Guide on How to Compute Tax Refund Based on TRAIN Law

Tax refunds are the excess payments made by employees and remitted by the employer to the Bureau of Internal Revenue. It is the excess tax withheld from the annual gross income.

This usually occurs if the employee was hired in the middle of the year with no previous employer and the resulting annual gross income is less than the taxable ceiling of 250,000.00. (BIR RR 11-2018)

 

How do we compute the Annual Income Tax?

To get your taxable income, you can use the basic formula below:

Taxable Income = (monthly basic salary + overtime-tardiness/undertime + salary adjustments if any (largely, the Taxable Earnings refer to one's gross salary, except that it doesn't include the government deductions)

Nontaxable Deductions are comprised of the following:

Non-Taxable Income =  SSS contribution + PhilHealth contribution + Pag-IBIG contribution (the mandatory amount only for HDMF contribution)

Once you have determined your taxable income and non-taxable income, you may now look at the new annual tax table.

 

 

Using the above-mentioned annual tax table based on the TRAIN law, you may now be able to check whether you have a tax refund or not.

For example:

Employee A has a total taxable gross income of 250,000 less the non-taxable of 2,000 which will result in a taxable income of 248,000.

• Based on the new annual tax table, the compensation range is covered by row 1. 
• The taxable income is less than the maximum range end of 250,000 will result in a 0% tax rate.
• So from here, the tax due of Employee A will be 0, thus any withholding tax deducted to Employee A will be refunded in full amount.

Employee B has a total taxable gross income of 500,000 less the non-taxable of 2,000 will result in taxable income of 498,000.

• Based on the new annual tax table, the compensation range is covered by row 3. 
• The taxable income is less than the minimum range end of 400,001 will result to 98,000 multiplied by 20% plus 22,500.
• So from here, the tax due of Employee B will be 42,100.
  • For example, the total withholding tax for the whole year is 60,000.
  • The tax due of 42,100 less than 60,000 tax withheld will result to 17,900 tax refund

 

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