Withholding Tax on Salary Philippines: Brackets & Computation

Every payslip in the Philippines carries a line that quietly shapes take-home pay: withholding tax on compensation. Most employees see the deduction every payday but never learn how the number was actually computed, whether their employer used the correct bracket, or what happens to the money between their payroll date and their next Bureau of Internal Revenue (BIR) filing deadline.

The rules changed substantially under the TRAIN Law, and the current graduated rates — in effect since January 1, 2023 — are now permanent unless Congress amends them again. Yet outdated tax tables, missed exemptions and skipped year-end adjustments remain some of the most common payroll errors employers make in the Philippines.

This guide explains how withholding tax on compensation actually works: the legal basis, the current brackets, who is exempt, how employers are supposed to compute it each payroll period, the most common computation errors, and what employees and employers can do when something looks wrong.

Direct Answer

Withholding tax on compensation is the income tax an employer must deduct in advance from an employee’s salary and remit to the BIR on the employee’s behalf, under Section 79 of the National Internal Revenue Code (NIRC).^[2] The amount withheld is based on the graduated income tax table in Section 24(A) of the NIRC, as amended by the TRAIN Law (Republic Act No. 10963), which has applied since January 1, 2023: annual taxable compensation of ₱250,000 or below is taxed at 0%, rising through brackets of 15%, 20%, 25%, 30% and 35% on the excess over each threshold, up to a top rate of 35% on income beyond ₱8,000,000.^[1]

Employees classified as minimum wage earners are entirely exempt from income tax — not just on their basic pay, but also on their statutory holiday pay, overtime pay, night shift differential and hazard pay — under Republic Act No. 9504.^[3] Employers compute withholding tax using the BIR’s prescribed withholding tax tables for each payroll period, then reconcile the year’s total withholding against the employee’s actual annual tax due through a mandatory year-end adjustment.^[2]

Key Takeaways

Withholding tax on compensation is an advance collection method, not a separate tax — it is credited against the employee’s actual annual income tax liability.
The graduated table under the TRAIN Law has applied since January 1, 2023 and remains the current permanent schedule: 0% up to ₱250,000 annually, rising to 35% beyond ₱8,000,000.
Minimum wage earners are fully exempt from income tax on their basic pay and on statutory holiday pay, overtime pay, night shift differential and hazard pay.
The first ₱90,000 of 13th month pay and other benefits in a calendar year is excluded from taxable compensation.
Mandatory SSS, PhilHealth, Pag-IBIG and union dues contributions are deducted from gross pay before computing taxable compensation.
Employers must remit withheld tax monthly (BIR Form 1601-C), perform a year-end adjustment, and issue BIR Form 2316 to every employee.
A qualified employee with only one employer for the year and correctly withheld taxes is generally covered by substituted filing and does not need to file a separate annual income tax return.
Failing to withhold, under-withholding, or failing to remit exposes an employer to civil penalties, interest, and potential criminal liability under the NIRC.

Legal Basis

Authority	Classification	Rule Supported	Effect
National Internal Revenue Code (RA 8424), Section 24(A), as amended by RA 10963 (TRAIN Law)	Statute	Graduated individual income tax table, permanent rates effective January 1, 2023	Binding law
National Internal Revenue Code, Section 79	Statute	Employer’s duty to withhold tax on wages, remit it, and perform a year-end adjustment	Binding law
Republic Act No. 9504	Statute	Full income tax exemption for statutory minimum wage earners, including specified premium pay	Binding law
BIR Revenue Regulations No. 11-2018	Implementing regulation	Revised withholding tax tables and computation mechanics implementing the TRAIN Law	Binding implementing rule
BIR Revenue Memorandum Circular No. 21-2010	Administrative issuance	Penalties for employers who fail to withhold, remit, adjust, or refund excess withholding tax	Binding administrative guidance
Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals and A. Soriano Corp., G.R. No. 108576, January 20, 1999	Supreme Court jurisprudence	Legal nature and role of a withholding agent	Controlling jurisprudence
Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, G.R. No. 160756, March 9, 2010	Supreme Court jurisprudence	Constitutionality of the withholding tax system as an advance collection method	Controlling jurisprudence

What Is Withholding Tax on Compensation?

