There is a growing number of self-employed persons in Singapore with the latest count at around 211,000 individuals according to MOM’s 2019 Labour Force Report. In total, self-employed persons comprise 9.3% of the workforce, with a further 1.9% of employees also working as a self-employed person in some capacity.
As a self-employed person, you are required to contribute to your own CPF account each year.
How Much Do Self-Employed Persons Have To Contribute To Their CPF?
Unlike salaried employees, self-employed persons in Singapore are only required to contribute to their own MediSave Account (MA). You only need to do this if you have a net trade income of above $6,000 a year, that you submit to IRAS.
Even if you have a full-time job where you already make CPF contributions from your salary, you still have to contribute to your MediSave if your net trade income from your side hustle or freelancing gig is above $6,000 a year. This is regardless of whether you are earning more than the $6,000 monthly salary ceiling for CPF contributions. This is also the same for employees with more than one job.
The amount you contribute to your MediSave Account also varies according to your age and salary.
|Net Trade Income (Year)||$6,000 to $12,000||Above $12,000 to $18,000*||Above $18,000|
|Below 35 Years||4.00%||4.00% to 8.00%||8.00%|
|35 to 44 Years||4.50%||4.50% to 9.00%||9.00%|
|45 to 49 Years||5.00%||5.00% to 10.00%||10.00%|
|Above 50 Years||5.25%||5.25% to 10.50%||10.50%|
* To determine the actual percentage you have to pay if you earn above $12,000 to $18,000, you have to use the following formula:
|Net Trade Income (NTI)||Below 35 Years||35 to 44 Years||45 to 49 Years||Above 50 Years|
|Above $12,000 to $18,000||[480 + 0.16(NTI-12,000)] x 100/NTI||[540 + 0.18(NTI-12,000)] x 100/NTI||[600 + 0.20(NTI-12,000)] x 100/NTI||[630 + 0.21(NTI-12,000)] x 100/NTI|
You can use CPF’s Self-Employed MediSave Contribution Calculator to derive how much you need to contribute to your MediSave Account. Or you could do it the hard way, like we did with the examples below.
For example, if you earn $400 a month ($4,800 a year) from your side hustle, you do not have to make any contributions to your MediSave Account.
If you earn $3,000 a month ($36,000 a year) you have to contribute between 8.0% and 10.5% to your MediSave Account, depending on your age. This amounts to $2,880 to $3,780. If you earn $6,000 a month ($72,000 a year) or more, you will only have to contribute up to the maximum amount.
If you earn $1,250 a month ($15,000 a year) – this is where the complicated equation comes into play. Let’s take the example of a 45-year-old individual – who would have to contribute between 5.0% to 10.0% to their MediSave Account. The actual figure is [600 + [0.20(15,000-12,000)] x 100/15,000 = 8.0%. So, you have to contribute 8.0% (or $1,200) of your $15,000 net trade income to your MediSave Account.
Self-Employed Persons Are Only Required To Contribute To MediSave
As you would have noticed, the calculations only centre around a self-employed person’s MediSave Account. You don’t have to make any mandatory contributions to your Ordinary Account (OA) or Special Account (SA).
Your MediSave Account balances is meant for your healthcare needs, especially in old age. You can use it similarly to any other Singaporean or PR, to pay for eligible healthcare expenses and by offsetting some of your healthcare insurance such as MediShield Life and CareShield Life, and you can also tap on Additional Withdrawal Limits (AWLs) to pay for your Integrated Shield Plans (IPs) and CareShield Life supplements.
Even if your MediSave Account has already reached the Basic Healthcare Sum (BHS), you are still required to make MediSave contributions. This is similar to salaried employees – where excess amounts will flow into your Special Account or Retirement Account.
When Do You Need To Make MediSave Contributions?
After submitting your tax returns, IRAS will send you a Notice of Assessment (NOA). Subsequently, you will receive a Notice of Computation (NOC) stating how much MediSave contributions you have to make. You need to make your MediSave contributions within 30 days of receiving the NOC.
