Understanding the intricacies of our tax laws and income tax rates gives employees the power to plan their year strategically. Staying informed about tax updates pays off.
Let’s start with the short story. Meet Ate Rose, a seasoned cashier, who groans every payday! Not due to blisters from counting bills, but from “Sunog!” – the feeling of her salary burning in taxes.
Like many Filipinos, she feels the pinch, questioning the gap between what she receives in her salary and what comes back in public services through taxes.
This “payroll tax heartburn” is a common Filipino problem during pay seasons, highlighting concerns about not knowing how taxes are computed in the Philippines. We will explore the tax rates and understand how it is computed so we will informed and avoid tax heartburn.
If you find yourself navigating the complexity of tax laws, or simply wondering about its impact on the income of the employees, you’re not alone. And we’ve got your back! This guide cuts through the jargon and shows you how to do it step-by-step. We’ll also discuss how TRAIN affects your taxes—for individuals and companies alike.
No more head-scratching, just clear answers and sample calculations.
What is the Income tax in the Philippines Payroll?
The Philippines’ payroll taxes are a mix of contributions to social security and direct income tax deductions. Think of it like a joint effort between you and your employer to secure your future and build the nation. In this article, we focused on the income tax of an employee.
The Income Tax Rates Table You Need to Know About
The simplified tax table guide is based on the updated Tax Reform for Acceleration and Inclusion (TRAIN) Law. This tax rate is implemented on January 1, 2023.
Annual Income Tax Rates Philippines
| Annual Income | Withholding tax rate |
|---|---|
| PHP 250,000 and below | None (0%) |
| PHP 250,000 to PHP 400,000 | 15% of the excess over PHP 250,000 |
| PHP 400,000 to PHP 800,000 | PHP 22,500 + 20% of the excess over PHP 400,000 |
| PHP 800,000 to PHP 2,000,000 | PHP 102,500 +25% of the excess over PHP 800,000 |
| PHP 2,000,000 to PHP 8,000,000 | PHP 402,500 +30% of the excess over PHP 2,000,000 |
| Above PHP 8,000,000 | PHP 2,202,500 +35% of excess over PHP 8,000,000 |
Monthly Income Tax Rates Table
| Monthly Income | Withholding tax rate |
|---|---|
| PHP 20,833 and below | None (0%) |
| PHP 20,833 to PHP 33,332 | 15% of the excess over PHP 20,833 |
| PHP 33,333 to PHP 66,666 | PHP 1,875.00 + 20% of the excess over PHP 33,333 |
| PHP 66,667 to PHP 166,666 | PHP 8,541.80 + 25% of the excess over PHP 66,667 |
| PHP 166,667 to PHP 666,666 | PHP 33,541.80 + 30% of the excess over PHP 166,667 |
| Over PHP 666,667 | PHP 183,541.80 + 35% of the excess over PHP 666,667 |
Understanding Income Tax Brackets vs Before TRAIN Law
Curious about the changes compared to the previous rates before 2023? Here is a short comparison
- Employees with annual income up to PHP 250,000 (or PHP 20,833 monthly) are still exempt from paying income tax.
- Employees with annual earnings above PHP 250,000 to PHP 8,000,000 (or over PHP 20,833 to PHP 666,666 monthly) have lower tax rates ranging from 15% to 30%, from 20% to 32% previously.
- Employees with annual earnings above PHP 8,000,000 (or PHP 666,667 monthly) have a higher tax rate of 35%, from 32% previously.
Who is Exempted from Income Tax in the Philippines?
In the Philippines, some Filipinos are not subjected to income tax. As can be seen in the table above, employees with an annual salary of less than P250,000 a year are exempted.
As your finances and income grow, so does your tax duty – that means, we all gotta contribute to building our nation.
How to Calculate Taxes Based on Income
If you are looking for a detailed guide on how to calculate the income tax as a regular employee or other type of income-generating individual, follow these steps:
Income Tax Guide For Self-employed, Freelancers, and Business Owners
- Know your gross income. It is the total amount you earned in your business or profession before any deductions.
- Subtract eligible deductions. These are the business or professional expenses allowed by law to be deducted from gross income.
- Calculate your taxable income. It is the money earn from your business or profession subject to taxation.
- Know your tax rate. It is determined by your taxable income and based on the graduated tax rates set by the Bureau of Internal Revenue (BIR). Read the tax table above for your reference.
- Calculate your income tax. It is done by multiplying your taxable income by the applicable tax rate and subtracting any tax credits or payments you’ve made.
Income Tax Guide for Regular Employees
It’s crucial to know that the Philippine tax system employs a progressive tax rate. This implies that the tax rate rises with increasing taxable income. Familiarizing yourself with the calculation of taxes based on your income is essential to prevent penalties, and legal complications, and ensure compliance with Philippine tax laws and regulations.
In the Philippines, employees benefit from having their employers handle income and expense calculations. However, it’s important to review your monthly payslips and the Certificate of Withholding on Compensation (Form 2316) to ensure accuracy. If there are any deductions or unclear items, don’t hesitate to ask your employer or the company’s accountant for clarification.
Income Tax Calculation Made Easy With SATO Den Payroll Solutions
Tax calculations don’t have to be a hair-pulling nightmare. In the Philippines, navigating the intricacies of SSS, PhilHealth, and especially income tax deductions can be overwhelming, especially for small businesses or those with growing workforces. But fear not, there’s a hero in the wings: SATO Den payroll system!
Are you an employee? An HR? Or a business owner? We can help you process payroll process in your company! Wanna know more about what we offer in our system? Learn different solutions we can provide for your business now.
Conclusion
Here is the recap of what is discussed in the article above.
- Income below 250,000 is not subjected to income tax.
- Income above 8 million pesos has the largest income tax, with a whopping 2.2 million + 35% of the excess
- SATO Den Payroll Solutions can help your company with the hassle of manually computing tax deductions in payroll. Contact us now!
References:
https://www.bir.gov.ph/index.php/tax-information/income-tax.html