Tax Computation in the Philippines

1. The first step is you should answer the following questions below:

• What is Your Status? (Single or Married?)
• Do You Have Any Dependent? How Many?
• How much is your Monthly Basic Pay(salary)?(This does not include your overtime pay/monetary value of your late/tardiness,holiday pay, but includes the monthly allowance that you received.)
  

2. How much is your SSS,Philhealth,and HDMF (Pag-Ibig) monthly contributions?


Before starting,it is very important first to have a calculator with you.
Simple Calculator

With your Monthly Basic Pay(Salary) you can immediately know your contributions.Just refer to this table below:

For SSS:





Suppose your monthly basic pay(salary) is P11,000.00 then by looking at the table above(under the column of Range of Compensation) just find the range of compensation that includes P11,000.00 and simply move your eyes horizontally and look for your corresponding SSS Contribution(under the main column Social Security and sub-column EE or Employee Contribution).So what did you see? P366.70 right?.

Now just try it on your own,suppose your monthly basic pay(salary)is P14,000.00 what is your SSS Contribution? Answer:P466.70

Since you already know how to look for your SSS Contribution it is time for you now to know how much is your employer's contribution counterpart.Again, find the Range of Compensation where you belong,move your eyes horizontally, and just look under the main column Social Security and sub-column ER or Employer Contribution.

Suppose you have a P11,000 monthly basic pay (salary) then the ER or Employer Contribution would be P777.30 and your total monthly contribution that debit in the SSS is P1,144 (P777.30 +P366.70).

If your monthly basic pay (salary) is P14,000, what is your employer contribution?your total contribution? Answer: ER= P989.30 ; TC= P1456.00


For Philhealth:



Illustration:

For instance you have a monthly basic pay (salary) of P11,000, then your Philhealth Monthly Contribution would be P137.50. How did I get this figure?It is simple,just look for the column under Monthly Salary Range and find for the interval where your salary belongs. After that, move your eyes horizontally(to the right) and find for the corresponding Philhealth Monthly Contribution under the Employee's Share Column.Got that???It is easy right?Now, take your try.

Example my gross basic pay (salary) is P14,000.00,how much is my Philhealth Monthly Contribution? Answer:P175.00

Aside from this it is also better and wise to know your employer's contribution counterpart .Again, going back to the Philhealth Table above just look for the column under Employer's Share that corresponds to your monthly gross income.If your monthly gross income is P11ooo.00 then your Employer's Share is P137.50 and the total amount that debit in your Philhealth Contribution is P275.00 (Employee's Share + Employer's Share).


For HDMF/Pag-Ibig Contribution:

Illustration:

If your Monthly Basic Pay (Salary) is P11,000 then your HDMF Contribution is P11,000.00 X .02 = P220 and your Employer's Counterpart is P11,000.00 X .02 = P220 . This computation is so easy.After you know where your Gross Monthly Salary Range belong just multiply it by the MULTIPLIER that corresponds to your monthly basic pay (salary) .The total monthly contribution that debit in your HDMF Contribution is P440.00 monthly.

Note: You can also demand to your Finance Officer or Human Resource Officer if you want to increase your HDMF Monthly Contribution.Why should you do that?These are the reasons:

• If you want to avail a housing loan. (The bigger contribution you have the bigger the money later on that you can loan for your housing loan.
  

• To reduced your monthly withholding tax. Even the difference is minimal still it is an advantage to your part.Why let the government get your money and can't even avail the priviledges.It is better to invest your money in HDMF than letting it see in the "trust" fund of our government.NOTE: If you increase your HDMF Contribution you will reduce the tax that the government get from you and at the same time you are investing it to have a better house that you will own someday.
  

3. Are you receiving other allowances like laundry allowance,transportation allowances ,rice allowances,etc.? If yes how much?

You need this later on when you compute your withholding tax because these are not taxable. Failure to note this may result to erroneous result of computation.


4.What is TAXABLE INCOME?

Taxable income is the portion of income that is the subject of taxation.

In the Philippines our taxable income is determined by this formula:

Taxable Income = [Gross (Basic)Monthly Income+ Overtime Pay+Holiday Pay+Night Differential] - (minus) [Tardiness Deduction+Allowances+SSS Contribution+Philhealth Contribution,HDMF Contribution]


Note: I did not include and subtract the amount of personal exemptions(exemptions due to your status like:Head of the Family,Single,Married etc.) since your corresponding personal exemptions can be see later on in the tax table and your personal exemption is included already in the formula for computing the tax.You will understand it clearly later on when I introduce the general formula of withholding tax computation.

5.Factors you need to consider when solving your withholding tax (Applicable for Old Tax Ruling).

Factors that increases your tax:

• Overtime Pay
• Holiday Pay
• Night Differential

Factors that decreases your tax:

• Late/Tardiness
• Allowances
• SSS Contribution
• Philhealth Contribution
• HDMF Contribution
• Personal Exemptions (ex. single, head of the family, head of the family with qualified dependents,etc)

6.You must have a copy of BIR Tax Table

New Tax Table For January 2009

7. Knowing the General Formula of Withholding Tax ,Knowing the Parts and to Use the Tax Table, and Computing Your Withholding Tax

General Formula:

Withholding Tax = ( ([Taxable Income] - [Bracket or Exemption] ) x [%over] ) + [Bracket Tax or Base Tax]

Where as Taxable Income=[Gross (Basic)Monthly Income+ Overtime Pay+Holiday Pay+Night Differential] - (minus) [Tardiness Deduction+Allowances+SSS Contribution+Philhealth Contribution,HDMF Contribution]

Note: Before Solving For your Withholding Tax, find your Taxable Income first and simply substitute the value in Withholding Tax Formula.

