Make tax less taxing: Understanding your ITR

As much as taxes are inevitable, they can also be confusing. To get you ready for ITR season, we consulted with Roy De Guzman of BPI’s Human Resources Department to get the lowdown on taxes, from how it’s computed to filing your ITR.

📝 How your tax gets calculated

This requires some math, so grab your calculators and payslips. Roy offers these steps to calculate your annual tax.

1. Determine your annual income and statutory benefits.

Statutory contributions like SSS, PhilHealth, and Pag-IBIG are deducted from your monthly income. What’s left after these deductions is your taxable income, or what’s computed for tax.

For example, you earn Php 50,000 a month. These are your statutory contributions:

• SSS Contribution: Php 900

• SSS Mandatory Provident Fund: Php 450

• PhilHealth: Php 1,250

• Pag-IBIG: Php 200

These total Php 2,800, which means your monthly taxable income is Php 47,200. That adds up to Php 566,400 annually. This amount is what we’ll use to compute your tax.

2. Calculate your tax through the Philippines’ tax table.

“The Philippines implements a progressive personal income tax rate up to 35%, meaning the higher your income, the higher your tax,” Roy says.

Here’s the current personal income tax table:

Going back to our example, if your annual taxable income is Php 566,400, your annual tax is on the third row: Php 22,500 + 20% of the excess of Php 400,000. 

It’s simpler than it looks! We’ll use this equation: Php 22,500 + 0.20 (Php 566,400 - Php 400,000)

So your annual tax comes out to Php 55,780, spread throughout the year. 

3. Take note of which parts of your compensation are taxable and non-taxable.

Roy notes that generally, everything is taxable except for the following:

• 13th Month Pay and other benefits up to Php 90,000

• De Minimis Benefits, like monetized unused leaves and allowances

As for exemptions, Roy says, “With the implementation of the TRAIN Law in 2018, personal and additional dependents exemptions were removed.” However, an annual taxable income of up to Php 250,000 is not subject to tax.

What is an Income Tax Return (ITR)?

Your ITR is submitted to BIR every year to show details of your income and tax calculation. The deadline for filing is April 15.

How do I file my ITR?

If your taxes are automatically deducted from your monthly salary, then your employer will file your ITR for you. 

If you are a freelancer or received compensation from two or more employers in one year, you may have to file your own ITR.

What if I failed to submit my ITR?

Roy says you still have to pay the tax due, as well as a 25% surcharge penalty, an additional interest of 1% per months, and a compromise amounting to P1,000-P25,000.

You make smarter money moves when you know where your income goes – including taxes. You got this!

Want advice tailor-made for your personal finance journey? Check out NEXT by BPI Preferred’s The Program for more articles like this.