How does taxes work in the Philippines?
Taxes for employees in the Philippines are deducted from their salaries to fund government programs and public services. Here’s a breakdown of the common taxes that employees encounter:
Income Tax:
Employees’ salaries are subject to income tax. The tax is computed based on their annual income, following a progressive tax rate system. The rates range from 0% for low-income earners to 35% for higher income brackets. Additionally, there’s an additional 8% tax on top of the regular rates for those earning above a certain threshold.
Withholding Tax:
Employers deduct income tax and other contributions, such as social security (SSS) and health insurance (PhilHealth), directly from employees’ salaries. These deductions are known as withholding taxes, ensuring that employees fulfill their tax obligations throughout the year.
Social Security (SSS) and Health Insurance (PhilHealth) Contributions:
Employees and their employers contribute to the Philippine Social Security System (SSS) and the Philippine Health Insurance Corporation (PhilHealth). These contributions provide employees with access to social security benefits and health coverage.
Pag-IBIG Fund Contributions:
Employees and employers contribute to the Pag-IBIG Fund, a government agency that offers affordable housing loans and savings programs. These contributions help employees build savings and access housing loans in the future.
Additional Deductions:
Other deductions may include contributions to the Home Development Mutual Fund (Pag-IBIG MP2), loans, and other voluntary deductions that employees opt for.
It’s important to note that the exact amount of taxes and deductions can vary based on an employee’s salary, allowances, and other factors.
Paying taxes as an employee in the Philippines offers several benefits and advantages, including access to social services like healthcare and education, social security coverage, retirement savings through contributions to funds like Pag-IBIG, and the opportunity to support nation-building initiatives and infrastructure development. Additionally, complying with tax obligations ensures legal compliance and peace of mind while contributing to the overall well-being of society.