It’s tax season once again, and everybody’s preparing to do their filing soon. It can be quite baffling trying to determine how income tax is computed by our employers. So to make things easier to understand, we’re providing you with a quick guide on how to compute your income tax.
Prepare for Tax Season
1. Determine and List down the Following Information
• Basic Salary
• Overtime Pay
• Holiday Pay
• Night Differential
• Late, Under Time and Absences Deductions
• BIR Tax Status (Single or Married)
• Number of Dependents
• SSS, Philhealth and Pag-ibig Contributions
• Allowances and other benefits
2. Compute for Your Taxable Income
The Bureau of Internal Revenue (BIR) defines Taxable Income as “the pertinent items of gross income specified in the Tax Code as amended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws.”
Simply put, you can compute for your taxable income as follows:
Net Taxable Income = Gross Income (Monthly Basic Salary + Overtime Pay + Holiday Pay + Night Differential) – Deductions (Tardiness + Absences + SSS + Philhealth + Pag-Ibig Deductions)
For an employee with a Single status (with no dependents) and a Monthly Salary of P 15,000 the deductions would be:
Assuming that there are no deductions for tardiness and absences, as well as no additional income from holidays, overtime or night differential, the computation would be as follows:
Net Taxable Income = P 15,000.00 – (545.00 + 187.50 + 100) = P 14,167.50
3. Using Your Net Taxable Income and Status Refer to the BIR Tax Table to Compute for Your Withholding Tax
Your tax can be calculated using the BIR Withholding Tax Table. Look for the nearest amount to P 14,167.50, which is your Taxable Income.
Take note that based on our example, you should look under the monthly category for single employees with no dependents. Choose the highest amount (Tax Base) that does not exceed your taxable income. In this case, the amount would be P 10,000.00.
Also, take note of the tax rate above it (20%) and the exemption amount above that (P 708.33).
This means that the employee’s tax is P 708.33 plus 20% of the difference of his Taxable Income (P 14,167.50) and the Tax Base (P 10,000.00).
The computation will then become as follows:
Tax = 708.33 + [(14,167.50 – 10,000.00) x .20]
= 708.33 + (4,167.50 x .20)
= 708.33 + 833.50
= P 1,541.83
If you want an easier and faster way to compute your taxes though, we have created a tax calculator below. Simply input your information and the calculator will compute for the tax on its own. Easy!