For many working Singaporeans, receiving your performance bonus could be the highlight of the job every year. However, before you dream of the following big vacation, expenditure or package you’re going to commit together with your bonus, you should pause and consider potential financial implications.
Here are 3 things you need to understand before you decide to receive your bonus, annual pay increment, and hopefully, your pay jump when you change jobs.
#1 You'll Be Paying Taxes On Bonuses You Received In The Previous Year
Our tax bill for this year (2021) based on the previous calendar year's income. What this means is, for that upcoming tax reporting season, our taxable income will be based around the income earned in 2021 (or YA2021 as IRAS likes to put it).
This means taxes on bonuses you obtain this season are next year's 'problem'.
#2 You Can Estimate Your Income tax bracket For YA2021 – And Do Something About It In front of Time
By adding up any bonuses you receive this season towards the rest of your taxable income (just like your salary), and then deducting reliefs and deductions you be eligible for a, you can aquire a feeling of which tax bracket you'll fall under, and take actions within the year to reduce your goverment tax bill.
Some common reliefs and deductions include reliefs for CPF salary contributions, earned income, being an NS man, making charitable donations, making voluntary CPF top-ups and topping your Supplementary Retirement Scheme (SRS) account.
By looking at all of the tax deductions and reliefs you may qualify for, you will get a concept of you skill within the year to lower your income tax bracket and final tax bill.
In particular, the Supplementary Retirement Scheme allows both Singaporeans and foreigners working in Singapore to reduce taxes today while helping these to better prepare for retirement tomorrow. However, the latter can only happen if you were to invest your SRS funds, instead of allow it to sit inside your SRS account.
Platforms like Endowus allow you to start a Regular Savings Intend to invest your SRS monies cost-effectively. Whether it a lump sum single investment, or monthly recurring investment, you pay the same 0.4% as a whole fees – with no foreign exchange charges, no sales charges, with no hidden costs.
#3 You Will Get a Increase in Your CPF Due To The Additional Wage Ceiling
A part of your bonus is going to be subjected to CPF contribution on your part as well as your employer. The Additional Wage Ceiling (“AWC”) may be the maximum quantity of annual wage susceptible to CPF contribution annually through the employer and employee. The formula is as follows:
$102,000 – Projected CPF Ordinary Wages Susceptible to CPF Contribution
Ordinary Wages generally describes your monthly salary, which only $6,000 each month is susceptible to CPF contribution.
Here's an illustration of methods much CPF contribution your bonus is subjected to, based on your monthly salary. In our example we assumed that wages are stagnant all year round:
|Mr X.||Mrs Y.||Mr Z.|
|Your Monthly Salary||$3,000||$7,000||$7,000|
|Amount of Bonus received||$9,000||$20,000||$40,000|
|Bonus put through CPF contribution||$9,000
|$20,000 Maximum bonus subjected to CPF ($102,000 – $6,000 * 12 = $30,000)||$30,000|
Table 2: CPF Allocation rates according to age
Do observe that the power figures above aren't including employer contribution. Multiply the CPF contribution figures with the relevant allocation ratios shown in Table 2 to discover just how much you're going to get in your various CPF accounts. If Mr Z is below 35 years old, he'll contribute 23% of $30,000, which is $6,900 into his CPF OA account.
Stretch Your Cash Bonuses
One-off bounties like bonuses are wonderful, but disciplined planning will allow you to benefit from it beyond this month and twelve months.
With a much better understanding of the financial implications of your bonuses, you can begin to take action to optimise your money and start investing towards your financial targets. If you're interested, you may also find out more about Endowus' CPF or SRS investment offerings.
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