How To Calculate Your Taxes

Understanding Taxes and Your Take Home Pay

In Barbados there are two mandatory taxes that we pay as residents. In today’s post we’ll be taking a look at what they are and how you can calculate them to make sure that they are being correctly deducted from your paycheck each month. Let’s get started!

National Insurance

The body responsible for social security in Barbados is the National Insurance Scheme (NIS) which began operations in June 1967. Currently the NIS covers all salaried and self-employed workers and offers five (5) types of social security benefits with payments from three different funds.

Despite being a small developing country, Barbados prides itself on having the pioneer social security schemes in the Caribbean both in terms of opening date and scope of benefits offered. The National Insurance Scheme of Barbados is or social security program. The basic concept of Social Security is that people contribute to the program while they work in order to receive a monthly old-age pension.

Each month we contribute 11.1%* of our salary up to the NIS Ceiling, which is currently $4,880 per month or $1,126 weekly, towards the National Insurance Scheme. This 11.1% is broken down into other funds and levies as follows:

Below is a graph of historical NIS Ceilings. The first 7 dates are missing, but correspond to:

  • 1967 to 1973 – $50/wk
  • 1974 to 1977 – $100/wk
  • 1978 to 1981 – $230/wk or $1000/mo
  • Jan. 1982 to May 1984 – $506/wk or $2,200/mo
  • June 1984 to Dec. 1986 – $598/wk or $2,600/mo
  • Jan. 1987 to Sept. 1991 – $600/wk or $2,600/mo
  • Oct. 1991 to Dec. 2004 – $715/wk or $3,000/mo

Let’s calculate together…

Meet Kevin. He is paid a monthly salary of $3,000 per month, which is less than the current ceiling of $4,880. His NIS contribution each month will be $3,000 x 11.1% = $333.

What if Kevin was paid weekly? His weekly earnings are as follows: $500, $700, $1300, $500.

In weeks 1, 2 & 4, all we have to do is multiply his earnings be 11.1% bring us to $55.50, $77.70 and $55.50 respectively.

In week 3 he earns more than $1,126 and therefore the extra $174 is not taxable. His contribution is based on $1,126 and not $1,300.

In total he contributes $55.50 + $77.70 + $124.99 + $55.55 = $313.69

*This contribution rate is private sector employees. Contribution rates vary for other sectors.

Click the image to download.

Income Tax

Income Tax, also known as Pay As You Earn or PAYE is the other mandatory tax applicable for:

  1. Individuals who are both resident and domiciled in Barbados is taxed on their worldwide income.
  2. Individuals who are resident but not domiciled Barbados are taxed on income from Barbados and from any other source outside of Barbados where there is a benefit obtained in Barbados.

Starting January 2020, the personal income tax rates are as follows:

  • 12.5% on the first $50,000 of taxable income;
  • 28.5% on taxable income above $50,000;

Let’s calculate together…

Using Kevin’s salary of $3,000.

We know that the personal allowance is $25,000 annually or $2,083.33 monthly.

How much of his income is taxable?

To do this we subtract the personal allowance from his monthly income, $3,000 – $2,083.33 = $916.67.

How to use the threshold?

Based on the above the threshold is $50,000 annually or $4,166.67 monthly. If your monthly income is below $4,166.67 you fall into Band 1 and will be taxed at 12.5%. For Kevin, he owes $916.67 x 12.5% = $114.58 this month.

Meet Mary, she earns $6,500 per month or $78,000 per annum.

Mary’s PAYE Calculation:

Taxable Income = $6,500 – $25,000/12 = $6,500 – $2083.33 = $4416.67

Band 1 = $4166.67 x 12.5% = $520.83

Band 2 = $250 x 28.5% = $71.25

Total PAYE = $592.08

Salary Deductions

Another thing to take into consideration when calculating your net salary is salary deductions. The include, but are not limited to: company pension contributions, group life and group health.

Resources

National Insurance Scheme

Barbados Revenue Authority

Barbados Revenue Authority PAYE Tax Calculator

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