Find out how to calculate taxable amount and income tax in the Philippines.
How to calculate the employee contribution based on the taxable amount?
Taxable amount refers to the amount of an employee’s gross income that is subject to taxation. This amount is calculated by subtracting any tax-deductible expenses from employee’s gross income.
Employee’s gross income includes, but is not limited to the following:
- Compensation for services in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar items
- Gross income derived from the conduct of trade or business or the exercise of profession.
- Gains derived from dealings in property.
- Interest.
- Rents.
- Royalties.
- Dividends.
- Annuities.
- Prizes and winnings.
- Pensions.
- Partner’s distributive share from the net income of the general professional partnerships
Government deductions are excluded from the gross income, which renders it non-taxable.
How to calculate income tax
The first step in calculating income tax is to calculate taxable income. The calculation should be performed as the following:
- Taxable Income = Gross Income (Basic Salary + Taxable Allowance/Bonus/Incentives) – Statutory Contributions (SSS, HDMF & PHIC)
Once the taxable income is acquired, the calculation of income tax is as such:
- Withholding Tax = ((Taxable Amount (Income) – Compensation Level (CL)) * Over CL) + Prescribed Minimum Withholding Tax