Lesson 4.

Standard Deductions

Business Mathematics
Accountancy, Business, and Management

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People are
mindful when it
comes to their
pay.

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Employees must
understand that their basic
pay may not be equivalent
to their “take-home pay.”

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One way to avoid
confusion is to understand
the standard items
deducted from one’s basic
salary.

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Quick Look

Where Did James’s Money Go?

James works in AA Company. He notices a 1.75% deduction
for health insurance for his first payslip, another 4.5% for
life insurance and, ₱1,083 for the income tax. If his basic
salary is ₱28,000, how much do you think is the take-home
pay of James?

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Quick Look

Solution

Step 1: Identify what is required in the problem.

You are asked how much is James’ take-home pay (T)
after deductions (d) are subtracted from his basic salary.

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Quick Look

Solution

Step 2: Identify the given in the problem.

₱ 28,000 basic pay (b)
₱ 1,083 income tax (i)
1.75% health insurance (h)
4.5% life insurance (l)

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Quick Look

Solution
Step 3: Write the working equation.

Step 4: Substitute the given values.

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Quick Look

Solution
Step 5: Find the answer.

James’s take-home pay is ₱25,167 after standard deductions are

subtracted from the total salary amount.

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Quick Look

Questions to Ponder
1. What are the different standard deductions?
2. How are standard deductions computed?
3. How important is the understanding of standard
deduction?

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Learning Competency

Enumerate the standard deductions with the corresponding

computation (ABM_BM11SW- IIe-7).

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Learning Objectives

In this lesson, you should be able to do the following:

● Enumerate the different standard deductions for
salary and wage earners.
● Compute different standard deductions.
● Solve problems involving standard deductions.

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 Standard Deductions

The Philippine Labor Code prohibits employers

from withholding their employees’ wages or
deducting any amount.

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 Standard Deductions

However, there are certain exceptions:

● social insurance premiums
● income taxes
● union dues

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Standard Deduction

what is left of the gross

Net Earnings earning after deductions are
applied

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 Standard Deduction

the amount subtracted

directly from the gross
earnings as regular payment Standard Deduction
for insurance, taxes, and
even loans

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 SSS Contribution

● covers all employees of

private companies and
enterprises
● fixed percentage of 13%
○ employee share: 4.5%
○ employer share: 8.5%

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 SSS Contribution

Table 1. SSS Contribution Table

Monthly Salary Employee’s Share

₱3,000 and below (minimum) ₱135

₱3,001 - ₱24,999.99 4.5%

₱25,000 and above (maximum) ₱1,125

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 SSS Contribution: Example 1
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If the monthly salary is ₱30,000, how much will their

SSS contribution be?
Solution:
Since ₱30,000 belongs to the maximum salary bracket,
the SSS contribution must be ₱1,125.

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 SSS Contribution: Example 2
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2. How much should be deducted from an
employee’s salary for SSS contribution if the salary is
equal to ₱18,000?
Solution:
SSS Contribution = Monthly salary x 4.5%
SSS Contribution = ₱18,000 x 0.045
SSS Contribution = ₱810
SSS contribution should be ₱810.
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 PhilHealth Contribution

● covers both private and government employees

● provides health-related assistance to its clients
● follows a salary bracketing

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 PhilHealth Contribution

Table 2. PhilHealth Contribution

Year Basic Monthly Salary Employee’s Share

₱10,000 and below ₱175

2021
₱10,001 - ₱ 69 999.99 1.75%

₱70,000 and above ₱1,225

₱10,000 and below ₱ 200

2022
₱10,001 - ₱ 79 999.99 2%

₱80,000 and above ₱1,600

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 PhilHealth Contribution

Table 2. PhilHealth Contribution

Year Basic Monthly Salary Employee’s Share

₱10,000 and below ₱225

2023
₱10,001 - ₱ 89 999.99 2.25%

₱90,000 and above ₱2,025

₱10,000 and below ₱250

2024-2025
₱10,001 - ₱99,999.99 2.5%

₱100,000 and above ₱2,500

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 PhilHealth Contribution: Example 1
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For 2021, how much will be deducted for PhilHealth’s
contribution if the salary is equal to ₱15,000?