If you do not receive an NOA, you need to make your MediSave contributions by 31 May of the following year. This means for your 2020 net trade income, you need to contribute to your MediSave by 31 May 2021.
Tax Relief For CPF Contributions To Your Ordinary Account, Special Account And MediSave Account
As you know, salaried employees typically contribute up to 37% – with up to 20% coming from their salary and up to 17% coming from their employers – of their salaries to their CPF Ordinary Account (OA), Special Account (SA) and MediSave Account (MA). They receive tax relief on these earnings.
While self-employed persons only have to contribute to MediSave, you can receive a tax relief of up to 37% of your net trade income, up to the CPF Annual Limit of $37,740, by making Voluntary Contributions to all three CPF accounts.
The portion that goes into your MA will offset your MediSave payable as a self-employed.
Of course, like any other Singaporean or PR, you can also receive tax relief for making contributions via the Retirement Sum Topping Up (RSTU) Scheme.
Should You Make Voluntary Contributions?
If you are considering whether to make Voluntary Contributions (VC) to your CPF, you need weigh up the pros and cons.
Pro: you get a hefty tax relief and you are also saving up for important expenses for housing and retirement.
Cons: as Voluntary Contributions are irreversible, you lose liquidity to plough funds back into potentially growing your business.
How To Make Your MediSave Contributions?
The easiest way is to make your MediSave contributions via a Giro instalment plan.
1) log in to CPF with your SingPass; and
2) Submit the “Supply / Change GIRO for Mandatory MediSave Contributions and Voluntary Contributions by Self-Employed” application.
You can also pay through eNETS Debit, NETS or CashCard.
What Is The Contribute-As-You-Earn (CAYE) Scheme?
For some self-employed persons, you will have a relatively short window between receiving the Notice of Computations from IRAS and making your MediSave contributions. Those who have not set aside the funds will also find themselves stretched to make the contribution in time.
To remove this hassle/stress, CAYE is a pilot scheme where the Singapore government, as a service buyer, will credit a portion of the payment to the self-employed person’s MediSave Account, before paying the remainder to the individual.
This will not change the amount of MediSave contributions that a self-employed person needs to make based on your net trade income. This formula will be used to estimate your MediSave contributions.
CAYE contribution rate = (A+B)/C
A: Your MediSave contribution rate for your estimated annual Net Trade Income and age for the year;
B: Your estimated annual Net Trade Income for the year; and
C: Your estimated annual revenue for the year
Self-employed individuals with government contracts can estimate their annual revenue and expenses by logging into CPF with their SingPass.
What Is The Drive And Save (DAS) Scheme?
Taxi drivers (separate from private hire drivers) form the largest proportion of self-employed persons with 34,200 individuals as at June 2019.
Under the DAS, all taxi principal hirers who make monthly contributions to their MediSave accounts are eligible to receive co-contributions from their taxi operators. This scheme has been in place since 1 January 2011.
All eligible drivers who contribute at least $20 a month will receive a co-contribution of $20 a month from their taxi operators.
What Happens If You Don’t Pay Your MediSave Contributions?
When you do not contribute to your MediSave Account, you are running the risk of not saving enough for your healthcare needs. This becomes especially crucial in your senior years.
Apart from that, there is also a legal requirement under the CPF Act for self-employed persons to make MediSave contributions. CPF Board will typically work with those who have genuine financial difficulties to pay through instalments or a reasonable period.
Those who do not contribute may be taken to court where you face a fine of up to $2,500 for first-time offenders and $10,000 for subsequent offences. This is usually reserved as a last resort.
If you do not make your MediSave contributions, you may not be able to renew your ACRA or LTA licence, this may also hinder your ability to keep your bank account open. If you are in a partnership, all partners need to contribute to their MediSave before being able to renew your business licence(s). Hence, you may be at the mercy of your partners making their MediSave contributions.
Need Financing Support During This Period?
From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.
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