Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional or national. Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as Social Security and Medicare. In economics, taxes fall on whomever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business’s goods.

There are several very common types of taxes:

  • Income tax — a percentage of generated income that is relinquished to the state or federal government.
  • Payroll tax — a percentage withheld from an employee’s pay by an employer, who pays it to the government on the employee’s behalf to fund Medicare and Social Security programs.
  • Corporate tax — a percentage of corporate profits taken as tax by the government to fund federal programs.
  • Sales tax — taxes levied on certain goods and services; varies by jurisdiction.
  • Property tax — based on the value of land and property assets.
  • Tariff — taxes on imported goods; imposed in the aim of strengthening internal businesses.
  • Estate tax — rate applied to the fair market value of property in a person’s estate at the time of death; total estate must exceed thresholds set by state and federal governments.


The company’s tax is mandatory as well.

The taxable payments are as follows:

  1. Basic salary
  2. Overtimes (Night overtime included)
  3. Special holiday pay
  4. Regular holiday pay


Allowances are non-taxable.


To compute tax in the pay slip, here are the steps:


Always refer to the tax table below.



1. With the salary written on their pay slips, the first thing to do is to subtract the basic pay of the employee to the statutory payments written on their pay slips as well. (Statutory payments meaning the payments for SSS, PHILHEALTH, and PAG-IBIG.)

For example, the basic pay of the employee is PHP 25,000, subtract it with say the statutory pay is PHP 1,000.

So 25,000 - 1,000 = 24,000

 

2. Then, subtract the difference from the previous item with the maximum amount written on the tax table. The classification of the amount to be subtracted comes from which bracket the pay of the employee falls on.

 

For example, the difference of the basic pay subtracted with the statutory pay is PHP 24,000, subtract it with PHP 16,667 since that base pay falls on bracket number 3. It can’t be number 4 because the pay does not exceed PHP 33, 3333.

So 24,000 – 16,667 = 7,333

 

3. With the difference from the previous number, multiply it with the percentage written on the tax table, referring to the bracket the value falls on.

 

For example, it was implied on the first step that the amount falls on the number 3 bracket of the tax table so the value to be multiplied is 20%.

So, 7,333 x 20% = 1,466.6

 

4. Finally, add the product from the second step with 937.50, still referring to the tax table.

 

So, 1,466.60 + 937.50 = 2,404.1

That will be the amount taxable.