Withholding tax on compensation (WTC) is the mechanism by which the Philippine government collects income tax on salaries and wages as they are earned, rather than waiting for employees to file and pay a lump sum at the end of the year. Under Section 79 of the NIRC, every employer paying wages is required to deduct and withhold the appropriate tax from each payment of compensation, then remit it to the BIR.^[2]

Two things follow from this structure. First, the employer is not the taxpayer — the employee is. The employer is a withholding agent, acting, in the Supreme Court’s words, as “no more than an agent of the government for the collection of the tax.”^[6] Second, the amounts withheld throughout the year are not a separate or final tax in most cases — they are advance payments that are credited against the employee’s actual annual income tax liability, reconciled through a year-end adjustment or, for employees who must file their own return, through their Annual Income Tax Return (BIR Form 1700).

“Compensation” for this purpose covers all remuneration for services performed by an employee for an employer, including salaries, wages, commissions, fees, and most fringe benefits paid to rank-and-file employees, unless a specific exemption or exclusion applies.

How Withholding Tax Is Computed: Brackets and Method

Step 1: Start with gross compensation for the payroll period

This includes basic pay plus any taxable allowances, commissions, and other taxable pay items received during the period.

Step 2: Deduct non-taxable and excluded items

Before applying any tax table, the following are removed from the base:

Mandatory government contributions — SSS, PhilHealth and Pag-IBIG employee shares, and union dues, are excluded from taxable compensation.
De minimis benefits within BIR-prescribed ceilings (for example, rice subsidy, uniform allowance, and certain small cash or non-cash benefits) are non-taxable up to their respective limits.
13th month pay and other benefits, up to a combined ₱90,000 per calendar year, are excluded from taxable income. Amounts above ₱90,000 are added back to taxable compensation.
Minimum wage earners’ statutory pay — basic pay, holiday pay, overtime pay, night shift differential and hazard pay received by a statutory minimum wage earner are entirely exempt and are not subjected to withholding at all.^[3]

Step 3: Apply the applicable withholding tax table for the payroll period

The BIR publishes withholding tax tables (Annexes to Revenue Regulations No. 11-2018) for each common payroll frequency — daily, weekly, semi-monthly and monthly — derived proportionally from the annual brackets under Section 24(A) of the NIRC.^[1][4] The monthly table, the most commonly used, is as follows:

Monthly taxable compensation	Prescribed withholding tax
₱20,833 and below	₱0
Over ₱20,833 but not over ₱33,332	0% + 15% of the excess over ₱20,833
Over ₱33,333 but not over ₱66,666	₱1,875.00 + 20% of the excess over ₱33,333
Over ₱66,667 but not over ₱166,666	₱8,541.80 + 25% of the excess over ₱66,667
Over ₱166,667 but not over ₱666,666	₱33,541.80 + 30% of the excess over ₱166,667
Over ₱666,667	₱183,541.80 + 35% of the excess over ₱666,667

Employers running semi-monthly, weekly or daily payroll use the corresponding BIR annex table rather than dividing the monthly figures themselves, since the brackets are not perfectly linear across periods.

Step 4: Reconcile at year-end

Because pay period withholding is only an estimate, Section 79(F) of the NIRC requires employers to perform a year-end adjustment on or before the last payroll of December: recompute each employee’s actual annual tax due on total annual taxable compensation, compare it against total tax already withheld during the year, and either withhold the shortfall from the December payroll or refund the excess directly to the employee before year-end.^[2] This reconciled figure is what appears on the employee’s BIR Form 2316.

For related payroll math, see LaborCode.ph’s guides on using a net pay calculator in the Philippines and 13th month pay rules and deadlines.

