Net Pay Computation in the Philippines: Step-by-Step Guide for 2026
Learn exactly how to compute net pay in the Philippines for 2026 — with the complete formula, government contribution rates (SSS, PhilHealth, Pag-IBIG), TRAIN Law withholding tax, and worked examples for P15K, P25K, P35K, and P50K salaries.
Understanding how much your employees actually take home — and why — is one of the most important skills in Philippine payroll management. The net pay is what lands in the employee's bank account after all mandatory deductions have been applied.
This guide walks you through the complete net pay formula, 2026 government contribution rates, TRAIN Law withholding tax computation, and four fully worked salary examples.
Use our Net Pay Calculator to compute instantly without doing the math manually.
The Net Pay Formula
Net pay in the Philippines follows a five-step deduction sequence:
Gross Pay
− SSS Employee Share
− PhilHealth Employee Share
− Pag-IBIG Employee Share
= Taxable Compensation Income
− Withholding Tax
− Other Deductions (loans, salary advances, etc.)
= Net Pay
The order matters. Government contributions are deducted before computing withholding tax — because SSS, PhilHealth, and Pag-IBIG employee shares are excluded from taxable income under Section 32(B)(7)(f) of the NIRC. This reduces the amount subject to the TRAIN Law brackets.
Step 1: Determine Gross Pay
Gross pay is the total compensation before any deductions. For a regular salaried employee, this typically includes:
- Basic salary
- Regular allowances (if taxable)
- Overtime pay, holiday pay, night shift differential
- Commissions or incentives
For the examples in this guide, we use basic monthly salary only as gross pay to keep the computations clean.
Step 2: Compute Government Contribution Deductions
Three mandatory contributions are deducted from the employee's pay. Below is a summary of 2026 rates.
Government Contribution Rates Summary (2026)
| Agency | Basis | Employee Rate | Employer Rate | Total |
|---|---|---|---|---|
| SSS (Regular SS) | Monthly Salary Credit (MSC P5K–P20K) | 5% | 10% | 15% |
| SSS (MPF) | MSC above P20,000 | 5% | 10% | 15% |
| PhilHealth | Monthly basic salary (P10K–P100K) | 2.5% | 2.5% | 5% |
| Pag-IBIG | Monthly compensation (up to P10K) | 2% (1% if ≤P1,500) | 2% | 4% |
SSS Employee Share (2026)
SSS contributions are based on the Monthly Salary Credit (MSC), which is bracketed in P500 increments from P5,000 to P35,000. The total contribution rate is 15% (RA 11199, effective January 2025).
- Regular SS: Applies to MSC from P5,000 up to P20,000. Employee share is 5% of MSC, capped at P1,000.
- MPF (Mandatory Provident Fund): Applies to the portion of MSC above P20,000. Employee share is also 5% of the excess MSC.
- EC (Employees' Compensation): Paid by the employer only — P10 if MSC is below P15,000, P30 if MSC is P15,000 and above.
For a complete bracket table, see our SSS Contribution Table Guide for 2026.
PhilHealth Employee Share (2026)
PhilHealth premium rate is 5% of the employee's monthly basic salary, split equally between employee and employer (2.5% each).
- Floor: Salaries below P10,000 are computed at P10,000 (minimum premium P500 total, P250 employee)
- Ceiling: Salaries above P100,000 are computed at P100,000 (maximum premium P5,000 total, P2,500 employee)
For a full PhilHealth computation guide, see PhilHealth Contribution Guide 2026.
Pag-IBIG Employee Share (2026)
Pag-IBIG (HDMF) contributions are computed as a percentage of monthly compensation, with a ceiling of P10,000:
- 1% of monthly compensation if salary is P1,500 or below
- 2% of monthly compensation if salary exceeds P1,500
- Ceiling: Contribution is based on a maximum of P10,000, so the maximum employee share is P200 per month
The employer matches the employee contribution at 2% (also capped at P200). For full details, see our Pag-IBIG Contribution Guide 2026.
Step 3: Compute Taxable Income
Once you have the total mandatory government contributions, subtract them from gross pay:
Taxable Compensation Income = Gross Pay − SSS EE Share − PhilHealth EE Share − Pag-IBIG EE Share
Non-taxable allowances and de minimis benefits are also excluded at this step (13th month pay up to P90,000, rice subsidy up to P2,500/month, clothing allowance up to P8,000/year, etc.). For this guide, we assume basic salary only.
