Compute Your Tax: A Comprehensive Guide on How to Compute Withholding Tax

photo: philstar.com

Do you know how your employer compute for your withholding tax? Are they deducting you right? Well, you may check it by calculating manually, with the aid of BIR's Revised Withholding Tax Table. Here's how:

1. Determine the following:

• Monthly Basic Pay (Salary). This does not include your overtime pay/monetary value of your late/tardiness, holiday pay, but includes the monthly allowance you received.
• Status. Single or Married.
• Dependents. Number of qualified dependents/child(ren).

Illustration: 

Employee has a monthly basic salary of P12,000.00.

Employee is Married.

Employee has one qualified dependent.

2. Determine your 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 Taxable Earnings - Non Taxable Deductions 

where:
     Gross Taxable Earnings = Basic Monthly Salary + Overtime Pay + Holiday Pay + Night Differential + Taxable Allowances

     Non Taxable Deductions = Tardiness Deduction + Absences + SSS Contribution + Philhealth Contribution +  HDMF Contribution
   
Please refer to my recent post on how to compute your SSS, PhilHealth and Pag-IBIG Contributions.

Illustration: 
Based from the tables, Employee's contributions are:
     SSS         = P436.00
     PhilHealth = P150.00
     Pag-IBIG = P100.00

Employee's Taxable Income will be:
Taxable Income = P12,000 - (P436 + P150 + P100)
Taxable Income = P12,000 - P686
Taxable Income = P11,314.00

Factors that Increase your tax:

• Overtime Pay
• Holiday Pay
• Night Differential
• Taxable Allowances

Factors that Decrease your tax:

• Late/Tardiness
• Absences
• SSS Contribution
• PhilHealth Contribution
• Pag-IBIG Contribution
• Personal Exemptions (ex. single, head of the family, head of the family with qualified dependents,etc)

3. Compute Withholding using BIR Tax Table

Tax Table

You may download the pdf version here.

Withholding Tax is calculated using the following general formula:

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

Using the table, you need to determine:

1. The tax schedule. Usually, employers used "Semi-Monthly" and  "Monthly".
2. The row of your STATUS (ex. Single or Married) on the table. "S/ME" means single/married with no dependent, "ME1/S1" means married/single with one dependent, and so on.
3. The greatest number that is less than to your Taxable Income (within the row of your STATUS). This is now your bracket or exemption.
4. Corresponding % Over and Base Tax. From bracket or exemption value, move your eyes vertically upward (on the same column) and look for your corresponding % over and Bracket Tax or Base Tax.

Illustration: 

From the table, Employee's

     1. Tax Schedule = Monthly

     2. Status = ME1

     3. Bracket or Exemption = P8,750.00. This is the highest amount that does not exceed Employee's taxable income of P11,314.00.

     4. % Over = 15%

        Base Tax = P208.33

Tax Computation 1

Using the formula:

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

Withholding Tax = [(P11,314.00 - P8,750.00) x 15%] + P208.33 

Withholding Tax = [P2,564.00 x 15%] + P208.33 

Withholding Tax = P384.60 + P208.33 

Withholding Tax = P592.93

More Examples

Example 1. Given Employee with Withholding Tax Computed Monthly. Taxable Income: P8558.00. Status: Single

Tax Computation Example 1

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

Withholding Tax = [(P8,558.00 - P6,667.00) x 15%] + P208.33 

Withholding Tax = [P1,891.00 x 15%] + P208.33 

Withholding Tax = P283.65 + P208.33 

Withholding Tax = P491.98

Example 2. Given Employee with Withholding Tax Computed Monthly. Monthly Basic Salary: P15,000.00. Status: Married with 2 qualified dependents. Overtime Pay: P5,500.00. Taxable Allowance: P3,000.00. Tardiness: P150.00.

Gross Taxable Earnings = Basic Monthly Salary + Overtime Pay + Holiday Pay + Night Differential + Taxable Allowances
Gross Taxable Earnings = P15,000 + P5,500 + P3,000
Gross Taxable Earnings = P23,500.00

Based from the tables, Employee's contributions based from Gross Earnings of P23,500 (This is what most employers practice to decrease employees' withholding tax):
     SSS         = P581.30
     PhilHealth = P287.50
     Pag-IBIG = P100.00

Non Taxable Deductions = Tardiness Deduction + Absences + SSS Contribution + Philhealth Contribution +  HDMF Contribution
Non Taxable Deductions = P150 + P581.30 + P287.50 +  P100.00
Non Taxable Deductions = P1,118.80

Taxable Income = Gross Taxable Earnings - Non Taxable Deductions 
Taxable Income = P23,500.00 - P1,118.80
Taxable Income = P22,381.20

Tax Table Example 2

From the table, Employee's

     1. Tax Schedule = Monthly

     2. Status = ME2

     3. Bracket or Exemption = P20,00.00. This is the highest amount that does not exceed Employee's taxable income of P22,381.20.

     4. % Over = 25%

        Base Tax = P1,875.00

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

Withholding Tax = [(P22,381.20 - P20,000.00) x 25%] + P1,875.00 

Withholding Tax = [P12,381.20 x 25%] + P1,875.00 

Withholding Tax = P595.30 + P1,875.00

Withholding Tax = P2,470.30

You may download Tax Calculator here. 

Disclaimer: Please check my computations, there might be errors. The calculator file is just a reference I made for quick computation.