Common Computation Errors and Red Flags

Payroll disputes involving withholding tax usually trace back to one of the following:

Using an outdated tax table. Some payroll systems and small employers never updated from the higher 2018–2022 TRAIN transition rates to the lower permanent rates effective 2023 onward, resulting in systematic over-withholding.
Failing to exempt minimum wage earners entirely. A worker who genuinely qualifies as a statutory minimum wage earner should have zero withholding tax on covered pay items — not a reduced amount.
Computing tax on gross pay before deducting mandatory contributions. SSS, PhilHealth and Pag-IBIG employee shares must be excluded from the base before the tax table is applied.
Ignoring the ₱90,000 exclusion for 13th month pay and other benefits, or conversely, failing to tax the portion that exceeds it.
Misclassifying de minimis benefits — either taxing benefits that fall within the BIR’s non-taxable ceilings, or failing to tax the excess over those ceilings.
Skipping the year-end adjustment, which leaves both over-withholding and under-withholding uncorrected and produces an inaccurate BIR Form 2316.
Applying substituted filing to employees who do not qualify — for example, someone who had two employers during the year, or whose withholding was not correctly computed — without informing them that they must file their own Annual Income Tax Return.
Delayed or missing remittance of tax that was correctly withheld from an employee’s pay but never actually paid over to the BIR by the employer.

Employees who suspect an error should compare their own computation against their payslip and their BIR Form 2316; see LaborCode.ph’s guide on payslip requirements in the Philippines for what a payslip must disclose.

Withholding Tax on Compensation vs Other Withholding Systems

System	Applies To	Nature of the Withheld Amount	Who Files the Final Return
Withholding tax on compensation	Salaries and wages of employees	Creditable advance payment against annual income tax due, reconciled through year-end adjustment	Employer (substituted filing) or employee (BIR Form 1700)
Expanded/creditable withholding tax	Certain income payments to suppliers, contractors and professionals	Creditable advance payment against the payee’s income tax due	Payee files its own return and claims the credit
Final withholding tax	Specified passive income (e.g., certain dividends, royalties, interest)	Full and final settlement of the tax due on that income — not creditable	No further return needed on that income item
Annual income tax (self-assessed)	Individuals not qualified for substituted filing, mixed-income earners, self-employed and professionals	Actual tax computed on total annual net taxable income	Taxpayer, via BIR Form 1700 or 1701

Supreme Court Cases on the Withholding Tax System

1. Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals and A. Soriano Corp.

G.R. No. 108576, January 20, 1999. Although the underlying dispute concerned deficiency withholding tax on a corporation’s redemption of stock dividends rather than employee compensation, the Supreme Court’s discussion of the withholding tax system itself is foundational to how withholding operates generally, including on wages. The Court held that “the withholding agent is the payor, a separate entity acting no more than an agent of the government for the collection of the tax,” distinguishing the withholding agent’s administrative role from the taxpayer’s actual, underlying tax liability.^[6]

Practical lesson: An employer that withholds tax from an employee’s pay is not paying its own tax — it is collecting the employee’s tax on the government’s behalf. That distinction is why an employer cannot simply keep withheld amounts, why the employee remains the real party in interest for refund purposes in many contexts, and why an employer’s own tax standing (such as eligibility for an amnesty) does not automatically extend to its withholding obligations.

2. Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo

G.R. No. 160756, March 9, 2010. An industry association challenged the creditable withholding tax system, along with the minimum corporate income tax, as unconstitutional, arguing that collecting tax before net income is determined violates due process. The Supreme Court upheld the withholding tax system, explaining that “the taxes withheld are in the nature of advance tax payments by a taxpayer in order to extinguish its possible tax obligation” and that the mechanism “does not impose new taxes nor does it increase taxes” but “relates entirely to the method and time of payment.”^[7]

Practical lesson: Employees sometimes assume that withholding tax is itself a final, separately imposed tax. It is not. It is a collection installment against a tax liability that is only finally determined at year-end (through the employer’s year-end adjustment) or through the employee’s own annual return — which is exactly why over-withheld amounts are refundable and under-withheld amounts must still be collected.

Consequences of Getting It Wrong

When an employer fails to withhold, under-withholds, or fails to remit

BIR Revenue Memorandum Circular No. 21-2010 reiterates that an employer who fails to withhold the correct tax, under-withholds, fails to remit withheld tax, remits late, or fails to refund an employee’s excess withholding faces a combination of civil and criminal exposure under the NIRC^[5]:

A penalty equal to the total tax that should have been withheld or remitted, in addition to the deficiency tax itself;
A 25% surcharge for simple failure to withhold or remit on time, or 50% where the failure is willful or fraudulent;
Annual interest on the unpaid or unremitted amount;
Compromise penalties, and, in serious cases, criminal prosecution of the responsible officers, which can carry fines and imprisonment.

