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  • Writer's pictureAnn Abayari

How to Calculate Payroll Taxes in the Philippines

Managing payroll taxes is an essential aspect of running a business in the Philippines. As an employer, understanding how to calculate and comply with payroll tax obligations is crucial to ensure legal compliance and maintain good employee relations. In this article, we will provide a step-by-step guide on how to calculate payroll taxes in the Philippines, covering the key components and considerations for employers.

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  1. Identify Taxable Compensation: The first step in calculating payroll taxes is to determine the taxable compensation of each employee. Taxable compensation includes basic salary, allowances, bonuses, commissions, and other forms of remuneration subject to taxation. It is important to review the Bureau of Internal Revenue (BIR) guidelines to ensure accurate categorization of taxable income.

  2. Compute Withholding Tax: The Philippine taxation system follows a progressive tax rate structure, where tax rates increase as income brackets rise. To calculate the withholding tax, you need to refer to the BIR's tax tables and compute the appropriate tax amount based on the employee's taxable income and corresponding tax bracket.

  3. Consider Deductions and Exemptions: Certain deductions and exemptions may be applicable to an employee's taxable income, reducing their overall tax liability. Common deductions include contributions to the Social Security System (SSS), PhilHealth, and the Pag-IBIG Fund. Ensure that you accurately factor in these deductions when calculating payroll taxes.

  4. Social Security Contributions: Both the employer and the employee are responsible for contributing to the SSS. The contributions are based on the employee's monthly salary, subject to a maximum threshold set by the SSS. Calculate the employee's contribution by applying the prescribed percentage to their salary, and don't forget to account for the employer's portion as well.

  5. PhilHealth and Pag-IBIG Contributions: Similar to SSS, both PhilHealth and Pag-IBIG contributions are mandatory for employees. The contributions are based on specific salary brackets, and both the employee and employer have a corresponding share. Calculate the employee and employer contributions separately, using the prescribed rates and salary brackets provided by the respective agencies.

  6. Tax Filing and Payment: After calculating the payroll taxes, it is crucial to ensure proper tax filing and payment. Employers must remit the taxes deducted from employees' salaries, along with their corresponding contributions, to the relevant government agencies within the prescribed deadlines. Failure to comply with these obligations may result in penalties and legal consequences.

  7. Stay Updated with Tax Regulations: Tax regulations and rates can change over time, so it is essential to stay informed and updated. Regularly check for any new tax laws, amendments, or regulations issued by the BIR, SSS, PhilHealth, and Pag-IBIG to ensure your payroll tax calculations remain accurate and compliant.

2023 BIR Annual Tax Table
2023 BIR Annual Tax Table

Table representing the tax rates for different income brackets based on payroll daily and weekly frequencies in the Philippines
2023 Withholding Tax Table for Daily and Weekly Periods

table representing the tax rates for different income brackets based on payroll semi-monthly and monthly frequencies in the Philippines
2023 Withholding Tax Table for Semi-monthly and Monthly Periods

Calculating payroll taxes in the Philippines involves various components, including identifying taxable compensation, computing withholding tax, considering deductions and exemptions, and accounting for social security, PhilHealth, and Pag-IBIG contributions. It is crucial for employers to stay up-to-date with tax regulations and fulfill their obligations accurately and timely. By following this guide and seeking professional advice when needed, employers can streamline their payroll processes and ensure compliance with the tax laws of the Philippines.

KarbonPay can help keep your business compliant with all these regulations. Contact us now to find out more.


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