Parts of Tax Table

• Bracket or Exemption
• %over
• Bracket Tax or Base Tax

Illustration:



Assuming your tax is computed in a monthly basis and you already computed your TAXABLE INCOME (not your gross income) totaling to P8,558 and you are Single then:

Corresponding Bracket or Exemption:P6,667.00
Corresponding %over: 15% or.15
Corresponding Bracket Tax or Base Tax: P208.33

Question: Why did I use the amount P6,667.00 as the Bracket or Exemption for the taxable income of P8,558? Why not P5,000 with a %over of 10% or P4,167 with a %over of 5%?Do you know why?

Answer: Of course there is a way on finding your corresponding Bracket or Exemption and %over given your Taxable Income but I will not introduce it here since it is a long process that requires your arithmetic skills.I am just considerate for those who are poor in Math. Anyway, I will still share my precious trick that I am sure you will all understand it in an easy and direct way. I am 100% sure of this number trick since I already tested it a thousand times.It is better to understand it if I will show a series of examples. Here are they:

When finding for the corresponding Bracket or Exemption and %over just look:

1. The row of your STATUS(ex. Single,Head of the Family,Married,and etc.)on the table.
2. Then look for the greatest number that is less than to your Taxable Income(within the row of your STATUS).This is now your bracket or exemption.
3. After you found it,move your eyes vertically upward (on the tax table)and look for your corresponding % over and Bracket Tax or Base Tax.

Example 1:

Given:

Assuming Withholding Tax Computed Monthly
Taxable Income: P8558.00
Status: Single(S)


Answer:

Corresponding Bracket or Exemption:P6,667.00
Corresponding %over: 15% or.15
Corresponding Bracket Tax or Base Tax: P208.33

Computing Your Withholding Tax:

Withholding Tax = ( ([Taxable Income] - [Bracket or Exemption] ) x [%over] ) + [Bracket Tax or Base Tax]

Withholding Tax =[(P8558.00-P6,667.00) X .15] + P208.33
Withholding Tax =P491.98

---

Example 2:

Given:

Assuming Withholding Tax Computed Monthly
Taxable Income: P12,540.00
Status: Single or Married with 1 Qualified Dependent (S1 or M1)

Answer:




Corresponding Bracket or Exemption:P12,083.00
Corresponding %over: 20% or.20
Corresponding Bracket Tax or Base Tax: P708.33


Withholding Tax = ( ([Taxable Income] - [Bracket or Exemption] ) x [%over] ) + [Bracket Tax or Base Tax]

Withholding Tax =[(P12,540.00-P12,083.00) X .20] + P708.33
Withholding Tax = P799.73

---

Example 3:

Given:

Assuming Withholding Tax Computed Monthly
Gross or Basic Income: P11,000.00
Monthly Transportation Allowance:P500.00
Monthly Rice allowance:P500.00
Late/Tardiness:2hrs
Overtime: 4 hrs (regular day)
HDMF /Pag-Ibig Contribution: P300.00
Status: Married with 2 Qualified Dependents (M2)
Days of Duty:22 days (8hrs per day)


Problem: How much is your monthly withholding tax given the information above?

Solution:


a.With your Gross or Basic Income totaling to P11,000.oo you can directly compute for your SSS and Philhealth Contribution. By looking on the SSS and Philhealth tables above your respective contributions are as follows:

SSS Contribution:P366.70
Philhealth Contribution:P137.50


b.Computing for the corresponding value of late/tardiness and overtime pay Given your gross monthly salary of P11,000.00 then the monetary value of your
late/tardiness is:

Total Number of Hours Worked: 22 X 8 = 176 hours

Rate Per Hour: P11,000.00 /(divided by) 176 = P62.5

The Monetary Value of Late/Tardiness: 62.5 X 2 = P125.00


Given your gross monthly salary of P11,000.00 then the monetary value of the
overtime is:

Note: The overtime pay per hour for regular day is 125% (1.25)of your hourly rate


Overtime Rate Per Hour: 62.5 X (1.25) = P78.125

Total Overtime Pay: P78.125 X 4hrs = P312.5


c.Solving For Taxable Income.(I skip this process in my two previous examples since the taxable income is already given but in this example the given is gross or basic salary instead of taxable income. General Formula:

Taxable Income=[Gross (Basic)Monthly Income+ Overtime Pay+Holiday
Pay+Night Differential] - (minus) [Tardiness Deduction+Allowances+SSS Contribution+Philhealth Contribution,HDMF Contribution]


Taxable Income=[ P11,000.00 + P312.5 ] - [ P125.00 + P500.00 + P500.00 +
P300.00 + P366.70 + P137.50]

Taxable Income= [11,312.5]-[1929.2]

Taxable Income= P 9383.3

d.Solving for the corresponding withholding tax.





Corresponding Bracket or Exemption:P9167.00
Corresponding %over: 10%
Corresponding Bracket Tax or Base Tax: P41.67


Withholding Tax = ( ([Taxable Income] - [Bracket or Exemption] ) x [%over] ) + [Bracket Tax or Base Tax]

Withholding Tax = ( ([P9383.3] - [P9167.00] ) x [.10] ) + [41.67]
Withholding Tax=P63.3

It is very easy right? By just simply following the 8 easy steps above you are now ready to check if your finance/payroll officer miscalculated your tax. Always remember you don't need to be an accountant nor a mathematically inclined person just to solve your withholding tax, all you need is simply following these eight easy steps.