Income tax: How to calculate bonus and tax

In 2009, Malaysia’s income tax moved to a Monthly Tax Deduction (MTD) or Potongan Jadual Bercukai (PCB).

If you are earning on average less then 2,500 a month, you’re not required to file taxes.

Also as announced in Budget 2014, you can opt not to file taxes if you are already paying MTD/PCB. However, you most likely would want to claim as there are deductions and you can get tax cash refunds.

With PCB, your estimated monthly tax payable amount is deducted from your salary. Your employer pays this amount to the Inland Revenue Board (LHDN) by the 10th of every month.

When you file your taxes annually, you will fill up tax-related info including your accumulated PCB for the year. If you have paid more than required, you will get a refund. If you have paid less, you will need to pay the difference.

Taxes in Malaysia are progressive. A progressive tax is a tax where the tax rate increases as the taxable base amount increases.

The term “progressive” refers to the way the tax rate progresses from low to high, with the result that the average tax rate is less than the highest marginal tax rate.

The taxable base amount is based on chargeable income. Salary and other remuneration less tax exemptions and tax relief.

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Remuneration subject to PCB

  • Salary/Wages
  • Overtime Pay
  • Commission
  • Tips
  • Allowance
  • Bonus/Incentives
  • Director fees
  • Perquisite (perks)
  • Employee’s Share Option Scheme (ESOS)
  • Tax borne by the employer
  • Gratuity
  • Compensation for loss of employment
  • Other remuneration related to employment

PCB allowable deductions

  • Deduction for individual – RM9,000
  • Deduction for husband or wife – 4,000 (if spouse not working)
  • Deduction for child – RM2,000 per child (claimable only once per child if both parents working). For example, if both husband and wife are working and have three children. Husband, two children deduction and wife, one child deduction.
  • Contribution to EPF or other approved scheme – RM6,000
  • Deduction for zakat (Muslims only)

Bonus: Estimate after taxes

A rough estimate is that about 16% of your bonus would go into paying for taxes and 11% for EPF deductions.

Thus you would only take home about 73% of your bonus. For example, bonus RM10,000. Actual take home: RM7,300.

Bonus: Calculation after Taxes

For a more accurate calculation, there are two ways that PCB is calculated. Companies may use either method. And you can calculate it yourself as well to check that it tallies.

  • Computerised Calculation Method
  • Schedule of Monthly Tax Deductions

Method

1. List down your salary and bonus/other remuneration

2. Calculate your EPF, SOCSO and EIS deductions

Note: For EPF include salary + bonus, SOCSO is a fixed monthly amount.

EPF (default) Employer: 12% | Employee: 11%

SOCSO (max at above RM3,900 monthly) Employer: RM69.05 | Employee: RM19.75

Employment Insurance Scheme (EIS): Employer: 0.2% | Employee: 0.2% (max RM20 or RM4,000 salary per month).

3A. Calculate using PCB Calculator

  • Month: Current month | Marriage Status: Single / Married (spouse working / not working) | No of Children
  • Accumulated Remuneration (until before current month): Monthly salary * Total months from Jan until last month
  • Accumulated EPF (until before current month): Monthly EPF (Employee) deduction * Total months from Jan until last month. Note: If monthly EPF (employee) deduction is above 500, use 500
  • Accumulated PCB (until before current month): Monthly PCB deduction * Total months from Jan until last month. Note: You can see your monthly PCB deduction in your payslip
  • Fill in your Current Month’s Remuneration | Current Month’s EPF Deduction | Bonus Amount
  • Click Calculate and you will get your PCB on Basic Salary & PCB on Additional Remuneration

3B. Calculate manually using PCB Schedule

  • Calculate your monthly taxable income
    Calculate bonus divided up equally into 12month: Total Bonus / 12
    + Add current month basic salary
    – Deduct current month EPF (employee) (Note: Max 500)
    = Get Total Chargeable Income
  • Check the PCB Schedule for your PCB on Total Chargeable Income

  • Check the PCB Schedule for your PCB on Basic Salary
  • Calculate PCB on Additional Remuneration

(PCB on Total Chargeable Income – PCB on Basic Salary) X 12months

  • PCB for Month = PCB on Basic Salary + PCB on Additional Remuneration

3C. Calculate using the MyPF Monthly Tax Deduction (PCB) Calculator

Calculator screenshot

This article first appeared in https://mypf.my

MyPF is on a mission to help simplify and grow Malaysians’ personal finances through financial education.