Tax calculations: Independent vs Average

Intro
There are ways of calculating tax for a payperiod: you could treat each payperiod as an independent event, or you can use the paid to date for the year to calculate the tax owed.

On TalyPayroll these are called independent periods and Average respectively.

Differences
If an employees earns the same amount throughout the year, then both methods will give the same, correct, results.

However, if a person's taxable amount moves between tax brackets during the year, the Average method will give more accurate results, as it will always make sure that the tax deducted at the end of the tax year is exactly correct. The only reason to not use Average is that the tax calculations could be confusing to employees, who might think you are deducting too little or too much tax.

Examples
Take an employee who earns 5500 per month for 3 months, and then 6500 for the remaing 9 months of the tax year.

Their tax deductions would look as follows using the independent periods method. Tax is calculated on the taxable of that month, and all previous months are ignored. Salary         Tax March 2014	R 5,500.00	0 April 2014	R 5,500.00	0 May 2014	R 5,500.00	0 June 2014	R 6,500.00	R 109.50 July 2014	R 6,500.00	R 109.50 August 2014	R 6,500.00	R 109.50 September 2014	R 6,500.00	R 109.50 October 2014	R 6,500.00	R 109.50 November 2014	R 6,500.00	R 109.50 December 2014	R 6,500.00	R 109.50 January 2015	R 6,500.00	R 109.50 February 2015	R 6,500.00     R 109.50 R 75,000.00    R 985.50

Using the Average method, the table nows looks like this Salary         Tax March 2014	R 5,500.00	0 April 2014	R 5,500.00	0 May 2014	R 5,500.00	0 June 2014	R 6,500.00	0 July 2014	R 6,500.00	R 7.50 August 2014	R 6,500.00	R 109.50 September 2014	R 6,500.00	R 109.50 October 2014	R 6,500.00	R 109.50 November 2014	R 6,500.00	R 109.50 December 2014	R 6,500.00	R 109.50 January 2015	R 6,500.00	R 109.50 February 2015	R 6,500.00	R 109.50 R 75,000.00	R 774.00

Compare the two and you will see that the first method deducts R 211.50 too much tax. Especially note the June and July figures.