Gross pay is what employees earn before taxes, benefits and other payroll deductions are withheld from their wages. The amount remaining after all withholdings are accounted for is net pay or take-home pay. Employers who familiarize themselves with these two terms are often better equipped to negotiate salaries with workers and run payroll effectively. Show
What is gross pay?As previously mentioned, gross pay is earned wages before payroll deductions. Employers use this figure when discussing compensation with employees, i.e. $60,000 per year or $25 per hour. Gross pay is also usually referenced on federal and state income tax brackets. Calculating gross payThe method for calculating gross wages largely depends on how the employee is paid. For salaried employees, gross pay is equal to their annual salary divided by the number of pay periods in a year (see chart below). So, if someone makes $48,000 per year and is paid monthly, the gross pay will be $4,000. Pay SchedulePay PeriodsWeekly52Bi-weekly26Semi-monthly24Monthly12To calculate gross pay for hourly workers, multiply the hourly rate by the hours worked during a pay period. For example, a part-time employee who works 35 hours at $12 per hour will have a gross pay of $420. Overtime rates must also be accounted for, if applicable. Choosing the right payroll provider for your business Download NowCalculating gross incomeTo calculate gross income, multiply the employee’s gross pay by the number of pay periods (see chart above). For instance, if someone is paid $900 per week and works every week in a year, the gross income would be $46,800 per year. Net payThe compensation that employees get to take home depends on a variety of payroll deductions, some of which may be voluntary, whereas others are mandatory. What affects net pay?
Calculating net payWhen calculating net pay, employers and HR professionals generally follow these basic steps:
This guide is intended to be used as a starting point in analyzing an employer’s payroll obligations and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services. (A) General Definition. – Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items:
(B) Exclusions from Gross Income. – The following items shall not be included in gross income and shall be exempt from taxation under this Title: (1) Life Insurance. – The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income. (2) Amount Received by Insured as Return of Premium. – The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract. (3) Gifts, Bequests, and Devises. – The value of property acquired by gift, bequest, devise, or descent: Provided, however, That income from such property, as well as gift, bequest, devise, or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income. (4) Compensation for Injuries or Sickness. – Amounts received, through Accident or Health Insurance or under Workmen’s Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness. (5) Income Exempt under Treaty. – Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. (6) Retirement Benefits, Pensions, Gratuities, etc. –
(7) Miscellaneous Items. –
SECTION 33. Special Treatment of Fringe Benefit. – (A) Imposition of Tax. – Effective January 1, 2018 and onwards, a final tax of thirty-five percent (35%) is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer). The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57(A) of this Code. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by sixty-five percent (65%) effective January 1, 2018 and onwards: Provided, however, That fringe benefit furnished to employees and taxable under Subsections (B), (C), (D), and (E) of Section 25 shall be taxed at the applicable rates imposed thereat: Provided, further, That the grossed-up value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B), (C), (D), and (E) of Section 25. (As amended by RA No. 10963 (December 17, 2017)). (B) Fringe Benefit Defined. – For purposes of this Section, the term ‘fringe benefit‘ means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as, but not limited to, the following:
(C) Fringe Benefits Not Taxable. – The following fringe benefits are not taxable under this Section:
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, such rules and regulations as are necessary to carry out efficiently and fairly the provisions of this Section, taking into account the peculiar nature and special need of the trade, business or profession of the employer. What are included in gross compensation income?Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar items. Gross income derived from the conduct of trade or business or the exercise of profession.
Which is not included in the gross taxable compensation income of an employee?Social security contributions, up to the prescribed amount of maximum mandatory contributions, and union dues paid by employees are not included in gross income and are exempt from taxation.
Which of the following is not included in gross income?These expenses include cost of goods sold just like gross income. However, net income also includes selling, general, administrative, tax, interest, and other expenses not included in the calculation of gross income.
Which of the following would be included in gross income quizlet?Gross income consists of all reportable income from any source. All interest and dividends received by an individual taxpayer are taxable. The timing on the sale of an investment asset earning a capital gain makes little or no difference in the amount of taxes that are owed.
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