Simply put, an IRP5 is a certificate which is required by law to be submitted to SARS which outlines exactly how much your employer remunerated you for services rendered.
What Does the IRP5 Include?
This can include your salary, any travel allowances, other benefits from the job, bonuses and commission income received during the tax year ended on the last day of February. Furthermore, your IRP5 will state what was deducted by your employer to be paid on your behalf, such as Unemployment Insurance Fund contributions, your portion of pension fund contributions, your portion of medical aid contributions and Pay-As-You-Earn tax.
What Are PAYE Credits?
The IRP5 then automatically pulls through to your individual tax return using your ID and tax number. This total of PAYE tax paid is referred to as credits. These PAYE credits often referred to as a deposit or a lay-by amount, are used to offset against your tax liability once you have completed and submitted your tax declaration to SARS.
- Let’s look at an example
To illustrate this; let’s say you submit your individual tax return and SARS calculates that you owe them R 5 000, and your IRP5 states that you have paid over R 4 500 in PAYE tax. The R 4 500 as per your IRP5 is used to credit the R 5 000 owing to SARS and reduce your tax liability down to R 500.
The major benefit of PAYE credits is that you were able to pay off the bulk of your liability over the 12 months and did not have to pay the R 5 000 all at once when the deadline comes.
- Refund or a payable? It changes every year
Although your employer is deducting the right amount as per the SARS generated PAYE deductions table, this is, in essence, only an estimation, as it would be impossible for your employer or SARS to actually predict what your tax liability will be at the end of the year of assessment due to the various factors that come into play. That is the reason why you might have either a refund or a payable at year-end.
If you would like another lesson on IRP5 credit or a PAYE credit, get in touch with TFF Consultants.