Calculate Your Philippine Income Withholding Tax

Hello!

Thank you for visiting my site! I know you are very much interested in learning how to compute for your withholding tax. You are very much concerned about where you money goes especially with the taxes. Why don't you take the next step and read how to manage your finances here

Going back to your withholding taxes. There are two reasons why you should learn how to compute for your withholding tax yourself

One, you doubt the accuracy of your payroll in computing the withholding tax thus for your peace of mind you might want to recheck it yourself. (Yes! It is doable and very easy. Do not be scared of the math)

Secondly, would it not be cool to just know how? I mean. If you go around and ask your co-workers, most likely majority are just looking at the amount under the withholding tax. No one knows how to compute except for the payroll guys. Not fair and this post will help you do that.

Steps in Calculating the Withholding Ta

1. How often do you receive your salary? Do you get it weekly? Monthly? Or just like everyone else who receives it twice a month? It is important to know because the Bureau of Internal Revenue (that’s BIR) has different tables depending on the frequency of you getting your pay. You know. Different strokes for different folks.

2. Review your payslip and look for allowable deductions. These are the government mandated deductions such as SSS, PAG-IBIG (or HDMF) and Philhealth or (PHIC). Note: At this point, we are only talking about mandatory deductions. If you have loans from these institutions, deductions for loan payments should be set aside for now. Just look for the mandated deductions. When I say mandated deductions, these are the deductions you see payroll in and payroll out even if you do not have loans.

3.  Know your tax exemptions status. See list for quick reference

S/ME       Single or Married with no qualified dependent
ME1/S1   Single or Married with one qualified dependent
ME2/S2   Single or Married with two qualified dependent
ME3/S3   Single or Married with three qualified dependent
ME4/S4   Single or Married with four qualified dependent

Are you ready? Get your payslips ready and we are now ready to compute for your withholding tax table.

Step One: Look for your taxable income. You are lucky if your payslip shows a line that says taxable income. Just take note of that and we will use it in the tax table. If you don’t have that line, your taxable income will be your gross salary plus overtime pay plus holiday pay plus night differential plus allowances (other than rice and clothing) minus tardiness deduction minus the government mandated deductions. Still with me?

Let’s take a sample payslip for a single person with no dependents

With the example, we get the taxable income by getting the basic salary less all the deductions. (Reminder again, if you have loans, these should not be deducted for the purpose of computing your income tax). If you are still with me, you should get the amount of P5,771.75


Then we look at the BIR’s withholding tax table for semi-monthly payroll. We look at row 2. S/ME since the person is single with no dependent. In case you are married with three dependents, then you have to use row 3. ME3/S3.

Going back to row 2.S/ME we look where the amount of P5,771.75 falls under. It should be the column where the computed taxable income is higher but not above the next column. In our example, we will select column 5 since P5,771.75 is above P5,000 but below P7,917 under column 6. Still with me? Now, go look for your taxable income and identify under what column it falls into.

Now the fun part. See that the rows saying exemption and status? Those are the numbers needed to compute for your withholding tax.

Continuing with our example, the exemption amount under column 5 is P354.17. Set it aside and do the next step. Deduct P5000 from P5,771.75. Where did we get the P5,000? That’s the intersection of the column and the row. (With our married person with three dependents scenario with P7,000 taxable income, the amount is P6,458. The intersection of the row and column 4)

Now we are left with P771.75 (That’s P5,771.75 less P5,000). We multiply that amount with 20%. Where did I get that 20%? It is right under the P354.17.(With our married person example, we should get 15%. Hope you are still with me)

20% of P354.17 is P154.35. We add the amount to the P354.17 earlier and we get the withholding tax of P508.52

Now, do it and let me know if you got your withholding tax correct. If you need help, comment below and will try to assist.