Income tax is a tax imposed on individuals or entities on income received or earned in a tax period. One of the income taxes that is closely related to the human resources management of a company is the income tax which is stipulated through Article 21 (or more often referred to as “PPh 21”) of the Income Tax Law and lastly amended through the Harmonization of Tax Regulations Law. In principle, PPh 21 is a withholding tax imposed on income received by a domestic Individual Taxpayer (Wajib Pajak Orang Pribadi/WP OP) for the work, services, or activities he/she performs. PPh 21 has a progressive rate based on the income obtained by Taxpayer. As of 2022, the PPh 21 rates are as follows:

• Taxpayers with annual income up to IDR 60,000,000 are subject to a tax rate of 5%;
• Taxpayers with annual income above IDR 60,000,000 to IDR 250,000,000 are subject to a tax 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 annual income above IDR 500,000,000 to IDR 5,000,000,000 are subject to a tax rate of 30%; and
• Taxpayers with annual income above IDR 5,000,000,000 are subject to a tax rate of 35%.

Furthermore, you should be aware of several important components that must be considered in calculating PPh 21 as follows: Non-taxable Income Non-taxable income is a threshold that determines whether a person has an obligation to pay income tax or not. In addition, non-taxable income also serves as a deduction in calculating tax payable. Based on the Harmonization of Tax Regulations Law, the non-taxable income are as follows:

• IDR 54,000,000/year for individual taxpayers;
• IDR 4,500,000/year additional for taxpayers who are married or have a family;
• IDR 54,000,000/year for individual taxpayers who are married with a joint income; and
• IDR 4,500,000/year additional for each blood family member and family by marriage in a straight line and adopted children who are fully dependent, a maximum of 3 people for each family.

Healthcare and Employee Social Security Contribution A company that participates in the Healthcare Social Security and Employee Social Security programs has an obligation to pay the following contributions (minimum rates):

• Health Insurance and/or Healthcare Social Security (BPJS Kesehatan) are borne by the company in the amount of 4% and by the employee 1%;
• Work Accident Insurance (Jaminan Kecelakaan Kerja or JKK) which borne by the company in the amount of 0.24%;
• Death Insurance (Jaminan Kematian or JKM) is borne by the company in the amount of 0.3%;
• Old-Age Security (Jaminan Hari Tua or JHT) which borne by the company 3.7% and by the employee 2%; and
• Pension Security (Jaminan Pensiun or JP) is borne by the company 2% and by the employee 1%. As of 2021, the maximum amount of JP is IDR 87,546.

Functional Cost Deduction Functional cost is a cost that the company needs to collect, earn and maintain income. Indonesia laws and regulations stipulate that the company can impose occupational expenses maximum 5% from the gross income per year or maximum in the amount of IDR 500,000 per month. After you consider the above aspects, the next step you should take is to determine what calculation method that you want to implement. Is it Nett, gross, or gross up calculation methods? In general, the difference of those methods are as follows:

• Nett calculation method is a tax withholding method where the company bears the taxes of its employees;
• Gross calculation method is a tax withholding method where employees bear their own income tax; and
• Gross up calculation method is a tax withholding method in which the company provides tax benefits in the amount equal to the amount of tax withheld from employees,

The difference of the PPh 21 calculation method will certainly affect the employee payroll and company expenses. In order to get a better grasp of PPh 21 calculation and the differences of each method, please find the simulation below! For this simulation, we are going to calculate an employee tax with offered income IDR 10,000,000 and allowance IDR 2,000,000. Also, the said employee did not have any dependents. Nett Calculation Method First thing you have to do is to calculate the Gross Income with the following calculation.

Income		10,000,000
Allowance		2,000,000
JKK	(0,24% x Income)	24,000
JKM	(0,3% x Income)	30,000
BPJS Kesehatan	(4% x Income)	400,000	+
Monthly Gross Income		12,454,000

Second, after you have the Gross Income you can continue to calculate the deductible in order to determine the Nett Income.

Monthly Gross Income		12,454,000
Functional Cost Deduction	(5% x Gross Income) Max. 500,000	500,000
JHT	(2% x Income)	200,000
JP	(1% x Income)	87,546	–
Nett Income		11,666,454
Annual Nett Income	(12 x Nett Income)	139,997,448

Third, deduct it with the non-taxable income and you shall have the taxable income. Then you will be able to calculate the PPh 21 using a progressive rate as stated above. 

