Every month, your employer deducts income tax from your salary before you receive your take-home pay. This is called withholding tax on compensation, and it is governed by the Bureau of Internal Revenue (BIR) under the TRAIN Law (RA 10963). In 2026, the tax brackets remain the same as those established in 2023 under the second tranche of TRAIN. This guide shows you the exact step-by-step method to compute your monthly withholding tax manually.
| Monthly Taxable Income | Tax Rate |
|---|---|
| ₱0 – ₱20,833 | 0% (Exempt) |
| ₱20,834 – ₱33,332 | 15% of excess over ₱20,833 |
| ₱33,333 – ₱66,666 | ₱1,875 + 20% of excess over ₱33,333 |
| ₱66,667 – ₱166,666 | ₱8,541.80 + 25% of excess over ₱66,667 |
| ₱166,667 – ₱666,666 | ₱33,541.80 + 30% of excess over ₱166,667 |
| Over ₱666,667 | ₱183,541.80 + 35% of excess over ₱666,667 |
Start with your gross monthly pay and subtract all non-taxable items:
Take the resulting taxable compensation and locate which income bracket it falls under. Apply the formula shown for that bracket.
This amount is what appears on your payslip as "BIR Tax Withheld" or "Income Tax."
| Item | Amount |
|---|---|
| Gross Monthly Salary | ₱45,000.00 |
| Less: SSS Contribution (employee share) | –₱1,125.00 |
| Less: PhilHealth Contribution (employee share) | –₱1,125.00 |
| Less: Pag-IBIG Contribution | –₱100.00 |
| Taxable Compensation | ₱42,650.00 |
| Tax on first ₱33,333 | ₱1,875.00 |
| Tax on excess (₱42,650 – ₱33,333 = ₱9,317 × 20%) | ₱1,863.40 |
| Monthly Withholding Tax | ₱3,738.40 |
In December, your employer performs a year-end tax adjustment. They compute your actual annual tax liability based on your total earnings for the year and compare it against the total monthly tax withheld. If you were over-withheld, you get a tax refund added to your December payslip. If under-withheld, the difference is collected in December.
This annualization is why December paychecks sometimes look different from other months.
If you changed jobs mid-year, each employer computes tax as if you work for them alone. This almost always results in under-withholding. You will owe additional tax when filing your ITR (Form 1700) by April 15.
The 13th month pay and other bonuses up to ₱90,000 are non-taxable. The employer excludes this from the withholding tax base, which is why some employees notice lower-than-expected tax deductions in the month their 13th month is paid.
Skip the manual math — our salary calculator handles SSS, PhilHealth, Pag-IBIG, and BIR withholding tax automatically for your specific salary.
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