HOW TO COMPUTE WITHHOLDING TAX ON COMPENSATION

HOW TO COMPUTE WITHHOLDING TAX ON COMPENSATION
by: Ione Baron Mejia

Tanong ni empleyado, "Tama kaya ang computation ng withholding tax ko?"

Una, bago tayo mag compute. Ano ba yong withholding tax? Withholding tax,  eto yong tax sa kinikita mo ng gobeyerno na binabawas sayo ng employer mo kada buwan. Yong employer mo ang nangungulekta sayo para sa gobeyerno. 

Now, this is how to compute withholding tax on compensation.

Step 1: Determine kung talagang dapat ka bang withholdan o hindi.

Please be informed that if you are a minimum wage earner (MWE) who is purely earning compensation income you are not subject to income tax, therefore you are not subject to withholding tax. Kaya dapat hindi ka binabawasan  o hindi ka nabawasan ng withholding tax. In short, ang mga minimum wage earner (MWE) ay walang withholding tax.

Then, who are subject to withholding tax?

Those who are earning above minimum, (except those that are expressly enumerated by the National Internal Revenue Code), their income are taxable and are therefore subject to withholding tax.



Step 2: Presenting the Withholding Tax Table. Eto ang gagamitin natin para sa pag compute ng withholding tax nyo. (Please dont be intimidated with it, madali lang intindihin yan.)

Legend:
Z - Zero exemption
S - Single
ME - Married Employee 1;2;3;4- Number of qualified dependent children
S/ME  =  P50,000 
Each Working employeeQualified Dependent Child = P25,000 each but not exceeding four (4) children

( Yan po ang ibig sabihin ng Z,S at ME madali lang di ba)

1. DAILY TAX TABLE - SHOULD BE USED BY EMPLOYERS USING DAILY PAYROLL PERIOD
2. WEEKLY TAX TABLE - SHOULD BE USED BY EMPLOYERS USING WEEKLY PAYROLL PERIOD
3.SEMI-MONTHLY TAX TABLE - SHOULD BE USED BY EMPLOYERS USING SEMI MONTHLY PAYROLL PERIOD
4. MONTHLY TAX TABLE - SHOULD BE USED BY EMPLOYERS USING MONTHLY PAYROLL PERIOD

( Para naman yan sa nakahighlight ng blue )

Ngayon alam mo na, above minimum ka, so may income tax ka therefore may withholding tax ka. Second, kailan ba kayo nagswesweldo? daily, weekly, semi monthly, monthly. Third, determine/compute total compensation you receive, from there determine your regular taxable compensation and your supplementary taxable compensation.


STEP 3:

Determine the total monetary and non monetary compensation you have received for the payroll period. Excluding the ff below: 
1. 13th month pay, 
2. productivity incentives, 
3. Christmas bonus, 
4. other benefits, 
5. your contribution to SSS or GSIS, HDMF, Philhealth.

( Gross benefit which are received by officials and employees of both public and private entities in the amount of thirty thousand pesos (P 30,000) or less is exempted from income and withholding tax.)


Step 4: Determine your taxable and non taxable compensation income.

What is taxable ? 
The taxable income refers to all remuneration paid to an employee not otherwise exempted by law from income tax and consequently from withholding tax.

What is non taxable?
The non-taxable income are those which are specifically exempted from income tax by the Code or by other special laws as listed in Sec.2.78.1(B) hereof 
example: 1. benefits not exceeding P30,000, 
               2. non-taxable retirement benefits 
               3. separation pay

After you determine your taxable compensation income, you segregate it into:
1. Regular taxable compensation income
    A. basic salary
    B. fixed allowances for representation
    C. transportation and other allowance you receive per payroll period
2. Supplementary compensation income
    A. Commission
    B. Overtime pay
    C. Taxable bonus
    D. Other taxable benefit

Yong regular mong narereceive kada payroll ang regular compensensation income mo, ang supplementary eh yong narereceive mo o dagdag na binibigay sayo pwera sa regular na narereceive mo. Importante ma determine nyo to kasi ang regular taxable compensation income ang gagamitin mong amount sa withholding tax table.


Example:

1. Juan Dela Cruz, married with two dependent. 
    (Check the legend in the taxable table = ME2 kasi married at 2 dependent)

2.  He is receiving eighteen thousand basic salary ( P 18,000), received semi monthly. = 9,000   ( Regular taxable compensation income)  
    ( For example purpose amount of SSS, Philhealth, and others is 1,000)

3.  Overtime pay two thousand pesos.( P 2,000)
      ( Supplementary taxable compensation income)

4. Commission of five thousand pesos ( P 5,000)
       (Supplementary taxable compensation income)
     

Basic pay            9,000 - 1,000 = 8,000
 (semi monthly basic pay less non taxable SSS and others)


Overtime pay       2, 000
Commission         5,000
Total                    15,000


 1. Go to the table in semi monthly section
 2. See number 2 ME2
 3. Check compensation level line 7,083  (base sa 8,000 na regular taxable compensation)
 4. Compensation level 7,083   
     Excess = 7,917   (Total 15,000 - 7,083 compensation level line)   
     % on excess tax = 20%     ( base on tax table)
 5. Tax on compensation level = 354.17
     Tax on the excess = 1,583.40  (7,917 x .20)
     Total withholding tax = 1,937.57  (354.17 + 1,583.40)


Eto ang ginawa ko para makuha ang total withholding tax:

Total withholding tax is P 1,937.57. Pano nakuha, pakicheck yong table, punta ka sa semi monthly tapos hanapin mo yong ME2. Bakit ME2 kasi married employee si Juan Dela Cruz at 2 ang dependent. Tapos tingan mo yong linya from ME2, hindi ka pwede sa 5,417 kasi masyadong mababa hindi ka rin pwede sa 10.000 at sobra ka naman sa 8,000 ang compensation level mo ay sa 7,089, syempre may sobra ang excess eh 7,917. Pano nakuha yong 7,917 eto yong total compensation mo na 15,000 minus 7,083 na compensation level line. Ngayon tingnan mo sa taas ng 7,083 naka lagay don yon tax sa compensation level mo na 7,803 ang tax nyan eh 354.17 tapos ang tax naman sa excess na 7,917 eh 1,583.40. Paano nakuha yong 1,583.40, imultiply mo yong 7,917 x 20%  excess tax ang sagot dyan eh 1,583.40. Ngayon i add mo yong 354.17 na tax sa compensation level at yong 1,583.40 na tax sa excess yan yong total withholding tax mo 354.17 plus 1,583.40 equals 1,937.54.

1,937.57 dapat ang ibabawas ng employer ni Juan Dela Cruz sa sweldo nya. Yon ang tax nya na ibabayad sa government. In totally unrelated issue, yong MRT/LRT daw magtataas ang pamasahi, saan kaya napupunta yong tax na winiwithhold sa mga empleyado? Syempre sa mga government projects.hehehehe.



For comments, questions or  tax help please email me at yourtaxaid@gmail.com or ione.mejia@gmail.com