In the Philippines, employers act as the withholding agent for the Bureau of Internal Revenue (BIR). So employers are required to compute, deduct and remit the employees’ taxes to the BIR. And the employer shall be liable for the taxes not withheld or remitted to BIR. So it is imperative that employers are familiar with the withholding tax regulations and the computation of withholding tax in the Philippines.

What You Will Learn

  • What is withholding tax?
  • BIR Withholding Tax Table
  • What is the withholding tax formula?
  • How to compute withholding tax in the Philippines?

Withholding Tax in the Philippines

In this case, I will be explaining the withholding tax on compensation or the withholding of taxes from income payments arising from an employer-employee relationship. The employer must note that the employee’s total withheld taxes for the year may be different from the employee’s actual income tax. So the employer is required to perform a reconciliation to ensure it matches.

BIR Withholding Tax Table

Withholding Tax Table
You can download the withholding tax table from BIR here.

 

The BIR withholding tax table includes 4 different sections for the daily paid; weekly paid; semi-monthly paid; and, the monthly paid employees. However, the computation method is the same. But before that, let’s understand the withholding tax table and formula.

 

 

 

 

Understanding the Withholding Tax Formula

compute withholding tax exemption amount

Personal and Additional Exemption Amount

Under every section, there are 2 tables – A and B. Each row refers to a different amount of employee’s personal and additional exemption. For example, an employee who is single (S) or married (M) without any qualified dependent will be under row 2 with a P50,000 personal exemption.

And if you use the first amount of every row multiply by 12, you will get back the exemption amount. For example, 4,167 multiply by 12 = 50,004. The slight discrepancy is due to rounding differences in the entire table. The multiplying factor for ‘Daily’ section is 303; ‘Weekly’ section is 52; and, ‘Semi-Monthly’ section is 24.

withholding tax rateNext, what does the ‘0.00’ and the ‘+5% over’ means? It means the employer is required to withhold 5% tax for salary above P4,167. So if the employee earns P4,800 a month, the employer is required to withhold [5% × (P4,800 – P4,167)] + 0.00 = P31.65 tax. If the employee earns P12,000, then the employer will be required to withhold [20% × (P12,000 – P10,000)] + P708.33 = P1,108.33 tax.

And what is the P708.33? It is the total amount of [5% × (P5,000 – P4,167)] + [10% × (P6,667 – P5,000)] + [15% × (P10,000 – P6,667)] = P708.30. The slight discrepancy is due to the rounding differences in the entire table. Now you know how to compute the withholding tax, let’s go through an example below.

Computation of Withholding Tax in the Philippines

Example of Computation of Withholding Tax

  1. Ensure you are using the “Monthly” section.
  2. Determine the exemption status
    • Use table A for employees without qualified dependent
      • Status Z – for employees with zero exemption (those who failed to file Application for Registration and those with multiple employers)
      • Status S/ME – for both single and married employee with no qualified dependent
    • Use table B for single/married employee with qualified dependent child(ren)
      • Status ME1/S1 – with 1 qualified dependent
      • Status ME2/S2 – with 2 qualified dependent
      • Status ME3/S3 – with 3 qualified dependent
      • Status ME4/S4 – with 4 qualified dependent
  3. Determine the gross income.
    • Assuming the gross income is Php 14,000.
    • Gross Income = (Basic Salary + Allowances + Overtime Pay + Night Shift Differential + Holiday Pay) – (Absences + Tardiness + SSS + Philhealth + HDMF contributions)
  4. Computation of the withholding tax.
    • Assuming the employee has 1 qualified dependent – Status ME1/S1
    • Assuming the employee’s gross income is Php 14,000.
    • Using the row of ME1/S1, look for the highest amount not exceeding the gross income – which is in this case, Php 12,083 (Column 5)
    • Withholding tax formula for Column 5 is Php 708.33 + 20% above Php 12,083
    • 708.33 + (20% * (14,000 – 12,083)) = Php 1091.73

For more information about taxation, please refer to the tax code of the Philippines.