It’s common knowledge that there is a salary ceiling of $4,500 for both employer and employee CPF contributions.
If you earn more than $4,500, you only need to contribute $900 (=20% x $4,500) to your CPF.
Even if you make $20k a month, you still contribute $900. Your employer contributes $652.50 (=14.5% x $4,500). The rates are lower if you are above 50 years old.
But do you know there’s also a ceiling for bonuses?
It is known as Additional Wage Ceiling, or AW Ceiling in short.
The key idea is this: Your total wages subject to CPF cannot exceed $76,500 for the entire year.
This means: If you earn more than $4,500 per month and receive a huge bonus for 2009, only $22,500 of that bonus is subject to CPF.
Why? Because your ordinary wages’ CPF already amounts to $4,500 x 12 = $54,000. So this leaves $76,500 – $54,000 = $22,500 for your bonus’ CPF contribution.
When did you first hit the $76,500 limit?
3 Comments
Hitting the limit is a function of how many months of your bonus did you receive and your salary.
The $22,500 figure is based on 5-month of $4,500 principle. If you work in an industry with 12-month bonus of $3,000, you will hit the limit. Howevever, if your work only has a 2-month bonus (including AWS), but your salary is $10,000, you will still be able to stay within the limit. This subtlety can make a difference to your CPF portion of your salary, when trying to assess the total package.
I first knew this when I became a self-employed contractor and wanted to mimic CPF contributions as the policy. Realized I didn’t get the best deal when I started computing!
Hi Kevin,
Care to share more on this aspect? Thanks!
“Realized I didn’t get the best deal when I started computing!”
Crossroads: Not really big deal. I always thought bonus is counted in months and each bonus month, the CPF is limited to $4,500. Only realized after I signed a deal that the computation is limited by a pre-computed bonus threshold figure ($22,500). So I didn’t get that part of the CPF, because my bonus was less than $22,500 and I just took the physical months (i.e., 2 x using 4,500 as the threshold) and add back that portion to the value of my contract services.