What is an IRP5, and how is PAYE worked out?
An IRP5 is an official tax certificate issued by an employer at the end of each tax year. It summarises exactly how much money an employee earned and how much tax was deducted from their pay.
PAYE stands for Pay-As-You-Earn. It is the monthly income tax that employers are legally required to deduct from staff salaries and pay directly to the South African Revenue Service (SARS) on their behalf.
The purpose of the IRP5 certificate
An IRP5 certificate acts as official proof of employment tax. It is the core document used when filing an annual income tax return.
The certificate breaks down earnings into standardised SARS source codes. For example, code 3601 represents a standard salary, code 3701 reflects a travel allowance, and code 4102 shows the total PAYE tax already deducted during the year. When SARS generates an auto-assessment, it collects this automated data straight from the employer's payroll system.
How payroll systems work out PAYE monthly
SARS does not look at income on a purely monthly basis; income tax is calculated on what a person earns over a full tax year. To work out monthly PAYE, payroll software uses a process called annualisation.
Every month, the software takes an employee's monthly salary and multiplies it by 12 to estimate their total annual gross income. It then subtracts any monthly tax-deductible expenses — such as contributions to a company pension fund — to find the estimated annual taxable income.
Once the annual taxable income is estimated, the software applies the official SARS progressive tax brackets to determine the base tax owed for the year.
Factoring in rebates and thresholds
Before finalising the tax calculation, the payroll system subtracts mandatory discounts called rebates.
Every South African taxpayer under the age of 65 is legally entitled to a primary rebate of R17,820 for the 2026/2027 tax year. This discount directly reduces the annual tax bill. Individuals who are 65 or older receive an additional secondary rebate, and those 75 or older receive a tertiary rebate, lowering their tax burdens further.
The payroll software divides this annual rebate discount by 12 and applies it to the monthly calculation. If an individual's annualised income is below the standard tax threshold (R99,000 for individuals under 65), the software calculates the monthly PAYE as R0.
A worked example of PAYE maths
A step-by-step calculation shows how a monthly salary of R30,000 moves through the PAYE system, assuming the employee is under 65 with no other deductions.
- Step 1 (annualise income): R30,000 monthly salary × 12 months = R360,000 annual taxable income.
- Step 2 (apply tax brackets): R360,000 falls into the second SARS bracket (R44,118 plus 26% of the amount above R245,100).
- Step 3 (calculate progressive tax): R360,000 minus R245,100 = R114,900. Next, 26% of R114,900 = R29,874. Adding the base rate: R44,118 + R29,874 = R73,992 base tax.
- Step 4 (subtract primary rebate): R73,992 base tax minus the R17,820 primary rebate = R56,172 total annual tax due.
- Step 5 (convert back to monthly PAYE): R56,172 annual tax divided by 12 months = R4,681 PAYE deducted from the payslip.
Why final tax returns can still differ
The monthly PAYE system assumes that an employee's income and deductions stay exactly the same for all 12 months of the year. When fluctuations happen, the final year-end tax calculation changes.
If an employee receives irregular overtime pay or changes jobs mid-year, the monthly payroll software can under-deduct or over-deduct small amounts of tax. This is resolved when filing the final tax return during tax season. SARS adds up the exact figures from the final IRP5 certificate. If the total monthly PAYE deductions do not perfectly match the cumulative annual tax liability, SARS either issues a tax refund or requires a top-up payment to close the gap.
Terms used on this page
- IRP5
- The tax certificate an employer submits to SARS (and gives to you) showing your pay and the PAYE deducted. It is the main data behind an auto-assessment.
- auto-assessment
- An assessment SARS issues without you filing, built from data employers, banks, medical schemes and retirement funds already sent it. If it is correct it stands; if it is incomplete you edit and submit the return yourself.
- gross income
- Income before tax and deductions come off — the number on the offer letter, not the amount that lands in the bank.
- taxable income
- The income tax is calculated on, after allowed deductions. For most salaried people it is roughly gross salary minus retirement contributions.
- rebate
- A fixed amount SARS subtracts from your calculated tax each year. It is what makes the first slice of income effectively tax-free.
- tax threshold
- The income level below which no income tax is due for the year. Different from the filing threshold, which decides whether a return has to be submitted.
- Tax Season
- The annual SARS filing window — roughly July to October for most people, and to late January for provisional taxpayers — for the tax year that ended the previous February.
Sources
Reviewed July 2026