There is a global phenomenon that has surged through the pandemic. Side hustling and part-time work, especially remotely, have seem to become the order of the day. South Africans are no strangers to this phenomenon and are also finding ways to supplement their income.
The side hustling or part-time work seems to be the easiest part… With tax payments peeping around from every corner. For many side hustlers or freelancers, the tax season can be daunting. Especially when one does not know what is required of them for their tax submissions.
The main questions faced by hustlers are:
– What does this mean for my tax payments?
– Do I pay tax for this work and how?
– How much will I be taxed on this work
Have no fear, we’ll help answer these questions for you.
Firstly, and sadly, you will have to pay tax for your side hustle work!
Because side hustlers or freelancers don’t receive consistent paychecks of the same amount from one employer, it can become difficult to know what your total income is for the. Subsequently, what tax bracket you fall into. The most crucial thing to know here is that you will be taxed on ALL your income from your different income sources.
So, then what does this mean for your tax submission and how would you submit your tax?
Well, there are three options available:
1. SARS has an option that allows your different employers to deduct a flat rate of 25% for freelance work. These employers will pay this to SARS. At the end of the tax year, these employers should provide you with an IRP 5 and you will then use this to submit your income tax return to SARS.
Your total income earned from your different employers will then be summed up and your tax will be calculated according to the tax tables, kind of as if you were a full-time employee. All the tax you have then paid throughout the year for each employer is then subtracted from the total tax payable. If you paid more, lucky you! SARS will pay you back the different. BUT, if you paid too little, you will need to pay the difference to SARS. (Coetzee, 2021)
2. BUT, if the employers do not deduct the flat rate of 25% and provide you with an IRP5 and instead request you manage your own tax. Then you can register on SARS as a provisional taxpayer. What does this mean?
By registering and applying to be a provisional taxpayer, you can apply for a tax directive. This means that you apply to provisionally pay tax at a lower rate. If you wish to follow this method, even if the employers can do your tax for you, you will need to provide the employers with the paperwork to confirm your registration as a provisional taxpayer! Adding provisional tax payer to your SARS profile will allow you to access your IRP6, and file this for your tax submission/return.
This tax is then payable with the following payments and deadlines:
– The first payment needs to be paid within the first 6 months of the start of that tax year. The tax year commences in March, meaning the first payment will need to be made by the end of August.
– The second pay is due by the last day of the year of assessment, end of February.
– You can opt in for a third voluntary payment and this can be paid within 7 months after the year of assessment as a way to prevent accruing interest. Basically, it should be paid by end of September.
In this case, be sure to put away your tax money with each employer you work with. Save this in a separate bank account so that when the tax payment needs to be made, you are able to do so with each! (Coetzee, 2021)
3. Finally, if your employer requests you manage your tax and your do not apply to be a provisional taxpayer, it is then up to you to declare all your earnings to SARS and pay your tax in the tax submission year that opens every year in July. In this case, keep all your invoices from your different employers. It will help you organise all your paperwork for your submission!
In this case, the best thing to do is put away 25% of each invoice away. Similar to what you would do if you were a provisional taxpayer because you do not want to pay one big, hefty tax payment in one go. So best to save with each job you do! This is what the employers will have deducted from you anyway. You will then declare this income to SARS and pay over the tax amount you are required to. (Coetzee, 2021)
There you have it! A guide to tax for side hustlers/freelancers. Stay up to date with payments to mitigate finding your self in hot water with the tax man!
