Withholding tax is the general idea of collecting tax at the point income is paid: the payer deducts it and hands it to the revenue authority. In South African payroll, PAYE is the withholding tax on employment income.
What it means
Withholding shifts the job of collecting tax from the taxpayer to the payer. Instead of an employee saving up to settle a yearly tax bill, the employer withholds a slice each pay period and pays it to SARS. This improves collection and spreads the employee's liability evenly across the year.
Where it fits in
In payroll, withholding is PAYE: deducted each period, declared monthly on the EMP201 and paid over with the rest of the liability. The same mechanism appears elsewhere in the tax system - dividends tax, for instance - but employment withholding is what payroll administers.
Key rules
- The payer deducts the tax and pays it to SARS, not the recipient.
- PAYE is the withholding tax on employment income.
- Withheld amounts are the employer's liability until paid over.
- Spreads the employee's annual tax across each pay period.
