Budget 2026 introduced changes to PAYE that every South African employer running their own payroll needs to have applied by now. If your payroll software has not been updated, or if you missed the EMP501 annual reconciliation deadline in May, this guide explains what changed, what it means for your employees, and what to do next.
What Changed for 2026/27
Income tax brackets adjusted for inflation
For the 2026/27 tax year (from 1 March 2026), income tax brackets were adjusted upward by 3.4% to account for inflation. This adjustment prevents bracket creep, the situation where salary increases that simply keep pace with inflation push employees into a higher tax bracket without any real increase in purchasing power.
In practical terms, employees who received inflation-linked salary increases in the 2026/27 year should see similar net take-home pay relative to last year, assuming no other changes to their remuneration structure. If your payroll software was not updated with the new brackets from 1 March 2026, employees will have been overtaxed since then, and a correction is required.
Medical scheme fees tax credits updated
The medical scheme fees tax credit (MTC) for 2026/27 is:
- –R376 per month for the main member
- –R376 per month for the first dependant
- –R254 per month for each additional dependant
This credit reduces the PAYE withheld from each employee's salary directly. If your payroll system is still calculating the credit at the old 2025/26 rates (R364 for the main member and first dependant, R246 per additional dependant), employees are being undertaxed slightly, and your EMP201 submissions since March 2026 will be incorrect.
Update your payroll software to the 2026/27 rates immediately if you have not already done so.
Your Monthly EMP201 Obligations
The EMP201 is the monthly declaration you submit to SARS combining PAYE, SDL (Skills Development Levy), and UIF (Unemployment Insurance Fund). It is due by the 7th of each month for the preceding month's payroll.
EMP201 submissions since March 2026 should already reflect the 2026/27 rates. If they do not, you have a discrepancy between what you declared and what the correct liability was. The most straightforward fix is to correct the payroll calculations and submit a revised EMP201 for any affected period. Our [payroll services](/services/payroll) team handles this regularly.
Late or incorrect EMP201 submissions attract penalties and interest. SARS calculates these automatically and they appear on your employer tax account. If you notice a growing balance on your SARS employer account that you cannot reconcile, the cause is almost always an EMP201 discrepancy.
The EMP501: If You Missed the May Deadline
The EMP501 annual reconciliation covers the period from 1 April 2025 to 28 February 2026. The filing window opened on 1 April 2026 and closed on 31 May 2026.
If you missed it, you have a few options:
File late now
SARS accepts late EMP501 submissions. File as soon as possible. The longer you leave it, the larger the late submission penalty. A late EMP501 also means your employees cannot receive their IRP5 certificates, which they need for their own ITR12 returns during Tax Season 2026. This creates a downstream problem for your staff.
Apply for penalty remission
If there are genuine grounds for the delay, such as a technical issue, a staff change, or a system failure, you can apply to SARS for remission of the penalty. Remission applications need to be motivated in writing and submitted through eFiling. They are not guaranteed, but they are worth making if the grounds are legitimate.
Get professional help
If your records for the 2025/26 year are incomplete or your payroll data is disorganised, filing a correct EMP501 from scratch is not straightforward. The reconciliation must match every IRP5 and IT3(a) certificate issued, and every EMP201 submitted during the year. Any gap will trigger an audit query.
Sikatrix handles late EMP501 filings for employers across Alberton, Johannesburg, and Gauteng. We reconstruct the payroll records, reconcile the data, prepare the EMP501, and manage any SARS correspondence that follows.
UIF and SDL Have Not Changed
SDL remains at 1% of gross remuneration (excluding exempt employees and those earning below the UIF threshold). UIF remains at 1% from the employee and 1% from the employer. Neither rate changed in Budget 2026.
If your payroll has a discrepancy on these lines, the cause is almost always an incorrect remuneration base being used, not a rate change. Check that bonuses, commissions, and allowances are being included in or excluded from the SDL base correctly.
What to Do Right Now
If you are running payroll in-house, work through this checklist:
- –Confirm your payroll software is updated to the 2026/27 PAYE brackets
- –Confirm the medical scheme tax credit rates are updated (R376 and R254 as above)
- –Confirm your March to May 2026 EMP201 submissions used the correct rates
- –If you missed the EMP501, file it now and do not wait for a SARS query
If you are not confident about any of these steps, outsourcing payroll is a practical solution. A correctly processed payroll costs less than a SARS audit and the management time required to resolve penalties. Learn more about how [outsourced payroll connects with your accounting](/services/payroll) at Sikatrix.
Get Your Payroll Right
Contact Sikatrix to review your payroll setup, file your outstanding EMP501, or take over your monthly payroll processing. We work with employers from one employee to 200 across Alberton, Johannesburg, and Gauteng.
Daniel Amoah is a Professional Accountant (SA), SAIPA #45969 and SARS Registered Tax Practitioner PR-0104889 at Sikatrix Business Accountants, Alberton.