Step 4: Compute Withholding Tax (TRAIN Law)
The TRAIN Law (RA 10963, Section 24A of the NIRC) establishes the income tax brackets applicable from 2023 onwards. Withholding tax is computed by annualizing the monthly taxable income, applying the bracket, then dividing back to a monthly figure.
TRAIN Law Annual Tax Brackets
| Annual Taxable Income | Fixed Tax | Rate on Excess |
|---|---|---|
| Up to P250,000 | P0 | 0% (exempt) |
| P250,001 – P400,000 | P0 | 15% of excess over P250,000 |
| P400,001 – P800,000 | P22,500 | 20% of excess over P400,000 |
| P800,001 – P2,000,000 | P102,500 | 25% of excess over P800,000 |
| P2,000,001 – P8,000,000 | P402,500 | 30% of excess over P2,000,000 |
| Over P8,000,000 | P2,202,500 | 35% of excess over P8,000,000 |
How to compute monthly withholding tax:
- Multiply monthly taxable income × 12 to get the annual taxable income
- Apply the appropriate bracket to find annual tax
- Divide annual tax by 12 to get the monthly withholding tax
For a deeper walkthrough of withholding tax computation, see our Withholding Tax TRAIN Law Guide 2026.
Step 5: Deduct Other Authorized Deductions
After mandatory government contributions and withholding tax, other authorized deductions may apply:
- Loan amortizations (SSS salary loan, Pag-IBIG multi-purpose loan, company loan)
- Salary cash advance repayments
- Union dues (if applicable)
- Absences and tardiness deductions
- Voluntary deductions with written employee consent (e.g., HMO, cooperative savings)
Under the Labor Code, deductions beyond government-mandated contributions require written employee authorization or a legal basis. See our Salary Deductions Philippines Guide for rules on what employers can and cannot deduct.
Net Pay Computation Examples (2026)
The following four examples cover common salary levels using monthly payroll as the basis. All government contributions are deducted in the same period for clarity.
Example 1: P15,000 Monthly Salary
A rank-and-file employee at a common entry-level salary.
Step 1 — Gross Pay: P15,000.00
Step 2 — Government Contributions (Employee Share):
| Contribution | Computation | Amount |
|---|---|---|
| SSS Regular SS | MSC P15,000 × 5% | P750.00 |
| SSS MPF | MSC ≤ P20,000, no MPF | P0.00 |
| PhilHealth | P15,000 × 2.5% | P375.00 |
| Pag-IBIG | P10,000 ceiling × 2% | P200.00 |
| Total Deductions | P1,325.00 |
Step 3 — Taxable Income:
P15,000 − P1,325 = P13,675.00/month
Annual taxable income: P13,675 × 12 = P164,100.00
Step 4 — Withholding Tax:
Annual taxable income of P164,100 is below the P250,000 exemption threshold.
Annual tax = P0.00 | Monthly withholding tax = P0.00
Step 5 — Net Pay:
| Item | Amount |
|---|---|
| Gross Pay | P15,000.00 |
| Less: SSS | (P750.00) |
| Less: PhilHealth | (P375.00) |
| Less: Pag-IBIG | (P200.00) |
| Less: Withholding Tax | (P0.00) |
| Net Pay | P13,675.00 |
Example 2: P25,000 Monthly Salary
A mid-level employee with MPF obligations and taxable income above the exemption threshold.
Step 1 — Gross Pay: P25,000.00
Step 2 — Government Contributions (Employee Share):
| Contribution | Computation | Amount |
|---|---|---|
| SSS Regular SS | MSC P20,000 × 5% (capped) | P1,000.00 |
| SSS MPF | (P25,000 − P20,000) = P5,000 excess MSC × 5% | P250.00 |
| PhilHealth | P25,000 × 2.5% | P625.00 |
| Pag-IBIG | P10,000 ceiling × 2% | P200.00 |
| Total Deductions | P2,075.00 |
Step 3 — Taxable Income:
P25,000 − P2,075 = P22,925.00/month
Annual taxable income: P22,925 × 12 = P275,100.00
Step 4 — Withholding Tax:
Annual taxable income P275,100 falls in the P250,001–P400,000 bracket.