Solution
PhilHealth Contribution = Monthly salary x rate
PhilHealth Contribution = ₱15,000 x 0.0175
PhilHealth Contribution = ₱262.5
Therefore, the PhilHealth contribution is equal to ₱262.50.
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 PhilHealth Contribution: Example 2
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How much is the PhilHealth contribution of an employee

with a monthly salary of ₱85,000? (Assume that the year
is 2021)

Solution
Since ₱85,000 is the maximum salary bracket for 2021,
the PhilHealth contribution must be ₱1,225.

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 GSIS Contribution

● a government-owned and
controlled social
insurance institution
● covers all government
personnel (permanent
and non-permanent)

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 GSIS Contribution

Table 3. GSIS Contribution

Monthly Salary Employee’s Share

No minimum/maximum 9%

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 GSIS Contribution: Example 1
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How much is deducted from a government employee's pay

for GSIS contribution if they have a monthly salary of ₱28,276?
Solution:
GSIS Contribution = Monthly salary x 9%
GSIS Contribution = ₱28,276 x 0.09
GSIS Contribution = ₱2,544.84
A government employee with a monthly salary of ₱28,276
pays ₱ 2,544.84 for GSIS contribution.
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 GSIS Contribution: Example 2
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How much is the deduction for the GSIS contribution an

employee receives ₱33,556 monthly?
Solution:
GSIS Contribution = Monthly salary x 9%
GSIS Contribution = ₱33,556 x 0.09
GSIS Contribution = ₱3,020.04
The employee with a monthly salary of ₱33,556 pays
₱3,020.04 for GSIS contribution.
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 Pag-IBIG Contribution

● includes both private and

government employees
provides various savings
programs, loans, and
affordable home financing

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 Pag-IBIG Contribution

Table 4 Pag-Ibig Contribution

Monthly Salary Employee’s Share

₱1,500 and below 1%

₱1,501 - ₱4,999 2%

Over ₱ 5,000 ₱100

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 Pag-IBIG Contribution: Example 1
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If the monthly salary is ₱30,000, how much will their

Pag-IBIG contribution be?
Solution:
Since the employee receives a salary more than the
maximum bracket of ₱5,000, the Pag-IBIG contribution
must be ₱100.

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 Pag-IBIG Contribution: Example 2
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How much will an employee’s Pag-IBIG contribution

be if he receives a monthly salary of ₱15,000?
Solution:
Since the employee receives a salary more than the
maximum bracket of ₱5,000, the Pag-IBIG contribution
must be ₱100.

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 Income Tax

● based on salary brackets

● the higher the income, the
higher the income tax rate

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 Income Tax

Table 5. Income Tax

Annual Taxable Income Annual Income Tax

₱250 000 and below None (0%)

over ₱250,000 up to ₱400,000 ₱ 0 + 20% of excess over ₱ 250,000

over ₱400,000 up to ₱800,000 ₱30,000 + 25% of excess over ₱400,000

over ₱800,000 up to ₱2,000,000 ₱130,000 + 30% of excess over ₱800,000

over ₱2,000,000 up to ₱8,000,000 ₱490,000 + 32% of excess over ₱2,000,000

above ₱8,000,000 ₱2,410,000 + 35% of excess over ₱8,000,000

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 Putting Everything Together: Income Tax
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How much is the income tax of an employee

working in a private company if he earns ₱25,000
monthly?

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 Putting Everything Together: Income Tax
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Compute for standard deductions:

● SSS Contribution (Private). Since ₱25,000 belongs to the
maximum salary bracket, the SSS contribution must be
₱1,125.
● PhilHealth Contribution. PhilHealth Contribution equals
₱25,000 x 0.0175 or ₱437.50
● Pag-IBIG Contribution. Since the salary is more than ₱5,000,
then the Pag-IBIG contribution must be ₱100.

