How to Compute Income Tax Under TRAIN Law

With the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law, majority of workers or taxpayers in the Philippines are experiencing reduction of the individual income tax in their monthly salary. Even exempted from the income tax. Because of this, you may wonder how to compute your income tax under the TRAIN Law this 2018?

Actually, the basis of the calculation of the income tax is the approved Income Tax Table for 2018 – 2022. The tax table contains the corresponding income tax rate base on your salary per year. There is a simple way to compute your income tax if you really want to know.

How to Compute Income Tax Under TRAIN Law

The computation of the income tax under the TRAIN Law is based on annual salary and corresponding annual tax rate. However, the Bureau of Internet Revenue (BIR), in its Revenue Memorandum Circulars, published a much specific and understandable Revised Withholding Tax Table. It is effective January 1, 2018 to December 31, 2022.

BIR Revised Withholding Tax Table 2018

BIR Revised Withholding Tax Table 2018 | Source: Bureau of Internal Revenue

This is the income tax table from BIR which separates the computation into daily, weekly, semi-monthly and monthly. It is safe to assume that the simplest basis of income tax calculation is the “monthly” income tax computation.

For this reason, below is a similar table focused only in monthly computation. Note that the original one is the above, this separate monthly table is just a reference for an easier calculation. The first column is the bracket (6 brackets in total), the second column is the compensation level (or salary range) and the third column is the prescribed minimum withholding tax (or income tax rate).

Monthly Table

Bracket Compensation Level (CL) Prescribed Minimum Withholding Tax
1 ₱20,833/month and below ₱0.00
2 more than ₱20,833/month ₱0.00 + 20% over CL
3 more than ₱33,333/month ₱2,500 + 25% over CL
4 more than ₱66,667/month ₱10,833.33 + 30% over CL
5 more than ₱166,667/month ₱40,833.33 + 32% over CL
6 more than ₱666,667/month ₱200,833.33 + 35% over CL

How to Compute Income Tax Under TRAIN Law

To start with the computation, first let’s assume that your salary is ₱30,000 per month. While reading this, you may want also to consider calculating your income tax base on your actual salary. But in this guide, lets stick to ₱30,000 monthly salary.

Step 1: Compute Your Taxable Income

To compute your taxable income, deduct your monthly contributions to SSS, PhilHealth and Pag-IBIG from your monthly salary. In case you don’t know how much is your monthly contributions to these government-owned corporations, you may click on the links that should direct you to the corresponding contribution tables.

For a monthly salary worth ₱30,000, the deductions shall be:

  • SSS – ₱581.30
  • PhilHealth – ₱412.50
  • Pag-IBIG – ₱100.00

Total deductions from the above is ₱1,093.80.

Let us subtract those deductions from your monthly salary of ₱30,000. That would result to the total remaining salary (the taxable income) of ₱28,906.20.

Step 2: Determine the Salary Bracket

After getting the total taxable income which is ₱28,906.20, refer to the table above to check which bracket this one belongs. Since it is more than ₱20,833 but not more than ₱33,333/month, it belongs to bracket 2.

Step 3: Compute Your Income Tax Rate

Base on the tax computation in bracket 2, your income tax rate is 20% of the amount over ₱20,833.

This means that you have to subtract ₱20,833 from your taxable income ₱28,906.20 and multiply it by 20%.

(₱28,906.20 – ₱20,833) x 0.20 = ₱1,614.64

The amount ₱1,614.64 is your income tax.

In the exact calculation, this should be ₱1,614.57. In the bracket 2, the exact salary cap should be ₱20,833.33. However, the BIR rounded up that “.33” decimal value. This is not a big deal but just to clarify.

To calculate your net-take home pay, subtract the total amount of your contributions and income tax from your monthly salary.

₱30,000 – (₱1,093.80 + ₱1,614.64) = ₱27, 291.56

Summary of Calculation:

With the salary of ₱30,000, your total deductions in monthly contributions (SSS, PhilHealth and Pag-IBIG) is ₱1,093.80. After the deductions, your taxable income is now ₱28,906.20. From that amount, the computation of your income tax is ₱1,614.64.

After all the computations, your net-take home pay is ₱27, 291.56.

13th Month Pay Tax Computation

The salary cap of 13th month pay tax exemption is set to ₱90,000 under the TRAIN Law. More than that, it is taxable.

So if are receiving a monthly salary worth ₱120,000, it is expected that you’ll have a 13th month pay worth ₱120,000. Since it is more than ₱90,000, you’ll have an additional 13th month pay tax.

Here’s a quick calculation:

Following STEP 1: Your total contributions shall be ₱1,231.30 (₱581.30 in SSS, ₱550.00 in PhilHealth and ₱100.00 in Pag-IBIG).

The taxable income would then be ₱118,768.70 (calculated as ₱120,000 – ₱1,231.30). However, you have to include your additional tax for 13th month pay.

To calculate your 13th month pay tax, subtract ₱90,000 from your monthly salary. As stated, the tax exemption cap for 13th month pay is fixed at ₱90,000. Then, since there are 12 months in a year, divide the subtracted amount by 12.

(₱120,000 – ₱90,000) / 12 = ₱2,500.

The result is your additional monthly tax which is ₱2,500.

So, your total taxable income would be ₱121, 268.70. This is calculated as ₱118,768.70 (salary after contributions) + ₱2,500 (additional 13th month pay tax).

Following STEP 2: The ₱121,268.70 monthly taxable income belongs to bracket 4.

Following STEP 3: The income tax rate is ₱10,833.33 plus 30% of the amount over ₱66,667.

Note that the exact set amount in bracket 4 is ₱66,667.67/month. However, the BIR rounded up that “0.67” decimal number in the table. Again, this is just to clarify and it just creates some decimal discrepancy.

₱10,833.33 + [(₱121, 268.70 – ₱66,667) x 0.30 ] = ₱27,213.84.

So, if your monthly salary is ₱120,000, your income tax would be ₱27,213.84.

That was the comprehensive guide on how to compute your income tax under the TRAIN Law. Should you have any questions or additional information, do let us know in the comment section. Please share.

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