Annual tax = (P275,100 − P250,000) × 15% = P25,100 × 15% = P3,765.00/year
Monthly withholding tax = P3,765 ÷ 12 = P313.75/month
Step 5 — Net Pay:
| Item | Amount |
|---|---|
| Gross Pay | P25,000.00 |
| Less: SSS (Regular + MPF) | (P1,250.00) |
| Less: PhilHealth | (P625.00) |
| Less: Pag-IBIG | (P200.00) |
| Less: Withholding Tax | (P313.75) |
| Net Pay | P22,611.25 |
Example 3: P35,000 Monthly Salary
An employee at the maximum MSC for SSS — highest SSS employee share.
Step 1 — Gross Pay: P35,000.00
Step 2 — Government Contributions (Employee Share):
| Contribution | Computation | Amount |
|---|---|---|
| SSS Regular SS | MSC P20,000 × 5% (capped) | P1,000.00 |
| SSS MPF | (P35,000 − P20,000) = P15,000 excess MSC × 5% | P750.00 |
| PhilHealth | P35,000 × 2.5% | P875.00 |
| Pag-IBIG | P10,000 ceiling × 2% | P200.00 |
| Total Deductions | P2,825.00 |
Step 3 — Taxable Income:
P35,000 − P2,825 = P32,175.00/month
Annual taxable income: P32,175 × 12 = P386,100.00
Step 4 — Withholding Tax:
Annual taxable income P386,100 falls in the P250,001–P400,000 bracket.
Annual tax = (P386,100 − P250,000) × 15% = P136,100 × 15% = P20,415.00/year
Monthly withholding tax = P20,415 ÷ 12 = P1,701.25/month
Step 5 — Net Pay:
| Item | Amount |
|---|---|
| Gross Pay | P35,000.00 |
| Less: SSS (Regular + MPF) | (P1,750.00) |
| Less: PhilHealth | (P875.00) |
| Less: Pag-IBIG | (P200.00) |
| Less: Withholding Tax | (P1,701.25) |
| Net Pay | P30,473.75 |
Example 4: P50,000 Monthly Salary
A managerial-level employee with a higher tax bracket and maximum SSS MSC.
Step 1 — Gross Pay: P50,000.00
Step 2 — Government Contributions (Employee Share):
| Contribution | Computation | Amount |
|---|---|---|
| SSS Regular SS | MSC capped at P20,000 × 5% | P1,000.00 |
| SSS MPF | (P35,000 − P20,000) = P15,000 excess MSC × 5% (MSC capped at P35,000) | P750.00 |
| PhilHealth | P50,000 × 2.5% | P1,250.00 |
| Pag-IBIG | P10,000 ceiling × 2% | P200.00 |
| Total Deductions | P3,200.00 |
Note: SSS MSC is capped at P35,000 regardless of actual salary. Employees earning above P35,000 compute SSS contributions as if their MSC were P35,000.
Step 3 — Taxable Income:
P50,000 − P3,200 = P46,800.00/month
Annual taxable income: P46,800 × 12 = P561,600.00
Step 4 — Withholding Tax:
Annual taxable income P561,600 falls in the P400,001–P800,000 bracket.
Annual tax = P22,500 + (P561,600 − P400,000) × 20% = P22,500 + (P161,600 × 20%) = P22,500 + P32,320 = P54,820.00/year
Monthly withholding tax = P54,820 ÷ 12 = P4,568.33/month
Step 5 — Net Pay:
| Item | Amount |
|---|---|
| Gross Pay | P50,000.00 |
| Less: SSS (Regular + MPF) | (P1,750.00) |
| Less: PhilHealth | (P1,250.00) |
| Less: Pag-IBIG | (P200.00) |
| Less: Withholding Tax | (P4,568.33) |
| Net Pay | P42,231.67 |
Summary: Net Pay by Salary Level (2026)
| Monthly Salary | SSS EE | PhilHealth EE | Pag-IBIG EE | Withholding Tax | Total Deductions | Net Pay |
|---|---|---|---|---|---|---|
| P15,000 | P750.00 | P375.00 | P200.00 | P0.00 | P1,325.00 | P13,675.00 |
| P25,000 | P1,250.00 | P625.00 | P200.00 | P313.75 | P2,388.75 | P22,611.25 |
| P35,000 | P1,750.00 | P875.00 | P200.00 | P1,701.25 | P4,526.25 | P30,473.75 |
| P50,000 | P1,750.00 | P1,250.00 | P200.00 | P4,568.33 | P7,768.33 | P42,231.67 |
SSS figures include both Regular SS and MPF employee shares where applicable.
