How to compute income tax in the Philippines

Agree on it or not, it is undeniable that this thing called income tax or “withholding tax” ate huge part of our income. On this article, we’ll share how to compute income tax in the Philippines to better understand why you’re seeing those amount on your payslips. Let begin.

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Knowing how to compute your income tax can definitely make you understand why you’re being deducted of that amount. By knowing this, you’ll not be surprise next time you check and open your payslip. And yes, the hard truth is as your salary goes up so your taxes. Let see some basic examples on how to compute income tax in the Philippines.

Understanding BIR Tax table

The amount being deducted in your salary didn’t come from the thin air. Nor it was not guessed by the HR or accountant in your company. Basically they are following rules and guidelines provided by BIR(Bureau of Internal Revenue) in computing your taxes. To compute income tax in the Philippines, BIR tax table is being used. what is BIR tax table?

BIR tax table is just a reference of pre-computed tax amount for each civil status and income frequency provided by BIR. Here’s the latest BIR tax table for your reference.

As you can see, each income frequency(daily, weekly, semi-monthly and monthly) are present on the table. After determining your salary or income frequency, you also need to check your civil status. Each civil status has its own computation on the table.

When you got your taxable income computed, In the row indicating your civil tax status, look for the highest amount that does not exceed your taxable income. You can see the fix amount of tax there PLUS the corresponding percentage you need to add. That will be your tax deductions. Taxable income is being computed as:

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

Later, we’ll check how this table is being used in computing your income tax. You can see all  the status in the “legend” on the bottom of the page. See below.

Steps on how to compute income tax in the Philippines

Now we have the basic understanding of the BIR Tax table, let’s have some basic example on how to compute income tax in the Philippines. Before we’re able to get the tax amount, we need to figure out how much would be the taxable income of a given individual. Again, the formula to compute the taxable income is the following:

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

To better understand this, let’s have some example:

Let say Juan is a father with one child and working as an I.T. His basic monthly salary is P25,000. How do we compute Juan’s income tax? Let see.

Having a basic salary of P25,000, Juan needs to pay the following in the Government:

SSS contribution – P581 Here’s the link to new SSS contribution table.
Philhealth contribution – P312 Here’s the link to Philhealth contribution
Pag-ibig contribution – P100

To simplify the computation, let’s say Juan didn’t have other additional pay such as holiday pay, night differential and other deductions like tardiness and absences. Just the basic salary and the required contributions to the government. Juan’s taxable income will be P24,006.20. How? Here’s how it is computed:

Taxable income = P25,000 – (P581.30 + P312.50 + P100)
= P25,000 – 993.8
= P24,006.20

Since Juan is a father with a qualified depended, his civil tax status will be under “ME1/S1“. That’s for married employee with qualified dependent/children. The highest amount that does not exceed Juan’s taxable income of P24,006.20 is P17,917 (ME1/S1 row, Column 6).

After getting the taxable income, as what the tax table indicates Juan’s tax will be 1,875.00 + 25% over. This can be found at the heading of each column. For Juan, it’s column 6.

This means Juan’s tax is P1,875 plus 25% of the difference of his taxable income (P24,006.20) and the amount in the table (P17,917).

Here’s the computation:

Tax = 1,875 + [(24,006.20-17,917) X .25]
= 1,875 + (6,089.2 x .25)
= 1,875 + 1,522.3
= P3,397.30

Every month, Juan’s salary will be deducted an amount of P3,397.30 as his withholding tax.

Let’s have another example.

Pedro is single and working as a call center agent. His monthly basic salary is P30,000. They’re receiving their salary semi-monthly or every 15th and 30th of the month. Here’s how to compute his income tax or withholding tax.

Basic Salary: P15,000 (Since they are semi-monthly)
Status: Single (S/ME)
SSS contribution: P290.5 (P581 / 2) You can use the same SSS contribution above.
Philhealth contribution: P187.5 (381 / 2)
Pag-ibig contribution: P50 (100 / 2)

Let’s say Pedro is working graveyard and he has night allowance in his work. He also worked on 2 full holidays as their team manager offered.

Night differential: P4,000
Holiday pay: P3,000

Pedro didn’t came late this cut-off so no tardiness and other deductions. We’re good.

Let’s get Pedro’s taxable income first.

Taxable income = (P15,000 + P4,000 + P3,000) – (P290.5 + P187.5 + P50)
= P22,000 – 528
= P21,472

Pedro’s taxable income is P21,472.

The highest amount that does not exceed Pedro’s taxable income of P21,472 is P12,500 (S/ME row, Column 7 for SEMI-MONTHLY).

The heading of Column 7 reads “P2,083.33 + 30% over.”

This means Pedro’s tax is P2,083.33 plus 30% of the difference of his taxable income (P21,472) and the amount in the table (P12,500).

Here’s the computation:

Tax = 2,083.33 + [(21,472 – 12,500) X .30]
= 2,083.33 + (8,972 x .30)
= 2,083.33 + 2,691.6
= P4,774.93

Every cut-off(15th and 30th), Pedro’s salary will be deducted an amount of P4,774.93 as his withholding tax. This might change as his holiday pay, night differential might not be included in some paydays. As well as late and tardiness or other deductions.

We now have figured out how to compute income tax in the Philippines. Le me know your thoughts about this topic. If you have questions and reactions, please share on the comment section below.

I always feel sad every time I look at my payslip and see this thing “withholding tax“. As hard as it is, they’re are being deducted before our salary came in to our account. The government get their share first before we get the fruits of our hard work. That’s one of the saddest truth in being an employee. I hope this has been informative. Until next time, cheers!