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 SSS, PhilHealth and Pag-IBIG) using the BIR table for your pay frequency, then reconciled with your true income tax in December. See the tax withheld from your pay →
This page explains the payroll mechanics. For the annual tax itself read the income tax guide; for every table see Tax Table 2026.
Why your employer deducts tax
Instead of asking millions of workers to settle a large bill each April, Philippine law makes the employer a withholding agent. The employer deducts tax from compensation as it is paid, remits it to the BIR through its monthly withholding returns, and reports each employee’s yearly totals. If an employer fails to withhold, it can be held liable for the tax, which is why payroll departments are strict about it.
How the payroll computation works
The BIR sets the rules in Revenue Regulations 11-2018. For one payday:
- Take taxable regular compensation for the period. Regular pay is basic salary plus fixed allowances paid every payroll period.
- Subtract exempt items. SSS, PhilHealth and Pag-IBIG contributions, de minimis benefits within their limits and 13th month pay and benefits up to ₱90,000 do not count.
- Pick the table for your pay frequency. The BIR withholding table (Annex E) has daily, weekly, semi-monthly and monthly columns.
- Find the bracket and compute: fixed tax + rate × (taxable pay − bracket floor).
Pay at or below the first bracket is exempt: ₱20,833 monthly, ₱10,417 semi-monthly, ₱4,808 weekly or ₱685 daily.
Example: ₱30,000 a month, paid monthly
Gross pay ₱30,000.00
Less contributions − ₱2,450.00
Taxable regular compensation ₱27,550.00
Bracket: over ₱20,833 → ₱0 + 15% of the excess
Withholding tax = 15% × (₱27,550 − ₱20,833) = ₱1,007.55Example: ₱35,000 a month, paid semi-monthly
Each cut-off has ₱17,500 of pay and, say, half of the ₱2,825 monthly contributions (₱1,412.50), so taxable pay is ₱16,087.50. Using the semi-monthly table (bracket ₱10,417 to ₱16,666, 15% of the excess):
Withholding per cut-off = 15% × (₱16,087.50 − ₱10,417) = ₱850.58If your employer instead deducts all ₱2,825 of contributions in the second cut-off, the first cut-off is taxed on ₱17,500 (₱937.50 + 20% × ₱833 = ₱1,104.10) and the second on ₱14,675 (15% × ₱4,258 = ₱638.70). The month totals ₱1,742.80 against ₱1,701.16 in the even split, a small gap that the December adjustment settles.
Overtime, commissions and bonuses
Anything paid on top of regular pay is supplementary compensation. RR 11-2018 says the bracket is determined using the regular taxable pay only, and the supplementary amount is added to the excess and taxed at that bracket’s rate.
Regular taxable pay (₱35,000 salary) ₱32,175
Taxable overtime this month ₱3,000
Bracket from regular pay: 15% over ₱20,833
Tax = 15% × (₱32,175 − ₱20,833 + ₱3,000) = ₱2,151.30Withholding on regular pay alone is ₱1,701.30, so the overtime adds ₱450, exactly 15% of ₱3,000. The Withholding Tax Calculator has a field for this. If your regular pay is below the exempt level but you receive a large bonus, payroll uses the cumulative average method, averaging year-to-date pay to find the tax. Overtime for minimum wage earners stays exempt.
Withholding tax vs income tax
| Withholding tax | Income tax | |
|---|---|---|
| When | Every payday | Whole year |
| What | Advance payment | Final liability |
| Based on | One period’s taxable pay | Annual taxable income |
| Who computes | Employer, with the BIR table | Employer in December, or you if you file |
Over a full year, total withholding should be close to annual tax, but rarely equal to the peso. That is where the year-end adjustment comes in.
What happens in December
When the year ends, or in your last payroll if you resign sooner, the employer runs the annualized computation: it adds your taxable pay for the year (plus taxable pay from a previous employer shown on your old Form 2316), applies the annual TRAIN brackets and subtracts the tax already withheld.
- Withheld too much: you get a refund, usually in your December pay.
- Withheld too little: the shortfall is deducted from your last pay of the year.
The Withholding Tax Calculator has a Year-end adjustment tab to estimate which side you will land on.
What your employer gives you
By January 31 of the next year (or on the last day of pay if you leave earlier) the employer must give you BIR Form 2316, the certificate showing your total compensation and tax withheld. Keep it. You need it for loans, visa applications, a new employer and, if you have to file, your own return.
Withholding on self-employed income is different
Salaried employees are covered by the compensation tables above. Freelancers and professionals are instead subject to expanded (creditable) withholding tax when clients pay them, normally 5% or 10%, with a BIR Form 2307 as proof. See expanded withholding tax for freelancers.
Common mistakes
- Using a monthly figure for weekly or daily workers. Use the column that matches your pay frequency.
- Taxing gross pay. Contributions come off first.
- Assuming the withholding on a bonus month is your final tax. It is only an advance.
- Skipping the previous employer’s Form 2316. The new employer cannot annualize correctly without it.
- Expecting a refund every year. Steady full-year employees often end close to zero.
Related guides
- Tax Table 2026: all BIR tables →
- Income tax in the Philippines: complete guide →
- Tax refund in the Philippines →
- BIR Form 2316 explained →
Source: Bureau of Internal Revenue (BIR), Revenue Regulations No. 11-2018 (Sec. 2.79 and 2.83; Annex E table), RA 10963 (TRAIN). Last checked 17 October 2026. For estimation only; confirm with the BIR or your HR.