Your gross salary says ₱35,000. Your actual deposit? Somewhere around ₱31,000. The gap stings, and the biggest chunk of it comes from one line item: Withholding Tax on Compensation (WTC).
Here's how that number gets calculated—step by step, with real math—so you can check your own payslip and spot mistakes before they cost you money.
What is Withholding Tax on Compensation?
The Philippine government doesn't wait until April to collect your income tax. Your employer withholds an estimated amount from every paycheck and sends it straight to the Bureau of Internal Revenue (BIR). That's the pay-as-you-earn system.
The legal basis is Revenue Regulations No. 11-2018, which implemented the revised withholding tax tables under the TRAIN Law (Republic Act No. 10963).
Key point: You don't compute or pay this tax yourself. Your employer handles it. But knowing the formula means you can verify the math—and push back when something doesn't add up.
Step 1: Determine Your Gross Compensation
Your gross compensation income includes everything you receive for work performed under an employer-employee relationship. That means:
- Basic Salary (monthly, semi-monthly, or daily rate)
- Overtime Pay
- Holiday Pay (in excess of statutory rates)
- Night Shift Differential (in excess of statutory rates)
- Commissions and Bonuses (in excess of ₱90,000 aggregate for the year)
- Taxable Allowances (e.g., representation allowance, transportation allowance not supported by receipts)
What's excluded: These items are generally non-taxable and stay out of your taxable gross:
- 13th-month pay and other benefits up to ₱90,000
- De minimis benefits within BIR-prescribed limits
- SSS, PhilHealth, and Pag-IBIG employee contributions (deducted before tax)
Step 2: Subtract Mandatory Contributions
Your employer pulls out mandatory contributions first. These reduce your taxable income because they're non-taxable:
| Contribution | 2026 Employee Share | Basis |
|---|---|---|
| SSS | Varies by bracket (see SSS table) | Monthly salary credit |
| PhilHealth | 2.5% of basic salary (employee share) | Basic monthly salary, capped |
| Pag-IBIG (HDMF) | ₱100 (if salary ≤ ₱1,500) or ₱200 (if salary > ₱1,500) | Fixed rate based on salary bracket |
Formula:
Taxable Compensation = Gross Compensation - (SSS + PhilHealth + Pag-IBIG)
Step 3: Apply the Revised Tax Table (TRAIN Law)
With your monthly taxable compensation in hand, look it up against the Revised Withholding Tax Table under the TRAIN Law. For monthly earners, the 2023-onwards brackets are:
| Taxable Income (Monthly) | Tax Rate |
|---|---|
| ₱0 - ₱20,833 | 0% |
| ₱20,833 - ₱33,332 | 15% of excess over ₱20,833 |
| ₱33,333 - ₱66,666 | ₱1,875.00 + 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 |
Step 4: Worked Example
Let's run the numbers for a monthly gross salary of ₱35,000.
Given:
- Gross Monthly Salary: ₱35,000
- SSS Contribution (employee share): ₱800.00
- PhilHealth (employee share, 2.5%): ₱437.50
- Pag-IBIG (employee share): ₱200.00
Computation:
- Total Mandatory Deductions: ₱800 + ₱437.50 + ₱200 = ₱1,437.50
- Taxable Compensation: ₱35,000 - ₱1,437.50 = ₱33,562.50
- Tax Bracket: ₱33,333 - ₱66,666 bracket
- Withholding Tax: ₱1,875 + 20% x (₱33,562.50 - ₱33,333) = ₱1,875 + ₱45.90 = ₱1,920.90
Result: The employer deducts ₱1,920.90 as withholding tax from this paycheck.
Want to skip the manual math? Our Income Tax Calculator handles everything—contributions, brackets, the lot—in a few clicks.
Year-End Adjustment (Annualization)
Monthly withholding is only an estimate. The real reckoning happens at year-end (or when you leave the company). Your employer runs an annualization of your total compensation for the calendar year.
Here's what that looks like:
- Total all compensation paid during the year.
- Subtract the total mandatory contributions and ₱90,000 in tax-exempt benefits.
- Apply the annual graduated tax table.
- Compare the computed annual tax against the total monthly withholding taxes already remitted.
- Refund any overpayment—or collect any shortfall.
The result shows up on your BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld). Your employer must hand this to you on or before January 31st of the following year.
Common Payslip Errors to Watch For
Payroll errors are more common than you'd think. Here are the ones that come up again and again:
- Outdated tax tables. Some payroll systems still use pre-TRAIN rates. If your monthly salary is ₱20,833 or below and you see any withholding tax at all, your employer is probably running the wrong table.
- Incorrect contribution brackets. SSS contributions change every year. Check that your deduction matches the latest SSS circular—don't just assume it's right.
- Taxing non-taxable benefits. De minimis benefits (e.g., rice subsidy up to ₱2,000/month, clothing allowance up to ₱6,000/year) should never show up in your taxable compensation. If they do, flag it with HR.
Key Takeaways
- Withholding tax is computed after deducting SSS, PhilHealth, and Pag-IBIG from your gross salary.
- Under the TRAIN Law, employees earning ₱20,833 or less per month (₱250,000/year) are exempt from income tax.
- Monthly withholding is an estimate. Your employer reconciles the actual tax liability at year-end through annualization.
- Always verify your payslip. Use our Tax Calculator as a cross-reference.
