Every month, your employer deducts a portion of your salary and hands it to SARS before you even see it. That deduction is PAYE — Pay As You Earn. But most employees have no idea whether their employer is deducting the right amount, what the actual brackets are, or how to reduce what they legally owe. This guide walks through exactly how PAYE is calculated in 2026, with a full worked example on a R40,000 salary.
What is PAYE?
PAYE (Pay As You Earn) is South Africa's system for collecting income tax from employees at source. Rather than billing you once a year for your total tax liability, SARS requires your employer to deduct an estimated portion of your annual tax from each salary payment and remit it monthly on your behalf.
Your employer calculates PAYE using your employment income, deductions you have declared (like retirement annuity contributions), and the number of pay periods in the year. The amount deducted each month is designed so that by the end of the tax year (28/29 February), you have paid roughly what you owe — with any over- or under-payment settled through your annual tax return.
If you have only one employer and your finances are straightforward, you may not even need to submit a tax return — SARS may assess you automatically. But if you have side income, investment returns, rental income, or complex deductions, you need to file.
The 2025/26 SARS tax brackets
South Africa uses a progressive tax system — you pay a lower rate on the first rands you earn, and a higher rate on each additional bracket. You never pay the top rate on your full income.
The brackets below are the official SARS 2025/26 tables and apply to the tax year ending 28 February 2026.
| Taxable Income | Tax Payable |
|---|---|
| R0 – R237,100 | 18% of taxable income |
| R237,101 – R370,500 | R42,678 + 26% on the amount above R237,100 |
| R370,501 – R512,800 | R77,362 + 31% on the amount above R370,500 |
| R512,801 – R673,000 | R121,475 + 36% on the amount above R512,800 |
| R673,001 – R857,900 | R179,147 + 39% on the amount above R673,000 |
| R857,901 – R1,817,000 | R251,258 + 41% on the amount above R857,900 |
| R1,817,001 and above | R644,489 + 45% on the amount above R1,817,000 |
Tax threshold under 65: R95,750/year. If your annual income is below this, you owe no income tax. For a monthly salary, this threshold is approximately R7,979/month.
Rebates: the amounts subtracted from your gross tax
Once your gross tax liability is calculated from the brackets, SARS subtracts rebates — fixed rand amounts that reduce what you owe. These are not deductions from income; they are direct reductions of your tax bill.
| Rebate | Annual Amount |
|---|---|
| Primary rebate (all taxpayers under 65) | R17,235 |
| Secondary rebate (age 65–74) | R9,444 |
| Tertiary rebate (age 75+) | R3,145 |
A taxpayer under 65 always gets the primary rebate. A taxpayer aged 65–74 gets both primary and secondary. Age 75+ gets all three. The rebates are cumulative, not alternative.
Medical tax credits
In addition to rebates, SARS allows a monthly medical scheme fee tax credit — a direct reduction of your tax liability for belonging to a registered medical aid.
| Beneficiaries | Monthly Credit |
|---|---|
| Member + first dependant | R364 |
| Each additional dependant | R246 |
These credits are deducted from your tax liability after the bracket calculation and after the primary rebate. They are not income deductions — they reduce your tax rand-for-rand.
Example: if you are on a medical aid covering yourself and one child, you receive R364/month in medical credits, reducing your annual tax bill by R4,368.
Worked example: R40,000/month salary
Let's calculate the PAYE for a 35-year-old earning R40,000/month gross, with no retirement annuity contributions and a medical aid covering themselves only (one beneficiary).
Step 1: Annual taxable income R40,000 × 12 = R480,000/year
Step 2: Gross tax from brackets
- First bracket: R237,100 × 18% = R42,678
- Second bracket: (R370,500 − R237,100) × 26% = R133,400 × 26% = R34,684 → total so far: R77,362
- Third bracket: (R480,000 − R370,500) × 31% = R109,500 × 31% = R33,945 → total: R111,307
Gross tax = R111,307
Step 3: Subtract primary rebate R111,307 − R17,235 = R94,072
Step 4: Subtract medical tax credits R364/month × 12 = R4,368/year R94,072 − R4,368 = R89,704/year
Step 5: Monthly PAYE deduction R89,704 ÷ 12 = R7,475/month
Summary for R40,000 gross salary:
| Item | Monthly |
|---|---|
| Gross salary | R40,000 |
| PAYE | −R7,475 |
| UIF (1% of gross, capped) | −R177 |
| Take-home pay | ~R32,348 |
The effective tax rate on this salary is 18.7% — meaningfully lower than the marginal rate of 31% that applies at the top of their income range, because the lower brackets are taxed at lower rates.
How a retirement annuity (RA) reduces your PAYE
Contributions to a retirement annuity (RA) or approved employer pension fund are deductible against your taxable income, up to 27.5% of the higher of remuneration or taxable income, capped at R350,000/year.
Using the same R40,000/month example: if you contribute R4,000/month to an RA (R48,000/year):
- Taxable income drops from R480,000 to R432,000/year
- Gross tax recalculated: R77,362 + (R432,000 − R370,500) × 31% = R77,362 + R19,065 = R96,427
- After rebate: R96,427 − R17,235 = R79,192
- After medical credits: R79,192 − R4,368 = R74,824/year
- Monthly PAYE: R6,235/month (down from R7,475)
The R4,000/month RA contribution saves R1,240/month in PAYE — meaning SARS effectively subsidises R1,240 of your R4,000 contribution. Your net cost of saving R4,000 is only R2,760/month.
This is one of the most powerful legal tax reduction tools available to employed South Africans.
How to check if your employer is deducting the right amount
Your employer issues an IRP5 certificate at the end of each tax year showing all remuneration paid and all PAYE deducted. Here is how to check it:
1. Get your IRP5. Your employer must provide this by 31 May after the tax year ends. It is also available on your eFiling profile if your employer is registered.
2. Check code 4102. This is the PAYE deducted. Add up the monthly deductions on your payslips and compare to the IRP5 total.
3. Compare to your calculated liability. Using the brackets and rebates above (or the Calcura Tax Calculator), work out what your annual PAYE should be. If your employer deducted materially more or less, you will receive a refund or owe additional tax when SARS assesses you.
4. Check code 4001. This is your employment income. Make sure it matches your total gross salary for the year.
5. Check medical credit code 4116. Confirm the medical scheme credit applied matches your actual dependants.
If you find an error, speak to your employer's payroll department first. Errors in PAYE are corrected through the annual return process — SARS will adjust when you submit your ITR12.
Common PAYE mistakes employees make
Assuming a pay rise puts them in a higher bracket on their full income. The progressive system only taxes the rands above the bracket threshold at the higher rate. If a R5,000 raise moves you into the next bracket, only the rands above the threshold are taxed at the new rate — not your entire salary.
Not declaring their RA contributions to their employer. If your employer does not know about your RA contributions, they cannot apply the deduction to your PAYE calculation. You will overpay tax during the year and claim the refund only at tax return time. Submit an IT3(a) or declaration to your payroll department.
Forgetting the medical credit. If you join a medical aid mid-year or add dependants, update your employer so they apply the correct credit going forward. Do not wait until year-end.
Use the Calcura Tax Calculator to calculate your exact take-home pay — enter your gross salary, retirement contributions, medical aid dependants, and any additional income to see your full PAYE breakdown.