Tax computation

[pran]

I live in the Philippines and computing for withholding tax is a bit complicated. The basic formula for withholding tax computation is defined as:

Withholding Tax = ( (Taxable Income - Bracket or Exemption ) x %over ) + Bracket Tax or Base Tax

I created the following advanced percent (tax bracket alt.) in Timetrex (annual values based on the semi-monthly data the government provided):

• S/ME-5: Percent 20%; Greater than: 120,000; Less than: 190,008; Fixed: 8,500.08
• S/ME-6: Percent 25%; Greater than: 190,008; Less than: 300,000; Fixed: 22,500.00
• S/ME-7: Percent 30%; Greater than: 300,000; Less than: 550,008; Fixed: 49,999.92
• S/ME-8: Percent 32%; Greater than: 550,008; Less than: no limit; Fixed: 124,999.92

Here's an example computation:

Pay Period = semi-monthly
Taxable income = 7,500 (current payroll period)
Overtime = 6,230.88

Multiplying the taxable income by 24 should put it in the S/ME-5 bracket. Here's the manual computation:

Basic Pay = 7,500.00
Overtime = 6,230.88
Excess of basic = 8,730.88
Tax on 7,500 = 354.17
Tax on excess = 1,746.18
TOTAL Tax = 2,100.35

But Timetrex computed the tax at 2,452.59 or a difference of 352.24!

Can you please help me how to setup the proper tax tables?

Thanks!

[shaunw]

There are several examples already in the forums on how to setup tax tables for the Phillipines, here is one of them:

http://forums.timetrex.com/viewtopic.ph ... hilippines

[pran]

Hi shawn. Thanks for your time but I've already went through and did what the suggestions in the link suggested numerous times but I still couldn't get the values match between TimeTrex and the manual computation.

Can you help me break down how TimeTrex computes the tax deduction based on the Advanced Percent type so I can better understand how to set it up properly?

The gist of the tax computation guide provided by the government:

• If basic salary falls within a bracket (e.g. greater than current bracket but less than next bracket, use the current bracket), use the corresponding fixed tax
• Get the difference of gross pay and bracket amount from table to get excess
• Multiply excess with percent tax
• Add the fixed tax and percent tax to get the total tax

[shaunw]

Please attach screenshots of how you currently have your Tax / Deductions setup and what the exact amounts that TimeTrex is calculating vs. what you think it should be calculating.

[Yajasi]

The gist of the tax computation guide provided by the government:

• If basic salary falls within a bracket (e.g. greater than current bracket but less than next bracket, use the current bracket), use the corresponding fixed tax
  Get the difference of gross pay and bracket amount from table to get excess
  Multiply excess with percent tax
  Add the fixed tax and percent tax to get the total tax

We are dealing with a similar situation in Indonesia. The gross income has to be divided into brackets and taxed at different rates for each bracket. I have found that the Advanced Percent (Tax Bracket Alt.) does not correctly deal with these divisions of gross pay.

Manual Calculation
Example Data:

• Gross Salary = 3000
  Bracket 1 = 0000 to 0416, tax 05%
  Bracket 2 = 0417 to 2083, tax 15%
  Bracket 3 = 2084 to 4166, tax 25%

Desired Result:

• Gross Salary = 3000
  Bracket 1 = (416-0) * 5% = 20.80
  Bracket 2 = (2083-416) * 15% = 250.05
  Bracket 3 = (3000-2084)* 25% = 229.00
  Total Tax = 499.85

Note that the employee with a gross salary of 3000 is evaluated in all three of the brackets because each part of their wage is taxed at a different level. I have not found a way to setup TimeTrex to do this.

TimeTrex Advanced Percent (Tax Bracket Alt.)
Example Data:

• [Percent] = 5%
  [Annual Amount Greater Than] = 0
  [Annual Amount Less Than] = <NumberOfPayPeriodsAnnually> * 416

Actual Result: Nothing
Reason: TimeTrex evaluates the Gross Salary of 3000 * <NumberOfPayPeriodsAnnually> and determines that it is outside the [Annual Amount Less Than] field.

Would this be better accomplished by creating custom tax formulas as described in http://forums.timetrex.com/viewtopic.php?f=5&t=140?

[shaunw]

You are misunderstanding the purpose of the Advanced Percent (Tax Bracket Alt.) calculation.

There are two primary ways to calculate tax brackets, one is to calculate each individual bracket on its own, which you would use Advanced Percent (Tax Bracket) for that. However it will result in a separate line item for each bracket on the employees pay stub.

The other method is to have a single line item for the entire calculation, which is what Advanced Percent (Tax Bracket Alt.) is for. However to use this you need to do a little extra math, as only one bracket is actually calculated (the last bracket that the employees income is currently in), then a fixed amount is added which is the result of all previous brackets combined.

For example, the below is a way to have individual line items for each bracket:

Gross Salary = 3000
Bracket 1 = (416-0) * 5% = 20.80
Bracket 2 = (2083-416) * 15% = 250.05
Bracket 3 = (3000-2084)* 25% = 229.00
Total Tax = 499.85

The above can done in single line item/calculation like this:
( (3000-2084) * 25% ) + 270.85
Total Tax: 499.85

What this does is calculate just the last bracket that the employee's income is currently in, then adds the individual amounts for all previous brackets. So the 270.85 is 20.80 (bracket 1) + 250.05 (bracket 2). The 270.85 is what referred to as the "Annual Fixed Amount" field.

This is explained in detail in the Administrator Guide located here:
http://help.timetrex.com/index.php/Time ... Deductions