Indonesia Payroll - What are the methods to calculate PPH21? How it is applicable in Deskera People?

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Methods to Calculate PPH 21?

In general, there are 3 methods that can be used to calculate PPh 21, namely the Net, Gross, and Gross Up methods. Before calculating, it is better to look at the PPh 21 tariff layer imposed on taxpayers.

Taxpayers with an annual income of up to IDR 50,000,000 are subject to a tax rate of 5%,
Taxpayers with an annual income above IDR 50,000,000 to IDR 250,000,000 are subject to a rate of 15%,
Taxpayers with annual income above IDR 250,000,000 to IDR 500,000,000 are subject to a tax rate of 25%.
Taxpayers with an annual income above IDR 500,000,000 are subject to a tax.

Lets take a look at these methods more in details,

Net Method

This method is a tax withholding method where the company bears the taxes of its employees. The net method is the deduction of income tax and social security contributions such as BPJS Ketenagakerjaan and Health which has been carried out by the company directly at the salary to be received.

This results in employees no longer needing to calculate the amount of taxes and contributions that must be paid, and no need to pay taxes and contributions independently. The salary received is the net salary which has been deducted from several mandatory deductions.

Most companies pay employees by salary or nett , with tax borne by the employer. This means that employees receive the nominal income exactly as promised at the beginning.

Example of calculating PPh 21 for an employee who is unmarried and without dependents (PTKP TK / 0) who is promised a net salary of IDR 8,000,000 a month.

Salary	IDR 8,000,000
Less: Office fee: 5% x IDR 8,000,000	IDR 400,000-
Net income	IDR 7,600,000
Annual net income		IDR 91,200,000
Less: Non-Taxable Income (PTKP) TK / 0		IDR 54,000,000
Taxable income		IDR 37,200,000
Income Tax 21 payable annually: 5% x IDR 37,200,000		IDR 1,860,000
PPh 21 payable a month		IDR 155,000

Salary	IDR 8,000,000
Tax subsidies	IDR 155,000	Income Tax 21	IDR 155,000
Total income	IDR 8,000,000	Net salary	IDR 8,000,000

Therefore, the PPh 21 tax in the example above is Rp. 155,000 which is borne by the company and is not added to the employee's salary because it is not included in the gross income subject to tax.

Although the tax subsidy results in company expenses, the Rp. 155,000 tax cannot reduce the company's gross income in the calculation of corporate income tax.

Gross Method

This is a tax withholding method where employees bear their own income tax amount.This method means that the employee's salary is the full amount of salary that has not been subject to any mandatory deductions, the same as no allowance for any mandatory deductions is provided. This salary when compared to the net method will feel great.

The salary slip provided will also include deductions for income taxpayers and BPJS Employment and Health contributions. It also includes other variable chunks.

How do you calculate it?

For example, how much tax is borne by the company with the salary offered of Rp. 11,000,000 per month for an employee who is unmarried and without dependents (PTKP TK / 0)?

Compute Net Income: Gross Income - Cost of Position =

salary- Rp. 11,000,000

Position allowance - 5% x Salary: IDR 550,000

Monthly Net Income- (Rp. 11,000,000 - IDR 550,000)= Rp. 10,450,000

Annual Net Income Rp. 125,400,000 (Rp. 10,450,000 * 12)

Calculate Taxable Income (PKP) : Net Income for One Year - Non-Taxable Income (PTKP) TK / 0 IDR 125,400,000 - IDR 54,000,000 = IDR 71,400,000
Calculate PPh 21 Payable : in a Progressive Tax Year (because IDR 71,400,000 is more than IDR 50,000,000) (5% x 50,000,000 = IDR 2,500,000) + (15% x 21,400,000 = IDR 3,210,000) = IDR 5,710 .000.
Calculate monthly income tax payable: IDR 5,710,000: 12 = IDR 475,833

Gross Up Method:

Calculating PPh 21 using the Gross Up method is a tax deduction where the company provides tax allowances that are equal to the amount of tax withheld from employees. The Gross Up Method is more complicated. The tax allowance is calculated based on the amount of taxable income (PKP) by following the formula for the Taxable Income Layer (PKP)

This is a method in which the company provides allowances for employee income, according to the amount of tax or BPJS Employment and Health contributions that are borne by employees.

So in simple terms, taxes and fees are borne by the company, by including tax allowances on the income provided.

There are 2 steps in calculating PPh 21 gross up , namely:

1. Calculating Tax Allowances

To calculate PPh 21 allowances, a gross up PPh 21 formula is needed , so that the nominal value of the allowance is exactly the same as the tax to be deducted later. The formula is as follows:

Taxable Income (PKP) Layers	Income Tax Allowances 21
IDR 0 - IDR 47,500,000	(PKP a year - 0) x 5/95 + 0
IDR 47,500,000 - IDR 217,500,000	(PKP a year - IDR 47,500,000) x 15/85 + IDR 2,500,000
IDR 217,500,000 - IDR 405,000,000	(PKP a year - IDR 217,500,000) x 25/75 + IDR 32,500,000
More than IDR 405,000,000	(PKP a year - IDR 405,000,000) x 30/70 + IDR 95,000,000

To make it clearer, here is an example of calculating the tax allowance for an employee's salary of IDR 8,000,000. Determine the amount of the Taxable Income in advance.

Yearly salary (12 x IDR 8,000,000)	IDR 96,000,000
Less: One year job fee (12 x 5% x IDR 8,000,000)	( IDR 4,800,000 )
Net income a year	IDR 91,200,000
Non-taxable income TK / 0 (unmarried without dependents)	( IDR 54,000,000 )
Taxable Income (PKP)	IDR 37,200,000

Since PKP is between Rp. 0 to Rp. 47,500,000, the formula applies:

Income tax allowance 21 a year:

= (PKP a year - 0) x 5/95 + 0

= 37,200,000 x 5/95

= IDR 1,957,895

Income tax allowance 21 a month is IDR 1,957,895: 12 months = IDR 163,158

2. Calculating Gross Up Income Tax withholding 21

After obtaining the nominal tax allowance, the next step is to enter this figure into the employee's gross income for the calculation of PPh 21 . Correct calculation will result in withholding PPh 21 which is the exact same amount as the tax allowance, as shown in bold below:

Income tax allowance salary 21	IDR 8,000,000 IDR 163,158 +
Gross income	IDR 8.163.158
Less: Office fee: 5% x IDR 8,000,000	( IDR 400,000 )
Net Income	IDR 7,763,158
Year net income		IDR 93,157,896
Less: Non-taxable income TK / 0 (unmarried without dependents)		( IDR 54,000,000 )
*Taxable income*		IDR 39,157,896
PPh 21 rates: 5% x IDR 39,157,896	IDR 1,957,895
Income Tax 21 payable a year		IDR 1,957,895
*PPh 21 payable a month*		Rp. 163,158

With the formula above, if the company wants employees to get a take home pay (net salary) of IDR 8,000,000, then the company needs to pay a gross income of IDR 8,163,158.

Salary	IDR 8,000,000
Tax allowances	Rp. 163,158	Income Tax 21	Rp. 163,158
Total income	IDR 8.163.158	Total pieces	Rp. 163,158
		*Take home pay*	IDR 8,000,000