Looking forward to bracket creep tax relief? Your April payslip may tell a very different story.

Now that the dust has settled on the inflationary adjustments to personal income tax brackets announced in the 2026 Budget, many may be expecting some welcome relief. However, a closer look reveals that this “relief” may not translate into any meaningful increase in take-home pay – and in some cases employees could be worse off. 

While the 3.4% adjustment to tax brackets aligns with inflation, there is more beneath the surface, says Tanya Tosen, Tax and Remuneration Specialist at Tax Consulting South Africa.

What appears to be relief on paper is quickly eroded by rising costs, most notably, medical aid contributions. With medical aid increases averaging 7–8% annually, far outpacing the bracket adjustment percentage, any marginal gain could be erased. 

Compounding this pressure is instability in the Middle East, driving higher global oil prices. For South African employees, this means rising fuel and transport costs, with knock-on increases across goods and services — quickly wiping out any perceived tax relief.

Tosen notes: “Employees are under sustained financial pressure with rising living costs. Employers need to rethink remuneration strategies and introduce greater flexibility to align with employees’ individual needs and realities.”

Years of “Silent Tax Increases” Are Catching Up

During a post-Budget webinar, Tosen said the 2026 adjustment does little to undo the cumulative impact of insufficient or no adjustment to tax brackets between 2022 and 2025. Over time, this has steadily eroded purchasing power, while pushing employees into higher tax brackets as salaries increase – a classic case of bracket creep. 

“I do not think the 2026 inflationary relief is significant when you crunch the numbers” says Tosen. “Taxpayers have carried this burden for several years. HR and payroll teams need to fully understand the ongoing impact and how it will affect employees going forward.”

The reality is clear: for many employees, the numbers simply are not adding up. 

Poll results from the post-Budget webinar highlight this sentiment:

• 48% say the tax relief only partially offsets inflation
• 43% believe employees are still losing purchasing power

Medical Aid Increases: The Hidden Payslip Killer

The real impact will become evident in April 2026, particularly for members of Discovery Health Medical Scheme whose contribution increases take effect on 1 April 2026.

Tosen illustrated this with practical calculations, showing just how quickly tax relief can be eroded. 

On a certain remuneration package with four members on the Classic Saver plan, an employee who might have seen an extra R324 per month in his pocket thanks to tax relief, could instead be R815 worse off due to higher medical aid premiums. On Classic Comprehensive for a family of four, take-home pay could decline by as much as R1 730 per month. 

In short, what looks like relief on paper becomes a net loss in reality.

Employers: The Real Risk Is Not Cost – It Is Retention

This growing pressure creates a critical, and often underestimated, risk for employers. In a competitive talent market, even small differences in take-home pay matter. Employees are increasingly willing to change jobs for as little as R1 000 more per month in net pay, even if it means sacrificing certain benefits. 

This shifts the focus from total cost-to-company to what truly matters: net take-home pay.

One Package, Three Different Outcomes

This makes it essential for employers to rethink how remuneration is structured, says Tosen. Using various examples, she demonstrated how proactive employers who have incorporated flexibility into their structure can use this to attract and retain talent, while also significantly impacting the employee’s financial position.

Consider how three employees, each earning a Cost to Company of R75 000 per month, could structure their packages very differently: 

• A young professional, prioritising cash flow could have a higher cash salary of R69 950 with minimal benefits. 
• An employee with a young family may prioritise medical and life cover, reducing their cash salary to R64 250.
• A senior employee or executive focusing on retirement and comprehensive cover will have a cash salary of R57 000 per month.

The difference does not sit with the cash salary, but in the flexibility of the remuneration structure.

Employers Are Not Yet Responding – But They Should Be

Despites these pressures, most employers among attendees polled, are not yet taking action:

• 68% has not planned any changes yet
• 18% are reviewing remuneration structures
• 9% plan to introduce or expand flexible benefits
• 6% will absorb some of the cost increases

Tosen says while flexible benefits may not yet be a priority, they represent a significant opportunity. 

A Strategic Opportunity – Not Just a Cost Challenge

Forward-thinking employers can use this moment to:

• Enhance employee value without increasing payroll costs
• Improve retention through smarter remuneration design
• Help employees maximise tax efficiency and protect take-home income

As Tosen concludes, organisations that proactively rethink remuneration structure – particularly through flexible benefits – will be better positioned to support employees and remain competitive in an increasingly cost-sensitive environment.

Written by Tax Consulting SA