Semi-Monthly vs Monthly Payroll Considerations
Most Philippine employers run either monthly or semi-monthly payroll. The net pay formula is the same, but the timing of deductions differs.
Monthly Payroll
All government contributions and withholding tax are applied once per month in a single payroll run. This is the simplest approach and matches directly with the monthly MSC brackets for SSS.
Semi-Monthly Payroll
With two pay periods per month (typically 1st–15th and 16th–end of month), employers must decide how to split deductions:
- SSS and PhilHealth: Commonly deducted in full on the second cutoff only (e.g., the 30th payroll). Some employers split across both cutoffs.
- Pag-IBIG: Often deducted on the second cutoff as well.
- Withholding tax: Computed using the semi-monthly withholding tax table (BIR's Revised Withholding Tax Table, Table A). The tax per semi-monthly period is roughly half the monthly figure, adjusted for the bracket.
For a detailed comparison of payroll frequency options, see our Semi-Monthly vs Monthly Payroll Guide.
Year-End Annualization
Regardless of pay frequency, employers must perform tax annualization in December (or upon employee separation). This computes the employee's actual annual tax liability based on total taxable income for the year and reconciles it against total withholding tax remitted. Any over-withholding is refunded; any under-withholding is collected — typically in the December payroll.
Common Net Pay Computation Mistakes
Even experienced payroll teams make these errors. Watch out for:
1. Using Outdated SSS Tables
The SSS contribution rate increased from 14% to 15% effective January 2025. Employers still using old tables under-remit contributions and face penalties. The MSC range also expanded to P5,000–P35,000.
2. Ignoring MPF for Higher-Earning Employees
Many payroll processors forget that employees with MSC above P20,000 have an additional MPF contribution on top of regular SS. This is a frequent cause of SSS remittance discrepancies.
3. Not Deducting Government Contributions Before Tax
Computing withholding tax on gross pay instead of taxable compensation income overstates the tax burden and results in over-withholding. Always deduct SSS, PhilHealth, and Pag-IBIG employee shares first.
4. Applying the Wrong PhilHealth Floor or Ceiling
PhilHealth is applied to actual salary between P10,000 and P100,000. Employees earning below P10,000 still contribute at the P10,000 floor rate; those earning above P100,000 are capped at P100,000.
5. Forgetting Pag-IBIG's P10,000 Base Ceiling
The Pag-IBIG contribution rate applies to a maximum monthly compensation of P10,000, not the actual salary. An employee earning P50,000 still contributes only P200 (P10,000 × 2%) — not P1,000.
6. Missing Year-End Annualization
Skipping annualization or running it incorrectly leads to BIR deficiency assessments and penalties. Every employee must be annualized at year-end, and BIR Form 2316 must be issued by January 31 of the following year.
7. Double-Deducting 13th Month Pay Tax
The first P90,000 of 13th month pay and other benefits is tax-exempt. Many employers mistakenly include 13th month pay in the regular monthly taxable income computation during the year, then struggle with annualization adjustments in December.
For a complete list of deduction rules and common errors, see our Salary Deductions Philippines Guide.
How TalinoHR Computes Net Pay
TalinoHR's payroll engine handles net pay computation automatically through a 17-step computation process designed for Philippine compliance:
- Gross pay computation — Based on pay basis (monthly, daily, or hourly), with proration for mid-period hires and separations
- Attendance deductions — Late arrivals, absences, and undertime computed at the correct daily/hourly rate using the Labor Code's 22-working-day factor
- Holiday and overtime earnings — Regular, special, and legal holidays at Art. 94/87 rates; night shift differential stacking; overtime holiday premium
- SSS contribution lookup — Real-time MSC bracket lookup with correct Regular SS + MPF split, using the full 61-bracket table seeded from official SSS schedules
- PhilHealth contribution — Applied within P10,000–P100,000 floor/ceiling range at 2.5% employee share
- Pag-IBIG contribution — P10,000 ceiling cap automatically applied; 1% vs 2% rate determined by salary level
- Taxable income calculation — All mandatory contributions excluded before tax base is established
- Withholding tax computation — Annualization method applied per employee each period, with December year-end reconciliation
- De minimis tracking — RR 29-2025 ceilings tracked per benefit category; excess flows to the P90,000 other benefits pool
- Allowance classification — TAXABLE_REGULAR, DE_MINIMIS, OTHER_BENEFIT, and NON_TAXABLE_STATUTORY types processed correctly
- Loan deductions — Automatic loan payment creation and balance tracking for SSS, Pag-IBIG, and company loans
- Other authorized deductions — Applied with audit trail of employee consent records
All monetary values are computed using Decimal.js for arbitrary-precision arithmetic — never JavaScript floating-point numbers that can produce rounding errors (e.g., P13,675.0000000001 instead of P13,675.00). This is critical for payslip accuracy and government remittance reconciliation.