Annual Nett Income		139,997,448
Non-Taxable Income		54,000,000	–
Taxable Income		85,997,448
Rounding Down		85,997,000

 

Income Tax (PPh 21)
Tier 1	(5% x 60,000,000)	3,000,000
Tier 2	(15% x 25,997,000)	3,899,550	+
Annual Income Tax		6,899,550
Monthly Income Tax	(Annual Income Tax : 12)	574,963

Should you choose the nett calculation method, then the employee’s income tax is borne by the company. Thus, we are able to calculate the employee’s take home pay as follows.

Income		10,000,000
Allowance		2,000,000
BPJS Health Social Security	(1% x Income)	100,000
JHT	(2% x Income)	200,000
JP	(1% x Income)	87,546	–
Take Home Pay		11,612,454

Gross Calculation Method

Income		10,000,000
Allowance		2,000,000
JKK	(0,24% x Income)	24,000
JKM	(0,3% x Income)	30,000
BPJS Kesehatan	(4% x Income)	400,000	+
Monthly Gross Income		12,454,000

 

Monthly Gross Income		12,454,000
Functional Cost Deduction	(5% x Gross Income) Max. 500,000	500,000
JHT	(2% x Income)	200,000
JP	(1% x Income)	87,546	–
Nett Income		11,666,454

 

Annual Nett Income		139,997,448
Non-Taxable Income		54,000,000	–
Taxable Income		85,997,448
Rounding Down		85,997,000

 

Income Tax (PPh 21)
Tier 1	(5% x 60,000,000)	3,000,000
Tier 2	(15% x 25,997,000)	3,899,550	+
Annual Income Tax		6,899,550
Monthly Income Tax	(Annual Income Tax : 12)	574,963

  Using a gross calculation method means that the tax shall be borne by the employee. Therefore, the employee’s take home pay calculation is as follow.

Income		10,000,000
Allowance		2,000,000
Income Tax (PPh 21)		574,963
BPJS Health Social Security	(1% x Income)	100,000
JHT	(2% x Income)	200,000
JP	(1% x Income)	87,546	–
Take Home Pay		11,037,492

  Gross Up Calculation Method The gross up calculation method is generally defined as a calculation method which the company would give tax allowance to the employee. Beside the tax allowance, the company may also choose to bear the employee’s contribution. Thus, the employee take home pay will equal to the offered income.  Please refer to the simulation as follow!

Income		10,000,000
Allowance		2,000,000
JKK	(0,24% x Income)	24,000
JKM	(0,3% x Income)	30,000
BPJS Kesehatan	(4% x Income)	400,000	+
Tax Allowance		744,813
Contribution Gross up		387,546
Monthly Gross Income		13,586,359

 

Monthly Gross Income		13,586,359
Functional Cost Deduction	(5% x Gross Income) Max. 500,000	500,000
JHT	(2% x Income)	200,000
JP	(1% x Income)	87,546	–
Nett Income		12,798,813

 

Annual Nett Income		153,585,750
Non-Taxable Income		54,000,000	–
Taxable Income		99,585,750
Rounding Down		99,885,000

 

Income Tax (PPh 21)
Tier 1	(5% x 60,000,000)	3,000,000
Tier 2	(15% x 39,885,000)	5,937,750	+
Annual Income Tax		8,937,750
Monthly Income Tax	(Annual Income Tax : 12)	744,813

Based on the calculation above, you can find that the tax allowance and the monthly income tax should be in the same amount. With the gross up calculation method, generally, the employee’s take home pay should be the same with the offered income. Did you find those calculations too complicated? Don’t worry! We are able to provide you with a payroll system that accurately calculates your employee taxes for you with the calculation method of your choosing. You could also manage complex allowances, commissions, bonuses, and deductions with ease. On top of that, all of them are done automatically and we are able to process thousands of payrolls in no time! ZipHR also understands the ever-changing laws and regulations that may affect the payroll such as changes in social security, healthcare, pensions, insurance contributions, and taxes. Rest at ease, we have you covered and we will keep your payroll in compliance with the latest laws and regulations to properly manage your company and/or your employees’ obligation.