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How to Compute Your Income Tax in the Philippines

Compute Your Income Tax in the Philippines Updated on April 2024

Most people will agree that seeing your tax on your payslip does not create happy thoughts. It is like a little mood killer every paycheck. 

But hey! We pay taxes for living in a society with roads, schools, and all the government establishments. But still, it doesn’t make it fun, though!

How can you ensure the correct amount has been deducted from your hard-earned salary? 

Will you ever know if you are being deducted with too much or too little tax? Of course, we prefer the latter. However, there is a strict rule on how the finance department in your company calculates your income tax deduction. 

You probably also heard about withholding tax and income tax. These two might seem the same, but they are different. 

To set it straight:

Withholding tax is the tax your employer deducts from your salary every payday or month, depending on your agreement. It is simply a partial payment of your income tax.

Income tax is your annual tax, which you have to file to avoid penalties. You must keep this updated to avoid paying additional fees. 

In other words, your withholding tax is like a sneak peek of what you’ll owe in income tax taken out of each paycheck. Meanwhile, your income tax is the final bill you settle with the government based on your yearly earnings.

With this in mind, how much will you have to expect to be deducted regularly on your payslip? Let us guide you on computing your income tax in the Philippines.

how-to-compute-your-monthly-income-tax

How to Compute Withholding Tax?

Tax deductions are inevitable wherever you work. That’s why it is best to know how much of your paycheck is deducted before you see it.

If you want to understand more about how to compute your tax Philippines, follow these steps. 

Step 1: Know the formula for finding your taxable income. 

Monthly Basic Pay + Overtime Pay + Holiday Pay + Night Differential – Tardiness- Absences – SSS/Philhealth/PagIbig deductions = Taxable income

Your taxable income is your total income minus the deductibles.

The deductibles are expenses that the BIR allows to be deducted from your salary so that you will have a lower taxable income. These can be (but are not limited to) SSS, GSIS, Philhealth, HDMF, and other Contributions.

Step 2: List down the amount you have earned and the amount deducted from your income.

Let’s say you are earning a basic pay of P15,000 without any other additional income:

    • Monthly Basic Pay = P15,000
    • Overtime Pay = none
    • Holiday Pay = none
    • Night Differential = none
    • Tardiness = none
    • Absences = none
    • Deductions
    • SSS = P545
    • PhilHealth = P187.5
    • Pag-IBIG = P100

Total Deductions: P832.50
Taxable Income: P14,167.50

Step 3: Understand the BIR Tax table and compute the withholding tax based on it.

Based on your calculation in Step 2, find the value of your taxable income from the BIR Income Tax Table. 

BIR Income Tax Table

The BIR tax table is the reference of your company’s HR or accountant when computing your income tax. You can easily find a copy online.

withholding-tax-table-bir

The BIR Income Tax Table tells you how much your tax will be. However, it is not simple. You must still compute based on your civil status, dependents, and income frequency.

Define your salary frequency. Is your salary based on daily, weekly, semi-weekly, or monthly?

withholding-income-tax-table-bir-1

Then, define your civil status. It highly affects the tax status in the Philippines.  

Table A is for single and married individuals without any children. Table B is for single and married individuals with dependent children.

  • Status ME1/S1 – has 1 qualified dependent
  • Status ME2/S2 – has 2 qualified dependent
  • Status ME3/S3 – has 3 qualified dependent
  • Status ME4/S4 – has 4 qualified dependent

withholding-tax-table-bir-2

Based on the table you belong to, find the highest amount which does not exceed your taxable income.

Going back to the example above:

  • Monthly Basic Pay = P15,000
  • Total Deductions = P832.50
  • Taxable Income = P14,167.50
  • Civil Status = Single or S/ME
  • Dependent = none
  • Income = Monthly

withholding-tax-table-bir-3

The 10,000 is the highest amount, not exceeding the taxable income. It falls in the 5th column.

Withholding Tax

  • 708.33 + [(P14,167.50 – 10,000) X 20%]
  • 708.33 + [(4, 167.50) x 20%)]
  • 708.33 + 833.4
  • P1,541.73

Therefore, your withholding tax for a P15,000 paycheck is P1,541.73.

Let’s have another example but in a different scenario.
You earn P7,000 every two weeks without deductions, so your taxable income is still P7,000. You are married with one child.

  • Semi-Weekly Basic Pay = P7,000
  • Total Deductions = none
  • Taxable Income = P7,000
  • Civil Status = Married with one (1) dependent

withholding-tax-table-bir-4

The 6,042 is the highest amount, not exceeding the taxable income. It falls in the 5th column.

