facebookShould a person who just started working and earning appx $4k top up his/her CPF account to pay lesser income tax in FY2020? - Seedly

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Fiona Loh

Fiona Loh

Level 4·Analyst at Deloitte Consulting

19 Nov 2019

CPF

Should a person who just started working and earning appx $4k top up his/her CPF account to pay lesser income tax in FY2020?

Or are there other ways they should explore?

Discussion (2)

What are your thoughts?

Hariz Arthur Maloy

Hariz Arthur Maloy

19 Nov 2019

Level 15·Independent Financial Advisor at Promiseland Independent

I'd only look at income tax relief once I'm in the 11.5% tax bracket earning 80k and above per year.

But if you're considering topping up your CPF, do it because of the interest you earn and not for the income tax savings.

Elijah Lee

Elijah Lee

19 Nov 2019

Level 18·Independent Financial Advisor at Phillip Securities (Jurong East)

Hi Fiona,

If you have just started work, let's say for only 6 months this year, you'll be earning approximately $26K (including a pro-rated AWS).

The default income tax reliefs are CPF relief and earned income relief.

With an earned income relief of $1K and CPF relief of $5.2K, your total reliefs add up to be $6.2K and that brings your chargeable income to $19.8K. You won't be paying income tax on that, so there's no need to top up your CPF.

Of course, if you have bonuses and the like, then the equation changes. Let's say you get a month's bonus. Then you will have $30K of income which will grant you $6K CPF relief. Your chargeable income will come in at $23K and the tax on that is....$60.

To reduce that $60 tax bill to $0, you'll have to top up $3000 (!!!) to your SA.

I highly doubt it is worth losing liquidity on $3000 to save on $60 of tax.

Of course, in the later years, when your income increases, the numbers will change again. You can ask again a year from now for 2020 and I'll crunch numbers for you :)

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