When an employee is over-withheld or under-withheld

Over-withholding should ordinarily be corrected and refunded through the employer’s year-end adjustment before December payroll closes, or reflected as a starting credit if the employee separates mid-year. Under-withholding means the employee’s true tax liability was understated during the year; the shortfall is typically collected through the year-end adjustment, or the employee must settle it directly when filing an annual return if substituted filing does not apply.

What to Do Next

If you are an employee

Check your latest payslip against the applicable BIR withholding tax table for your pay frequency and your actual taxable compensation for the period.
Confirm whether you qualify as a minimum wage earner. If you do, your basic pay and covered premium pay should show zero withholding tax.
Request your BIR Form 2316 at year-end or upon separation, and verify that the total tax withheld matches what was actually deducted from your payslips throughout the year.
Raise a written query with HR or payroll if the computation looks wrong, asking specifically which tax table and taxable base were used.
Confirm your substituted-filing status. If you had more than one employer during the year, or your employer did not correctly withhold, you may still be required to file your own Annual Income Tax Return.
Escalate through DOLE’s Single Entry Approach (SEnA) or the BIR’s own complaint channels if an employer refuses to correct a documented over-withholding or refuses to remit tax it deducted from your pay.

If you are an employer

Confirm your payroll system is using the current BIR withholding tax tables under RR No. 11-2018, implementing the permanent TRAIN Law rates effective since 2023.
Correctly flag and exempt statutory minimum wage earners from withholding on covered pay items.
Deduct mandatory SSS, PhilHealth and Pag-IBIG contributions from gross pay before applying the withholding tax table.
Track cumulative 13th month pay and other benefits against the ₱90,000 annual exclusion for each employee.
Perform the year-end adjustment before the final December payroll, refunding over-withheld amounts or collecting shortfalls as required.
Remit withheld tax on time using BIR Form 1601-C, and file the annual information return (BIR Form 1604-C) and issue BIR Form 2316 to every employee by the applicable deadlines.

Employer Compliance Checklist

Confirm the payroll system applies the current BIR withholding tax table for each pay frequency used.
Exclude mandatory government contributions and union dues from taxable compensation before computing tax.
Apply the ₱90,000 exclusion for 13th month pay and other benefits, and tax only the excess.
Identify and fully exempt statutory minimum wage earners from withholding on covered pay items.
Apply de minimis benefit ceilings correctly, taxing only amounts above the prescribed limits.
Perform and document the year-end adjustment for every employee before the last December payroll.
Remit withheld taxes on time via BIR Form 1601-C and file BIR Form 1604-C annually.
Issue BIR Form 2316 to every employee by January 31, or on separation if earlier, and retain payroll records to support each computation.

For related documentation obligations, see LaborCode.ph’s guide to BIR Form 2316: What It Is and When Your Employer Must Issue It.

Frequently Asked Questions

What is the current withholding tax table in the Philippines?

The permanent graduated table under the TRAIN Law has applied since January 1, 2023: 0% on annual taxable compensation up to ₱250,000, then 15%, 20%, 25%, 30% and 35% on the excess over each successive threshold, up to a top rate of 35% on amounts over ₱8,000,000.

Are minimum wage earners required to pay withholding tax?

No. Statutory minimum wage earners are fully exempt from income tax, and therefore from withholding tax, on their basic pay and on statutory holiday pay, overtime pay, night shift differential and hazard pay under Republic Act No. 9504.

Is 13th month pay subject to withholding tax?

Only the portion that, combined with other similar benefits, exceeds ₱90,000 in a calendar year. The first ₱90,000 is excluded from taxable compensation.

What happens if my employer withheld too much tax?

The employer should correct this through the mandatory year-end adjustment and refund the excess before the last December payroll, or upon separation if you leave mid-year. If this does not happen, you can request a written explanation and, if unresolved, seek assistance through DOLE’s SEnA process or the BIR.

