GUIDE: Income Tax Brackets in the Philippines
Here's how it's computed.
(SPOT.ph) There are three certainties in life; Death, taxes, and us telling you about those taxes. To be strict about the definition, taxes are mandatory contributions placed upon individuals and corporations to fund government projects, services, and activities. The deduction is noted on your payslip every month (or twice a month!), but if you've been meaning to understand what it's for and how it's computed, we got you covered.
Do take note that while we aim to inform, there could be more complex computations at play depending on your streams of income, company policy, nature of contract and employment, and other factors.
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What is income tax?
According to the Bureau of Internal Revenue, Income Tax "is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions if any, authorized for such types of income, by the Tax Code, as amended, or other special laws."
Basically, income tax is deducted from your salary or income, as dictated by income tax rates. Employees with lower salaries have less deductions, while employees with bigger salaries are met with more deductions.
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What portion of my income is taxed?
Income tax is dedcuted from your gross income. Gross income is the total income an individual earns on a paycheck before taxes and other deductions.
If, on paper, it says your salary is P30,000, then your gross income is P30,000. That's your salary without the SSS contributions, PAG-IBIG, or PhilHealth deductions yet. Your pay, minus the the above contributions and even the income tax, is called net income. This net income is what you actually take home. You can use to pay your bills and pay debts or put into savings and investments.
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Who pays income tax in the Philippines?
Philippine residents and employees deriving income from sources in the Philippines must pay income tax. Whether you're getting it from one employer or several, all the money you make is taxed. If you have a business or you're self-employed, the income derived is still taxed.
Non-resident citizens and aliens—whether resident or not—receiving income from sources within the Philippines are still subject to tax.
Even corporations and partnerships, no matter how created or organized, are subject to income tax. Domestic corporations receiving income from sources within and outside the Philippines and even foreign corporations receiving income from sources within the Philippines are taxed.
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Here are the Income Tax Rates in the Philippines
| Amount of Net Taxable Income |
Rate | |
| Over | But Not Over | |
| - | P250,000 | 0 |
| P250,000 | P400,000 | 20% of the excess over P250,000 |
| P400,000 | P800,000 | P30,000 + 25% of the excess over P400,000 |
| P800,000 | P2,000,000 | P130,000 + 30% of the excess over P800,000 |
| P2,000,000 | P8,000,000 | P490,000 + 32% of the excess over P2,000,000 |
| P8,000,000 | P2,410,000 + 35% of the excess over P8,000,000 |
So let's say you make P15,000 a month, for an annual salary of P180,000. Since that's under P250,000, there is no deduction. If you get promoted or move to a job with a higher salary of P30,000, that makes for an annual salary of P360,000. Since it's above P250,000 but less than P400,000, the P110,000 will be taxed 20%.
That means P22,000 will be deducted annually, and you will get P88,000. Then all the other deductions and payments will be deducted from there.
Employees who make P200,000 per month or P2.4 million a year are subject to a highter tax rate. That's P490,000 plus 32% of P400,000, since that's excess of P2 million.
For that example, it will be P490,000 plus P128,000, because that's 32% of P400,000. All in all, P618,000 will be deducted from you annually. Taxes pile up over time so you can only imagine the anger people have when they feel their taxes aren't being used properly.
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Is my 13th month pay subject to tax?
That depends how much your 13th month pay is. Under Republic Act 10963 or TRAIN Law Section 32, anything P90,000 and below is tax-exempt, meaning you can take it all home if it's under P90,000.
If you make, P15,000 a month and get 13th month pay worth P15,000, then you can take it all home without income tax. If you're making P30,000 a month and receive 13th month pay worth P30,000, your regular monthly salary is subject to income tax, but your 13th month pay is tax-exempt.
But let's say you make P200,000 a month and your 13th month pay is also P200,000. Of your P200,000 13th month pay, P110,000 of that will be subject to tax, with deductions based on the matrix above.
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Who files income tax?
Employed individuals don't have to stress too much as companies have dedicated department filing all these important documents. Self-employed individuals, freelancers, and business owners may have to file income tax themselves, or seek the help of accountants so the right amount is filed on time.
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