The tax season just ended, leaving many scratching their heads over the complex process of tax calculation.
If you’re one of those who had a difficult time, this guide on how to compute income tax in the Philippines will make the next tax season smoother for you. It’s designed to help you understand the necessary steps and forms needed to accurately assess your taxes.
Remember, paying taxes is not only a civic and legal obligation but a crucial part of contributing to our nation’s development. Non-compliance may result in hefty fines and legal liabilities, making it essential to get your calculations right.
So, let’s dive into the details and ensure you’re fully prepared for the next tax season!
What is Income Tax in the Philippines for?
Income tax in the Philippines is important for generating revenue that the government uses to improve public services and the overall quality of life for its citizens. Below, we explore the key reasons why income tax is collected and how it benefits you directly.
Funding Public Services
Income tax helps pay for essential public services like healthcare, education, and emergency services. These contributions ensure that healthcare facilities are equipped, schools are well-maintained, and public safety is prioritized.
Infrastructure Development
Your tax dollars go toward building and maintaining roads, bridges, and public transit systems. This development not only makes daily travel safer and more efficient but also supports economic growth by improving business logistics.
Social Security
Income tax funds social security benefits that provide financial assistance during retirement, disability, or other phases where earning capacity might be diminished. This safety net is vital for maintaining a decent quality of life for all.
Economic Stabilization and Growth
Tax revenues enable the government to implement policies that stabilize the economy—managing inflation, stimulating growth, and reducing unemployment. These actions create a more resilient economic environment that benefits everyone.
Redistribution of Wealth
Progressive taxation ensures that wealthier individuals contribute more, which helps fund welfare programs for the less advantaged. This redistribution helps mitigate income inequality and fosters a fairer society where opportunities are more evenly distributed.
Through these measures, income tax plays a foundational role in supporting the communal and economic structures that benefit all Filipinos. Your contributions help build a stronger, more equitable society.
Understanding the BIR Income Tax Table
The BIR income tax table is a guide for Filipinos to determine how much income tax they should pay each year. It’s a tiered system where the tax rate increases as your income goes up.
Here’s the complete breakdown of the latest tax rates and thresholds:
Residents Income Tax Table (Annual)
| Tax Rate | Taxable Income Threshold |
| 0% | from ₱0.00 to ₱250,000.00 |
| 15% | from ₱250,000.01 to ₱400,000.00 |
| 20% | from ₱400,000.01 to ₱800,000.00 |
| 25% | from ₱800,000.01 to ₱2,000,000.00 |
| 30% | from ₱2,000,000.01 to ₱8,000,000.00 |
| 35% | from ₱8,000,000.01 and above |
Residents Income Tax Table (Annual)
| Tax Rate | Taxable Income Threshold |
| 0% | from ₱0.00 to ₱250,000.00 |
| 15% | from ₱250,000.01 to ₱400,000.00 |
| 20% | from ₱400,000.01 to ₱800,000.00 |
| 25% | from ₱800,000.01 to ₱2,000,000.00 |
| 30% | from ₱2,000,000.01 to ₱8,000,000.00 |
| 35% | from ₱8,000,000.01 and above |
How To Compute Income Tax in the Philippines?
Understanding how to compute your income tax in the Philippines ensures you pay the right amount and avoid any penalties. Let’s look into the steps to calculate your taxes correctly, whether for personal or business purposes.
Step1: Calculate your taxable income
Your taxable income is your starting point. Begin with your monthly basic salary and add any extra earnings such as bonuses or overtime. Then, subtract contributions to social services like SSS, PhilHealth, and Pag-IBIG, as well as any deductions for absences. This is your equation:
Taxable Income = (Monthly Basic Pay + Additional Pay) – (SSS + PhilHealth + Pag-IBIG + Deductions)
Step 2: Determine your tax bracket
Now, find out where you fit in the BIR’s withholding tax table. Match your taxable income to the appropriate compensation range. Take note of the fixed tax, compensation level, and the percentage rate that applies to you.
For instance, with a monthly taxable income of ₱23,150, you’d look for the bracket ₱20,833 to ₱33,332. The fixed tax here is ₱0.00, the compensation level is ₱20,833, and the rate is 20%.
Step 3: Calculate your income tax
Using this formula, you can find out what you owe:
Income Tax = Fixed Tax + [(Taxable Income – Compensation Level) × Rate].
So, if your monthly taxable income is ₱23,150:
Income Tax = ₱0.00 + [(₱23,150 – ₱20,833) × 20%] = ₱463.40.
This means your income tax for that month would be ₱463.40.
Optional Steps
Calculate your net take-home pay
To know what you’ll actually take home:
Net Salary = Gross Salary – (Monthly Contributions + Income Tax).
Use an Income Tax Calculator
To calculate your tax with an online income tax calculator, you can visit this website.
Use Tax Services
Calculating your taxes can be tedious and, let’s be honest, a little intimidating. That’s where tapping into tax services like Babylon2k can make all the difference.
They’re designed to lift the burden off your shoulders, ensuring every peso is accounted for accurately. By entrusting this meticulous task to the experts, you’re not just saving time—you’re investing in the assurance that your tax duties are fulfilled without a hitch.
FAQ
What is the formula of total income in income tax?
The formula for total income in income tax is:
Total Income = Gross Income – Allowable Deductions.
Your gross income includes all earnings, while allowable deductions can include government contributions and personal exemptions.
Is 20k salary taxable?
A 20k monthly salary is taxable if your annual income exceeds the ₱250,000 threshold. However, those income below that amount are exempt from income tax under the current tax laws in the Philippines.
Take Charge of Your Taxes Today!
Navigating the complexities of income tax can be challenging, but you don’t have to do it alone. With Babylon2k, our expert consultation and reminder services are tailored to guide you every step of the way. Get a quote today to learn how we can assist you.
Whether you’re a seasoned professional or new to the workforce, our friendly team is ready to assist you with personalized advice to compute your income tax correctly.
Don’t miss a beat next tax season! Let us handle the calculations while you focus on what you do best.
