How withholding tax on compensation is computed
Employers withhold income tax each pay period using the TRAIN Law rates: annual taxable income up to ₱250,000 is exempt, and higher bands are taxed from 15% up to 35%.
The annual rates
| Annual taxable income | Tax |
|---|---|
| Up to ₱250,000 | 0% |
| Over ₱250,000 to ₱400,000 | 15% of the excess over ₱250,000 |
| Over ₱400,000 to ₱800,000 | ₱22,500 plus 20% of the excess over ₱400,000 |
| Over ₱800,000 to ₱2,000,000 | ₱102,500 plus 25% of the excess over ₱800,000 |
| Over ₱2,000,000 to ₱8,000,000 | ₱402,500 plus 30% of the excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 plus 35% of the excess over ₱8,000,000 |
How it is withheld each period
- Start with the period's gross compensation.
- Subtract the employee's SSS, PhilHealth and Pag-IBIG contributions and any non-taxable items.
- Apply the withholding table that matches the pay frequency (monthly, semi-monthly, weekly or daily).
- Deduct the tax from pay and remit it to the BIR by its deadline.
Year-end
The employer annualizes taxable compensation for the full year and compares the tax due with what was withheld. A refund or an additional deduction follows, and the result appears on each employee's BIR Form 2316.
The free withholding tax calculator shows the monthly and semi-monthly figures for a given taxable income.
Questions people ask
What income is exempt from withholding tax?
Annual taxable compensation of ₱250,000 or less, which is about ₱20,833 a month, is taxed at 0%.
What is taxable compensation?
Gross compensation minus the employee's SSS, PhilHealth and Pag-IBIG contributions and minus non-taxable items, such as de minimis benefits and the 13th month pay and other benefits within the ₱90,000 exemption.
Does the employer do a year-end adjustment?
Yes. The employer annualizes the employee's compensation at year end, compares the tax due with the tax withheld, and refunds or collects the difference. The result is reported on BIR Form 2316.
Sources
- Republic Act No. 10963, Tax Reform for Acceleration and Inclusion (TRAIN) Law
- BIR Revenue Regulations No. 11-2018, withholding on compensation