Payroll runs are locked once approved to prevent retroactive changes, and every computation step is logged in the payroll audit trail. Payslips show individual allowance and deduction line items, not just aggregates.
Frequently Asked Questions
Q: Do I need to compute net pay per pay period or per month?
A: Per pay period. If you run semi-monthly payroll, each of the two pay periods in a month produces a separate net pay figure. The year-end annualization consolidates the annual total for tax purposes.
Q: What if an employee has multiple employers?
A: Employees with multiple employers must file their own income tax return (BIR Form 1700) at year-end, as each employer withholds tax independently without knowledge of the other employer's compensation. This is an employee responsibility, not an employer one — but you should advise affected employees.
Q: How are absences and late deductions treated in the net pay formula?
A: Absence and tardiness deductions reduce the gross pay first, before any government contributions are applied. For example, if an employee earning P25,000/month is absent for two days, the gross pay is reduced to approximately P22,727 (P25,000 × 20/22 days), and SSS/PhilHealth/Pag-IBIG are then computed on the adjusted gross.
Q: Are 13th month pay deductions different?
A: The 13th month pay itself is tax-exempt up to P90,000 (inclusive of other qualifying bonuses). It is not subject to regular monthly withholding tax computation. However, if the aggregate 13th month pay and other benefits exceed P90,000, the excess is added to taxable income during year-end annualization.
Related Guides
- SSS Contribution Table Guide 2026 — Complete 61-bracket table with Regular SS and MPF breakdown
- PhilHealth Contribution Guide 2026 — Floor/ceiling computation and remittance deadlines
- Pag-IBIG Contribution Guide 2026 — HDMF contribution rules and employer remittance calendar
- Withholding Tax TRAIN Law Guide 2026 — Full TRAIN Law bracket walkthrough and annualization
- Salary Deductions Philippines — What employers can and cannot deduct under the Labor Code
- Semi-Monthly vs Monthly Payroll — Choosing the right pay frequency for your business
Frequently Asked Questions
- What is the formula for computing net pay in the Philippines?
- Net Pay = Gross Pay − SSS Employee Share − PhilHealth Employee Share − Pag-IBIG Employee Share − Withholding Tax − Other Deductions. Government contributions are deducted first to arrive at taxable income, then the applicable withholding tax is computed using the TRAIN Law brackets.
- How much is deducted from salary in the Philippines in 2026?
- For a P25,000 monthly salary in 2026, total mandatory deductions are approximately P2,389 — SSS employee share P1,250 (including MPF), PhilHealth P625, Pag-IBIG P200, and withholding tax around P314 per month. The exact amount depends on salary level and whether the employee has other taxable income.
- What are the SSS contribution rates for 2026?
- The total SSS contribution rate is 15% of the Monthly Salary Credit (MSC) — 5% employee share and 10% employer share. The MSC range is P5,000 to P35,000. Employee share ranges from P250 (at MSC P5,000) to P1,000 (at MSC P20,000) for regular SS, plus additional MPF contributions for MSC above P20,000. The employer also pays EC (Employees' Compensation) of P10 or P30.
- Is withholding tax computed on gross pay or net pay?
- Withholding tax is computed on taxable compensation income, which is gross pay minus mandatory government contributions (SSS, PhilHealth, Pag-IBIG employee shares) and non-taxable benefits. You do not pay tax on the gross salary — the mandatory deductions reduce the taxable base first.
- How is net pay different for semi-monthly versus monthly payroll?
- For semi-monthly payroll, government contributions are typically deducted on the second payroll of the month (or split across both cutoffs depending on company policy), and the withholding tax is computed at a semi-monthly rate. At year-end, annualization reconciles the total tax withheld to the actual annual liability. The annual net pay amount is the same either way — only the timing of deductions differs.
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