Quick answer: Withholding tax is the income tax your employer deducts from every paycheck and remits to the BIR as an advance on your annual income tax. It is computed on your taxable pay (gross minus contributions) using the BIR withholding table. At year-end it is reconciled with your true income tax. See the tax withheld from your pay →
Why your employer deducts tax
Rather than have millions of workers pay a large tax bill once a year, Philippine law has employers collect income tax at source — a little each payday. This is the withholding tax on compensation system. Your employer is the withholding agent: they deduct the tax and remit it to the BIR for you.
How it is computed
Three steps every payday:
- Start with gross pay for the period.
- Subtract mandatory contributions — SSS, PhilHealth and Pag-IBIG are tax-exempt, so they come off first.
- Apply the BIR Revised Withholding Tax Table for your pay frequency to the remaining taxable pay.
The withholding table is simply the annual TRAIN brackets divided by the number of pay periods (12 monthly, 24 semi-monthly, 365 daily). Pay of ₱20,833 or less per month is exempt from withholding.
Withholding tax vs income tax
| Withholding tax | Income tax | |
|---|---|---|
| When | Every payday | Whole year |
| What | Advance payment | Final liability |
| Who computes | Employer | BIR / employer at year-end |
They are two views of the same tax. Over a full year, your total withholding should equal your annual income tax — but it rarely matches to the peso, which is where the year-end adjustment comes in.
The year-end adjustment (and your refund)
In December (or when you leave a job), your employer reconciles the tax withheld against your actual annual income tax:
- Withheld too much → you get a tax refund, usually in your December pay.
- Withheld too little → the shortfall is deducted.
Refunds are common for employees who started mid-year, had unpaid leave, or have benefits that turned out exempt. See our tax refund guide.
Worked example
An employee earning ₱30,000/month with ₱1,500 in contributions:
Taxable pay = ₱30,000 − ₱1,500 = ₱28,500
Bracket: over ₱20,833 → 15% of the excess
Withholding tax = 15% × (₱28,500 − ₱20,833) ≈ ₱1,150/monthThe Withholding Tax Calculator does this for monthly, semi-monthly or daily pay.
Related guides
- Income tax in the Philippines: complete guide →
- BIR income tax table 2026 →
- Tax refund in the Philippines →
Source: Bureau of Internal Revenue (BIR), TRAIN Law (RA 10963); Revised Withholding Tax Table (RR 11-2018). For estimation only — confirm with the BIR or your HR.