Maximize Your EPF (KWSP): TO REDUCE YOUR TAX

Majority of us are employed and part of our salary is deducted for EPF contribution.
On top of that, our employer must contribute at least 12% for those who are earning above RM 5,000 and 13% for those who are earning RM 5,000 and below.

With the recent Budget 2016, certain tax brackets have increased. The rest remains the same.

Do you know that there is a way you can reduce your tax by using EPF?

NOTE: This method is only suitable for people who like to save and invest their money. If you are struggling to meet your end every month, this is not for you. It's not for you as well, if you have no confidence in EPF.

THE ANSWER TO REDUCING YOUR TAX USING EPF IS.... (Roll the drum)

"Increase Employer's Contribution to 19%"

How does that saves me money? Is it legal? These were some of the questions I always receive whenever I talk to people. Yes, it is. Some companies already contributing higher EPF. Some contribute 15%. Some 17%.

But, that's not the point. It's by adjusting your salary by reducing it slightly and increasing the Employer's contribution.

Here is how it work?

For simplicity, I'll assume the person have no insurance, never buy books, no kids and so on. He only have a job which pays him, RM 5,000 with normal EPF contribution, which 11%. (His employer will be contributing 13% since he's salary is RM 5,000 and below).

Total Annual Earning	:	RM	60,000
Total Employer Contribution (13%)	:	RM	7,800
Total Taxable Income	:	RM	45,000
Total Tax Payable	:	RM	2,500

Let's see how much he need to pay tax if his employer contributes 19%.
But first, his salary need to be adjusted.

His total monthly salary is RM 5,650 (Inclusive of employer's EPF contribution)

So, by making adjustment his salary would become RM 4,747.90 with his employer contributing
RM 902.10, which will still gives you total salary of RM 5,650.

Total Annual Earning	:	RM	56,974
Total Employer Contribution (19%)	:	RM	10,825
Total Taxable Income	:	RM	41,974
Total Tax Payable	:	RM	2,016

That's a saving of RM 484. The payable has been reduced by almost 20%.

Now, let's say his salary is RM 10,000.

Total Annual Earning	:	RM	120,000
Total Employer Contribution (12%)	:	RM	14,400
Total Taxable Income	:	RM	105,000
Total Tax Payable	:	RM	13,100

Total Annual Earning	:	RM	120,000
Total Employer Contribution (19%)	:	RM	21,458
Total Taxable Income	:	RM	97,941
Total Tax Payable	:	RM	11,467

Now, that's a saving of RM 1,632.

Your overall total salary including employer's contribution is still the same. Isn't this wonderful?

By adjusting your salary and increasing your employer's EPF contribution to 19%, you could reduce tax and increase your savings in EPF. You would see a bigger difference if you belongs to higher tax brackets.

Can employer's contribute more than 19%?
Yes, they can. But, it would be disadvantages to the employer as anything beyond 19% can't be deducted as expenses.

So, what are you waiting for? Go talk to your finance or HR now.
The only problem would be, they might not be aware of such things and would show their blur faces to you. Only very few companies are aware of this. Good luck negotiating with them.