Employment 101: Know your basic government deductions and contributions

Regular employees in the Philippines are obligated to pay monthly contributions to four government agencies. Some monthly contribution costs are shared with the employer. The employee’s portion of these monthly contributions is usually automatically deducted from their salary.

Here are the basic government deductions:

Income Tax

The Philippines has recently undergone tax reforms under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which includes changes to the tax bracketing system. These are the new income tax rates that are effective from January 1, 2018 to December 31, 2022:

Yearly salary Income tax
Not exceeding P250,000 None
Over P250,000 but not exceeding P400,000 Pays 20% of excess over P250,000
Over P400,000 but not exceeding P800,000 Pays P30,000 + 25% of excess over P400,000
Over P800,000 but not exceeding P2,000,000 Pays P130,000 + 30% of excess over P2,000,000
Over P2,000,000 but not exceeding P8,000,000 Pays P490,000 + 32% of excess over P8,000,000
Over P8,000,000 Pays P2,410,000 + 35% of excess over P8,000,000

 

Effective January 1, 2023 onwards, the tax scheme will be as follows:

Yearly salary Income tax
Not exceeding P250,000 None
Over P250,000 but not exceeding P400,000 Pays 15% of excess over P250,000
Over P400,000 but not exceeding P800,000 Pays P22,500 + 20% of excess over P400,000
Over P800,000 but not exceeding P2,000,000 Pays P102,500 + 25% of excess over P800,000
Over P2,000,000 but not exceeding P8,000,000 Pays P402,500 + 30% of excess over P2,000,000
Over P8,000,000 Pays P2,202,500 + 35% of excess over P8,000,000

 

Unlike other mandated contributions, income tax is paid solely by the employee.

SSS (Social Security System)

The SSS is a social insurance program providing retirement and health benefits to its members. The employer is responsible for making the contribution payments in accordance with the prescribed schedule of payment. As of 2018, employees’ monthly contribution rate is 11% of their monthly salary credit not exceeding P16,000. The employee pays 3.63% of the monthly contribution and their employer pays the remaining 7.37%.

PhilHealth

The National Health Insurance Program is there to provide health insurance coverage and ensure affordable and accessible health care services for Philippine citizens. As of January 2018, the PhilHealth contribution scheme has changed with the removal of salary brackets. The computation of the contributions is as follows:

Basic monthly salary Monthly premium Employee’s share Employer’s share
P10,000.00 and below P275.00 P137.50 P137.50
P10,000.01 to P39,999.99 P275.02 to P1,099.99 P137.51 to P549.99 P137.51 to P549.99
P40,000.00 and over P1,100.00 P550.00 P550.00

Pag-IBIG Fund

Also known as the Home Development Mutual Fund, the Pag-IBIG Fund is a government-administered national savings program and affordable shelter financing service. The Pag-IBIG Fund contribution computation is as follows:

Monthly compensation Employee contribution Employer contribution
P1,500 or below 1% share 2% share
Over P1,500 2% share 2% share

 

The Pag-IBIG contribution share is set at P200 pesos. The cost is shared by the employee and employer equally.

To know more about your rights as an employee, contact Duran & Duran-Schulze Law at (+632) 478 5826 or send an email to info@duranschulze.com for more information.