Here is a sample computation showing the applicable tax rules for Minimum Wage Earners (MWE), as reiterated in BIR Revenue Regulations 8-2018.
Tax Rules for Minimum Wage Earners
From the Bureau of Internal Revenue’s (BIR) RR 8-2018:
Minimum wage earners shall be exempt from the payment of income tax based on their statutory minimum wage rates. The holiday pay, overtime pay, night shift differential pay and hazard pay received by such earner are likewise exempt.
Sample Tax Computation: Minimum Wage Earners
Sample Computation
Mr. X, a minimum wage earner, works for 123 Co. Mr. X is not engaged in business nor has any other source of income other than his employment. For 2018, Mr. X earned a total compensation income of P135,000.00.
a. The taxpayer contributed to the SSS, Philhealth, and HDMF amounting to P5,000.00 and has received 13th month pay of P11,000.00. His income tax liability will be computed as follows:
| Total Compensation lncome | P135,000.00 | |
| Less: Mandatory contributions | P5,000.00 | |
| Non-taxable benefits | 11,000 | 16,000.00 |
| TAXABLE INCOME | P119,000.00 | |
| TAX DUE | EXEMPT |
CONCLUSION: Taxpayer Mr. X is exempt since he is considered a minimum income earner.
b. The following year, Mr. X earned, aside from his basic wage, additional pay of P140,000.00 which consists of the overtime pay (P80,000.00), night shift differential (P30,000.00), hazard pay (P15.000.00) and holiday pay (P15,000.00). He has the same benefits and contributions as in Example (a) above.
| Total Compensation lncome | P135,000.00 | |
| Add: Overtime, night shift differential, hazard, and holiday pay | 140,000.00 | |
| Total Income | P275,000 | |
| Less: Mandatory contributions | P5,000.00 | |
| Non-taxable benefits | 11,000 | 16,000.00 |
| NET TAXABLE INCOME | P259,000.00 | |
| TAX DUE | EXEMPT |
CONCLUSION: Taxpayer is tax-exempt as an MWE. The statutory minimum wage as well as the holiday pay, overtime pay, night shift differential pay and hazard pay received by such MWE are specifically exempted from income tax under the law.
(To view the full Revenue Regulation and to download a PDF copy of BIR RR 8-2018, click here.)
Source: Bureau of Internal Revenue (BIR www.bir.gov.ph), Department of Finance (DOF www.dof.gov.ph) Philippines
