R360,000 for the year is about R60,978 after the primary rebate, roughly R5,081 a month. Tax on R420,000 (salary plus bonus) is about R79,478. The difference — R18,500 — is the PAYE on the bonus: about 31%, exactly the marginal bracket that income falls into. Not 50%; not your usual ~17% average rate either. Both intuitions are wrong; the tables are just doing what tables do.

Why it sometimes comes back at assessment

PAYE is an estimate of an annual liability paid monthly. If the bonus month's withholding assumed a full year at that pace, or your income dropped later in the year, or you have deductions payroll didn't see (retirement annuity top-ups, medical credits not on the payslip), the annual assessment squares it up — and that's where the “bonus tax” comes back. The system isn't taking extra; it's front-loading, and the ITR12 is where the truth settles.

One genuine trap: an employer who pays a large bonus but calculates PAYE on the simple monthly tables (treating it as ordinary salary) under-withholds, and the employee gets an assessment DEBT in July. If your bonus month's tax looked suspiciously light, that's the version to worry about.

Botswana differs

Botswana PAYE works from BURS's own tables and brackets, with different rates and no rebate system shaped like South Africa's — but the annualisation logic for irregular payments is conceptually the same: the bonus is taxed as a top slice of the year.

Seeing it in Ledgr

Ledgr's payroll shows the difference-method working on the payslip itself — the two annual computations and the difference — so “why is this number what it is” has an answer you can point at, for you and for the employee asking. If you run payroll for a small team, that one screen ends most of the December argument.

If bonuses raise the bigger question of paying yourself through a company versus drawing as a sole proprietor, start with sole proprietor vs (Pty) Ltd.