In this article, I'll explain how your tax dues are computed and what possible reasons there may be why your tax dues seem high.
Monthly Percentage Tax (2551M)
Your monthly percentage tax is computed based on your gross income. Depending on the tax code you use, it is simply a percentage of the amount you're supposed to pay:
For example:
In this example, I am using PT 010:
PT 010 has a 3% Tax Rate. My dues are then computed this way:
Total Income: P25,000.00
Total Tax Dues = P25,000 * 0.03 = P750.00
It's fairly straightforward and is dependent on your total income for the month being reported.
Quarterly Income Tax (1701Q)
Computing your quarterly income tax, on the other hand, is a little bit more complicated:
Let's first assume that you are on OSD or Optional Standard Deduction.
Let's go with the following givens:
Income = P75,000.00
Expenses = P75,000.00 * 0.40 (because OSD) = P30,000.00
Overpayment from last year = P2,000.00
Taxes Withheld = P2,500.00
Taxable Amount = Income - Expenses
Taxable Amount = 75,000 - 30,000
Taxable Amount = 45,000
Now, use this table to compute your tax due.
(Note: This table is for for Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession)
Based on the taxable amount, the Tax Dues is computed this way:
Tax Dues = P2,500 + 0.15 * (P45,000 - P30,000) - Deductions
Tax Dues = P2,500 + P2,250 - Deductions
Tax Dues = P4,750 - Deductions
In this example, the overpayment from last year and taxes withheld are deductions:
Tax Dues = P4,750 - P2,000 - P2,500
Tax Dues = P250.00
If your tax dues for your Income Tax Return seem high, check the following:
Have you entered all your expenses for the quarter?
Have you entered the payments you have made in previous quarters?
Have you entered any overpayment from the last year?
Have you entered all your withheld taxes? If you received a 2307 from your client, that would be your withheld taxes.
BIR's Official Instructions for Income Tax can be found here.