Do I still need to file my own income tax return if my employer withholds tax?

If you had only one employer during the year, your income is purely compensation, and the tax was correctly withheld, you are generally covered by substituted filing and do not need to file a separate return. Employees with more than one employer during the year, mixed income, or incorrectly withheld tax typically must file their own Annual Income Tax Return.

What is the difference between withholding tax and income tax?

Withholding tax on compensation is a method of collecting income tax in advance, in installments, throughout the year. Income tax is the actual annual liability computed on total taxable income; the amounts withheld are credited against that liability.

What can an employee do if an employer refuses to remit withheld tax?

An employee can raise the issue in writing with the employer, request confirmation of remittance (such as BIR Form 2316), and pursue DOLE’s Single Entry Approach or a BIR complaint if the employer continues to withhold amounts from pay without actually remitting them to the government.

Conclusion

Withholding tax on compensation is not a separate tax burden layered on top of income tax — it is how income tax on salaries and wages gets collected in the Philippines, in advance and in installments, through the employer acting as the government’s collection agent. Getting the computation right depends on using the current TRAIN Law brackets, correctly excluding mandatory contributions and the ₱90,000 benefits threshold, fully exempting statutory minimum wage earners, and completing the year-end adjustment that reconciles what was withheld against what was actually due.

Employers who skip these steps expose themselves to surcharges, interest and potential criminal liability under the NIRC. Employees who understand the brackets and the exemptions are better positioned to check their own payslips, confirm their BIR Form 2316, and raise a documented query when the numbers do not add up.

Sources and Legal Citations

Statutes

[1] Republic Act No. 10963 (TRAIN Law), amending Section 24(A) of the National Internal Revenue Code — LawPhil. Supports: the permanent graduated income tax table effective January 1, 2023 onward. Status: verified official source.

[2] National Internal Revenue Code (RA 8424), Section 79, as amended — LawPhil. Supports: the employer’s duty to withhold, remit, and perform the annual year-end adjustment on compensation income.

[3] Republic Act No. 9504, amending Sections 22, 24, 34, 35, 51 and 79 of the NIRC — Supreme Court E-Library. Supports: the full income tax exemption for statutory minimum wage earners and specified premium pay. Status: verified official source.

BIR Regulations and Issuances

[4] Bureau of Internal Revenue, Digest of Revenue Regulations No. 11-2018 — Bureau of Internal Revenue. Supports: the revised withholding tax tables implementing the TRAIN Law. Status: verified official source.

[5] BIR Revenue Memorandum Circular No. 21-2010 — Supreme Court E-Library. Supports: penalties applicable to employers who fail to withhold, remit, adjust, or refund excess withholding tax on compensation. Status: verified official source.

Bureau of Internal Revenue, Withholding Tax — Bureau of Internal Revenue official website. Supports: general BIR guidance on withholding tax categories and compliance. Status: verified official source.

Supreme Court Decisions

[6] Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals and A. Soriano Corp., G.R. No. 108576, January 20, 1999, Supreme Court of the Philippines — Supreme Court E-Library. Supports: the legal characterization of a withholding agent as an agent of the government for tax collection. Status: verified official source.

[7] Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, G.R. No. 160756, March 9, 2010, Supreme Court of the Philippines — Supreme Court E-Library. Supports: the constitutionality of the withholding tax system as a valid advance collection method. Status: verified official source.

Prepared by: LaborCode.ph Editorial Team
Editorial review: Reviewed under the LaborCode.ph Content Review Policy
Sources rechecked as of: September 4, 2026
Last materially reviewed: September 4, 2026
Article-level legal review status: No named lawyer-review credit has been assigned to this article.
Legal review invitation: Qualified Philippine labor lawyers interested in reviewing this article or suggesting a correction may contact LaborCode.ph.

This guide is for general educational and legal-information purposes only and is not legal or tax advice. Withholding tax computations depend on an employee’s specific facts, employer payroll practices, and current BIR issuances, which are updated from time to time. Employees and employers may need assistance from the Bureau of Internal Revenue, DOLE, or a qualified Philippine tax or labor lawyer or accountant. LaborCode.ph is an independent information platform and is not a government agency or law firm.