What to consider in computing income tax

Reynaldo Santos Jr
Want to know how your income tax is computed? Here's a 2-part series guide

MANILA, Philippines – It’s payday. Are you dreading to see your payslip again because everytime you do, you feel a pinch in your chest reading the phrase withholding tax?

You may wonder: why is your tax so high and how does your employer compute it?

Payroll tax computation is no rocket science. You can calculate the tax you pay yourself.

Rappler gives you this 2-part series on how to compute income tax.

But before we proceed with the actual computation, here are some things you need to consider:

1. Dependents

It doesn’t matter anymore if you’re single, married or head of the family. The Bureau of Internal Revenue (BIR) ruled in Revenue Regulation 10-2008 that “individual taxpayers, regardless of status, are entitled to P50,000 personal exemption.”

What matters now is whether or not you have children or dependents. BIR allows those with dependents to have additional exemption of P25,000 for each qualified dependent – provided however that the number of dependents shall not exceed 4.

2. Basic pay and other benefits

Considered as taxable are your basic pay and other benefits such as ovetime pay, holiday pay, and night differential.

As for the 13th month pay, amounts exceeding P30,000 are taxable. For example, if your 13th month pay reaches P35,000, the P5,000 is considered taxable.

3. ‘De minimis’ benefits

BIR identified in Revenue Regulation 5-2011 the “de minimis” benefits – or “privileges of relatively small value” – that will not be subject to tax:

  • Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;
  • Monetized value of vacation and sick leave credits paid to government officials and employees;
  • Medical cash allowance to dependents of employees not exceeding P750 per employee per semester or P125 per month;
  • Rice subsidy of P1,500 or 1 sack of 50-kg rice per month amounting to not more than P1,500;
  • Uniforms and clothing allowance not exceeding P4,000 per annum;
  • Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum;
  • Laundry allowance not exceeding P300 per month;
  • Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;
  • Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;
  • Daily meal allowance for overtime work and night.graveyard shift not exceeding 25% of the basic minimum wage.

4. SSS/Philhealth/Pag-IBIG

In determining your taxable income, you need to deduct your contributions to government institutions Social Security System (SSS), PhilHealth and Pag-IBIG.

Based on Republic Act 9679, the Pag-IBIG monthly contribution is pegged at P50 for those earning P1,500 and below per month, and P100 for those earning more than P1,500.

As for SSS and PhilHealth contributions, they depend on the employee’s basic pay.

Here’s the table of SSS contributions.

Table from SSS

Here’s the table of PhilHealth contributions.

Table from PhilHealth

This year, the government increased SSS contributions to 11% of members’ monthly salary credit from the previous 10.4%.

The lowest monthly PhilHealth premium for minimum wage earners was also increased to P200 from P100. – Rappler.com

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