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 Putting Everything Together: Income Tax
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Total annual contribution:

Total annual contribution = (SSS+PhilHealth+Pag-IBIG) x 12
Total annual contribution = (₱1,125+ ₱437.5+ ₱100) x 12
Total annual contribution = (₱1,662.5) x 12
Total annual contribution = ₱19,950

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 Putting Everything Together: Income Tax
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Annual gross income:

Annual gross income = gross monthly income x 12
Annual gross income = ₱25,000 x 12
Annual gross income = ₱300,000

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 Putting Everything Together: Income Tax
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Annual Taxable Income:

Annual Taxable Income = annual gross income - total annual
contribution
Annual Taxable Income = ₱300,000 - ₱19,950
Annual Taxable Income = ₱280,050

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 Putting Everything Together: Income Tax
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Excess
Excess = Annual Taxable Income - Minimum
Excess = ₱280,050 - ₱250,000
Excess = ₱30,050

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 Putting Everything Together: Income Tax
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Monthly Income Tax

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 Check Your Progress

1 An employee receives ₱24,400 monthly salary. How

much is the deduction for his SSS contribution?

Answer area

Answer: ₱1 098

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 Check Your Progress

What is the total deduction for SSS, PhilHealth, and

2 Pag-IBIG on a salary equal to ₱14,900?

Answer area

Answer: ₱1 031.25

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 Problems Involving Standard Deductions

You can use our knowledge about standard deductions

to solve some salary and wages problems. Examine how
the following problems involving standard deductions
were solved.

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 Example 1

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Jerome works in a government hospital. His usual income

tax monthly is ₱4,760. If his monthly salary is ₱55,880,
how much will his net pay be after other standard
deductions are applied?

Therefore, Jerome will have a net pay

of ₱ 45,012.9.

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 Example 1

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Solution
Step 1: Identify what is required in the problem.
You are asked to determine the net pay(NP).

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 Example 1

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Step 2: Identify the given in the problem.

₱ 55,880 salary (s)
₱ 4,760 income tax (t)
9% (s) GSIS
1.75% (s) PhilHealth
₱ 100 Pag-IBIG

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 Example 1

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Step 3: Write the working equation.

NP

Step 4: Substitute the given values.

NP

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 Example 1

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Step 5: Find the answer.

NP

NP
NP

Therefore, Jerome will have a net pay of ₱ 45,012.9.

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 Example 2

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Example 2
As a sales attendant, Jane receives a basic monthly salary
of ₱17,500. How much will her total deduction be if all
standard deductions are applied?

Jane’s total deduction is equal to ₱1,193.75.

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 Example 2

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Solution
Step 1: Identify what is required in the problem.
You are asked to determine total standard
deductions (T).

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 Example 2

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Step 2: Identify the given in the problem.

₱ 17,500 monthly salary (m)
₱0 income tax (i) (annual income <
₱ 250,000)
4.5%(m) SSS contribution
1.75%(m) PhilHealth contribution
₱ 100 Pag-IBIG contribution (p)
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 Example 2

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Step 3: Write the working equation.

Step 4: Substitute the given values.

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 Example 2

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Step 5: Find the answer.

Jane’s total deduction is equal to ₱1,193.75.

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 Check Your Progress

Luke, a newly hired government employee, signs a contract.

3 The contract specifies his monthly salary, which is ₱49,190. How
much will his monthly income tax be?

Answer area

Answer: ₱5 086.44

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 Check Your Progress

4 Thelma works in a high-end resort. How much is Thelma’s net

pay in 2021 if the resort pays her ₱35,000 a month?
Answer area

Answer: ₱318, 360.00

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Keep in Mind

● Standard deduction is the amount subtracted directly from the

gross earnings as regular insurance, taxes, and even loans. After the
deduction, what’s left is called the net earnings.
● Some standard deductions are SSS, GSIS, PhilHealth, Pag-IBIG, and
Income Tax.

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