How Income Tax is Calculated on Salary in the Philippines

As a worker in the Philippines, it is important to understand how your salary is taxed and how to calculate your income tax liability. In this article, we’ll break down the process of income tax calculation on salary in the Philippines.

Step 1: Determine Gross Salary

The first step in calculating your income tax on salary is determining your gross salary. Gross salary is the total amount of money you earn before any deductions are made, including:

Basic salary
Overtimes
bonuses and allowances
travel allowances

Step 2: Deduct Statutory Deductions

The next step is to subtract the statutory deductions from your gross salary. Statutory deductions are mandatory contributions that are deducted from your salary and include the following:

SSS (Social Security System) contributions
PhilHealth contributions
Pag-IBIG contributions

These deductions are not only used to provide social security benefits to workers but also serve to reduce your taxable income.

Step 3: Determine Taxable Salary

Once you have subtracted the statutory deductions from your gross salary, the next step is determining your taxable salary. Taxable salary is the amount of money you must pay income tax.

Step 4: Determine the Tax Bracket

Once you have determined your taxable salary, the next step is to determine your tax bracket. There are multiple tax brackets in the Philippines, each with a different tax rate. The tax rate that applies to you depends on the amount of your taxable salary.

Step 5: Calculate Tax Liability

Once you have determined your taxable salary and tax bracket, the final step is calculating your tax liability. The calculation is simple and involves multiplying your taxable salary by the tax rate that applies to your tax bracket.

It is important to note that the tax calculation in the Philippines is progressive, meaning the tax rate increases as your taxable salary increases. This is designed to ensure that those who earn more pay a higher percentage of their income in taxes.

Step 6: Pay Your Taxes

The final step in calculating your income tax on salary is to pay your taxes. In the Philippines, taxes are paid to the Bureau of Internal Revenue (BIR) every quarter. Taxpayers can pay their taxes online through the BIR website or by visiting a BIR office in person.

FAQs

What is the income tax slab for the financial year 2023?

The tax slab for the financial year 2023 varies based on the annual income.

How do I calculate my taxable income?

Taxable income is calculated by subtracting any eligible deductions and exemptions from the total income.

Are all allowances and perks considered taxable?

Some allowances and perks are tax-free, while others are taxable, it depends on the type of allowance.

What is the process for filing an income tax return?

The process involves calculating the taxable income, computing taxes due, and then filing a return with the tax department before the due date.

What are the consequences of not paying income tax?

Consequences include fines, penalties, and legal action, including imprisonment in severe cases.

Conclusion

Calculating your income tax on salary in the Philippines is a straightforward process that involves determining your gross salary, subtracting statutory deductions, determining your taxable salary, determining your tax bracket, calculating your tax liability, and paying your taxes. By understanding the process and following the steps outlined in this article, you can ensure that your taxes are calculated accurately and that you are paying the correct amount.