Understanding how to compute income tax in the Philippines is crucial for responsible financial planning. Follow these simple steps along with a sample scenario to navigate the process:
1. Determine Gross Income:
Identify all income sources, such as salary, bonuses, and benefits, and add them together to calculate your Gross Income.
Sample:
- Basic Salary: ₱15,000/month
- 13th Month Pay: ₱15,000
- Total Gross Income: ₱15,000 x 12 + ₱15,000 = ₱195,000
2. Identify Exemptions and Deductions:
Deduct allowable exemptions and deductions, including personal and additional exemptions, health insurance premiums, and contributions to mandatory government programs.
Sample:
- Personal Exemption: ₱50,000
- PhilHealth Contribution: ₱2,400
- Pag-IBIG Contribution: ₱1,200
- Total Deductions: ₱50,000 + ₱2,400 + ₱1,200 = ₱53,600
3. Calculate Taxable Income:
Subtract total deductions from Gross Income to find your Taxable Income.
Sample:
- Taxable Income = ₱195,000 - ₱53,600 = ₱141,400
4. Refer to the Tax Rate Table (2022):
- Up to ₱250,000: 0%
- ₱250,001 to ₱400,000: 20%
- ₱400,001 to ₱800,000: 25%
- ₱800,001 to ₱2,000,000: 30%
- ₱2,000,001 to ₱8,000,000: 32%
- Over ₱8,000,000: 35%
5. Compute Income Tax:
Apply the relevant tax rate to your Taxable Income.
Sample:
₱141,400 x 0% = ₱0 (No tax for income up to ₱250,000)
Therefore, with a ₱20,000 annual income, you won't have to pay income tax based on the progressive tax rates.
6. Additional Considerations:
- Withholding Tax: Employers may withhold a portion of your salary as withholding tax.
- Filing Deadline: Be aware of the deadline for filing income tax returns, typically on or before April 15 of the following year.
- Consult Professionals: For accurate advice, consider consulting with a tax professional or checking the latest guidelines from the Bureau of Internal Revenue (BIR).
Stay updated with evolving tax regulations, seek professional guidance when needed, and empower yourself with financial knowledge.
