What is withholding taxes? Withholding tax is a tax imposed by the Income Tax Act 58 of 1962 that is based on the income earned by a taxpayer. The tax earned on income is withheld at the source, which places a responsibility on the person owing an amount to another person, to withhold the correct amount of tax. The tax that is withheld by the person owing the monies, should be paid over to the SARS by them.
Withholding taxes can classified in three categories:
- Taxes withheld on payments to employees from employers
- Taxes withheld on dividend payments by companies to beneficial owners
- Taxes withheld on payments to non-residents
The purpose of withholding taxes is to create a system for convenience in paying and collecting taxes on payments made to taxpayers.
You as a taxpayer should always make sure that any taxes that are withheld on your income, for example your monthly PAYE deducted on your salary, are correctly calculated, deducted and paid over to the SARS, says Mr. Van Wyk, Accountant at CTV & Associates. The same counts for when you have investments, or are as a shareholder in a company, to which you receive dividends. The process of verifying whether the correct amount of taxes was withheld can get a bit confusing as not all payments received are taxed and withheld at the same percentage, as employees tax are withheld according to the statutory tables presented yearly at the National budget Speech by the Minister of Finance.
Over-taxing on the income earned can create a cashflow burden on you as taxpayer and will most likely result in a time consuming and administrative burden by answering the queries presented by the SARS in order to determine the cause for over-taxing.
Contact your trusted partner in finance to ensure you are taxed accordingly.
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