Withholding Tax

  • 354.17 + [(P7,000 – 6,042) X 20%]
  • 354.17 + [(958) x 20%)]
  • 354.17 + 191.6
  • P545.77

Therefore, your withholding tax for a P7,000 paycheck is P545.77.

How to Use Withholding Tax Calculator Online?

Determining if your company deducts the right withholding tax amount is tedious. That’s why many Filipinos only complain about the tax deduction in their payslip but rarely check if it’s right or wrong. 

Fortunately, you can compute your withholding tax efficiently using your phone and internet connection. All you need to do is enter the vital details into the BIR Withholding Tax Calculator, such as your income, status, and any deductions. 

Afterward, you can see the estimated amount for your withholding tax deductions. This lets you quickly identify if your monthly tax exceeds your expectations. 

How to Compute Income Tax Philippines?

After learning that income tax and withholding tax are different, are you curious how to compute tax in the Philippines? 

If you answer yes, use this guide to learn to calculate your tax based on your monthly salary. 

Assuming you have the same monthly taxable income, your withholding tax will also be constant. Add all your withholding tax, and you will get your income tax.

Furthermore, the government is strict in implementing the rules regarding tax payments. Never forget to file your income tax returns. If your company HR does not do it for you, you can do it online or personally.

What is TRAIN Law?

The Tax Reform for Acceleration and Inclusion Act is a decree that helped millions of working Filipinos since 2018. The Republic Act 10963 aimed to lower personal income tax, which means many Pinoy workers can enjoy a higher take-home pay. 

Furthermore, the TRAIN Law further reduced personal income tax rates on January 1, 2023. This equates to an additional increase in payout for every employed Filipino. It is a practical approach to catering to middle-class Pinoys. 

But, the TRAIN Law applies not only to regular wage-earner Filipinos. The personal income tax cut includes self-employed individuals and mixed-income earners, too. 

You can refer to the tables below to identify which group your earnings belong to. 

Tax Computation Table for Compensation Income Earners

Middle-class employees are taxpayers who earn below P250,000 annually. If you belong to this group, you are still exempted from paying off personal income tax. 

However, the tax rate for those whose annual income falls between P250,000 and P8,000,000 ranges from 15% to 30%. 

On the other hand, Filipinos who have more than P8,000,000 in earnings have an income tax rate of 35%. 

income tax computation for compensation earners

Tax Computation Table for Professionals and Self-Employed

This group includes Filipinos who work as self-employed individuals who run a business or professionals who work as freelancers. Their income is less stable and regular than that of compensation income earners. Therefore, gross sales and receipts are vital factors in computing tax rates. 

income tax computation for professionals

Tax Computation Table for Mixed-Income Earners

Filipinos rarely rely on more than just their paycheck as a source of income. Often, they find various ways to make ends meet, and that is where mixed-income earners come from. 

You can be a professional or a business owner in addition to your regular employment. It is like being employed full-time while accepting freelance jobs. If you earn more this way, your personal income tax computation will be based on the table below. 

income tax computation for mixed earners

Calculating Personal Income Tax under TRAIN Law

The computation for income tax under TRAIN Law is just like before. First, you must figure out your taxable income. You may refer to the discussion above about your monthly pay. It must include your additional pay, then subtract all the deductions from your tardiness or absences. Don’t forget to include your contributions, like SSS, PhilHealth, and Pag-IBIG.

Here is a sample scenario using the TRAIN Law computation if your annual taxable income is P590,000. 

Step 1. Review the 2023 TRAIN Law Tax Table. Check which bracket your taxable income of P590,000 belongs. Since it falls under the third bracket, your tax rate is P22,500 + 20% of the excess over P400,000.

Step 2. Subtract P400,000 from your taxable income. It would look like this: 

P590,000 – P400,000 = P190,000

Step 3. Multiply P190,000 by 20%. The percentage reflects where your tax bracket is. 

P190,000 – 20% = P38,000

Step 4. Add P22,500 to P38,000, as indicated in your tax bracket. 

P22,500 + P38,000 = P60,500.

The answer, P60,500, is your annual income tax due. 

Step 5. Divide your annual income tax by 12. This will allow you to compute how much monthly tax will be deducted from your salary. 

P60,500 / 12 months = P5,041.67

It means that you’ll be paying taxes worth P5,041.67 monthly.

Conclusion

Knowing about your income tax calculation creates awareness on your end. You won’t be surprised about the deductions in your payslip. It is like setting your financial expectations in your paycheck. Also, you know that your company has a clear conscience regarding their employees’ finances. 

Although it may be heartbreaking to see the amount of your tax, it is every taxpayer’s duty. So, let’s do our part to become responsible Filipino citizens by managing our taxes well. Be well funded in every situation with Cash Mart Philippines. It is a legit online moneylending company that quickly approves a low-interest personal loan.