Deductions from Gross Pay of an employee

Deductions from Gross Pay of an employee refers to the amount withheld from employee's pay.

Deductions from Gross Pay are the following:

1. Withholding Income Tax
2. SSS or GSIS Premium
3. Phil-Health Premium
4. Additional Deductions
• Advances or Vales
• Union Dues
• Pension Fund
• Charitable Contributions
• Cooperatives / Credit Unions

Various Employee Pay: Bonus

Bonus is generally given as an incentive in order to stimulate the employees to work more efficiently and effectively. 

Various Employee Pay: Commission

Commission definition:

This is usually the wage given to sales people based on the amount of sales he/she made. 

Normally, this amount is added to the basic pay or basic salary of an employee. Or, on a separate payment basis depending on the commission scheme of the company.

Sometimes sales people earns solely on a commission basis.  

Various Employee Pay: Wage

Wage definition:

It is a fixed amount of compensation for service rendered covering a fixed period of time, usually hours or a fixed amount of work.

This usually is the compensation given to skilled and unskilled laborer. 

Various Employee Pay: Salary

Salary definition:

It is a fixed amount of compensation for service rendered covering a fixed period of time, typically a month.

Usually, this refers to the pay of those in the managerial level and administrative employees.  These employees do not earn any overtime pay. 

Payroll Accounting: The Employee's Pay

Employee's pay depend on the employment contract whether the work to be rendered would be paid on a salary, wage, commission or bonus basis. 

Payroll Accounting

Payroll Accounting Definition:

It refers to the processes of determining who among the employees, workers and staff had rendered their services during the period.

Factors to be considered in payroll computation:
1.  how many days they rendered services
2.  how many hours in a day they rendered services
3.  items deductible from the gross pay to arrive at the net pay

Exemptions on Taxable Income of Individual Tax Payer

The following exemptions are allowed by law (R.A. 9504 effective July 6, 2008) to be deducted from net income:

Basic Personal Exemption - per taxpayer :  P50,000.00

Additional Exemption for each qualified dependent child (maximum of 4) :  P25,000.00

When is Business Tax Payable

The Business Tax either the Percentage Tax or Value Added Tax is payable on or before the 20th of the following month.

Income Tax

Definition:

An Income Tax is imposed based on the net income of the business.

A Net Income is determined by deducting the Cost of Sales or Services and Allowable Operating Expenses from Gross Sales or Gross Receipts of the business during a taxable period.


Illustrative Formula:

Gross Sales / Gross Receipts
Less: Cost of Sales / Cost of Services
Equals: Gross Margin or Gross Income
Less: Operating Expenses (Allowable)
Equals: Net Income

Net Income
Multiply by: tax rate
Equals: Income Tax
Less: Quarterly Income Tax Paid
Equals: Income Tax still due and payable

Percentage Tax

Definition:

Percentage Tax is the tax imposed on the gross receipts of non-vat registered business owner and is usually subject to 3% tax rate. 

VAT or Value Added Tax

Definition:

A VAT business transaction is subject to 12% tax rate.

Output VAT vs Input VAT

Output VAT is the 12% tax from the VATable sales or gross receipts of the VAT Registered business owner.

Input VAT  is the 12% tax from the VATable purchases, disbursements or expenses made by the business owner.

The Input VAT is deducted from the Output VAT to get the net VAT payable.

Illustrative Formula:

Output VAT
Less: Input VAT
Equals Net VAT Payable 

Business Taxes

Definition:

It is the tax that are imposed on the gross receipts or sales in the ordinary course of business transactions during a taxable period.


Classification:

1. VAT or Value Added Tax
2. Percentage Tax 

Accounting for Taxes

For Philippine Taxation, Taxes that must be complied with by business owners are classified as follows:

1.  Business Taxes
2. Income Taxes

Tax Accounting and Tax Accountants

Tax Accounting is one of the specialized fields in Accountancy.

It typically involves the preparation of various tax returns and tax planning essential to minimize the effects of taxes on the firm.

Tax Accountants are thus specialists in both tax compliance and tax planning.

For tax compliance and tax planning services, please contact :