Income tax deductions and bonus tax settings
The Deductions section of an income tax type decides what is taken off gross income before tax is worked out: Operational Expenses, Pension Maintenance and employee contributions. It also holds the bonus exemption and the 13th month settings. Use this article to understand what each field and column (Age limit, Max amount, Rate) does, and how to set them.
Where: Payroll dashboard › Settings (cog icon) › Income Tax Types › choose a type › Deductions
You need: the Payroll settings right, with edit access
How the deductions work
KAMI works out taxable income in this order:
- Gross income: Total Wages, Other Payments with the Regular tax type, and any employer contributions chosen under Gross Income.
- Less Operational Expenses, Pension Maintenance and the chosen Employee Contributions.
- That gives net income for the period, which is turned into a yearly figure (see Income tax types).
- Less the employee's non-taxable group amount, giving annual taxable income for the tax rate table.
Operational Expenses and Pension Maintenance
Both rows have the same three columns and the same rule.
| Column | Meaning |
|---|---|
| Age limit | The deduction applies only to employees younger than this age. Enter 1000 to apply it to everyone. Enter 0 to switch it off |
| Max amount | The most that can be deducted per month. On semi-monthly payroll each payslip can deduct up to half of it |
| Rate | The percentage of the period's gross income that is deducted |
Each payslip deducts the lower of Rate × gross income and Max amount (divided across the month's payslips).
Example (Indonesia's biaya jabatan, KAMI's default): Age limit 1000, Max amount 500,000, Rate 5. An employee with gross income of 8,000,000 a month gets 5% = 400,000 deducted. One on 15,000,000 would get 750,000, so the 500,000 cap applies.
Pension Maintenance works the same way, for a pension-cost allowance your tax rules allow. KAMI's defaults leave it at 0, which means nothing is deducted.
⚠️ For Indonesian companies, regular monthly payslips use the TER rate on gross income, so these deductions appear on the payslip but do not lower that month's tax. They count when the year's tax is reconciled. On the final payslip of the year, KAMI recalculates Operational Expenses for the whole year from the Max amount and the months worked, and does not use Pension Maintenance.
Employee Contributions and Exclude Voluntary Contributions
Employee Contributions lists the employee-paid contributions that reduce taxable income, such as the employee shares of SSS, PhilHealth and Pag-IBIG in the Philippines. A contribution not selected here is still deducted from pay, but it does not lower tax.
Employees marked Minimum wage earner get no contribution deduction from taxable income.
Exclude Voluntary Contributions controls the voluntary top-up an employee chooses to pay on their profile (Voluntary amount or Voluntary percent):
- Off: the voluntary part is deducted from taxable income along with the rest.
- On: only the mandatory part is deducted. The voluntary part is taxed.
Bonus Tax Deduction and Bonus Tax Deduction Method
Bonus Tax Deduction is the amount of bonus income that is tax-free each year. It applies to Other Payments with the Bonus tax type, such as a 13th month or a performance bonus. KAMI's default for the Philippines is 90,000. Enter 0 if your country has no exemption.
Bonus tax is the extra annual tax caused by adding the taxable part of the bonus to the year's estimated income, so a bonus is taxed at the employee's highest bracket rate rather than an average.
| Method | What happens |
|---|---|
| Default | The exemption is taken off each payslip's bonus before bonus tax is worked out |
| Year End | Bonuses are taxed in full when paid. The exemption is given back when the year's tax is reconciled (Reconcile Yearly Tax) |
| Annualized | Bonuses are added to Gross Income and taxed as regular income, with no separate Bonus Tax line |
Whichever method you choose, year-end tax reconciliation applies the exemption once for the year, capped at the bonus actually paid, and less any non-taxable bonus already given by a previous employer.
Include 13th month
When ticked, the exemption used during the year is reduced by one month's basic wage. Bonuses paid earlier in the year are taxed a little more, leaving room in the exemption for the 13th month, so less tax falls on the 13th month payslip in December.
Leave it off if you pay no other bonuses before the 13th month.
How to set the deductions
- Open the income tax type and click Edit.
- In Operational Expenses, enter Age limit, Max amount and Rate. Use 0 in all three if your tax rules have no such deduction.
- Do the same for Pension Maintenance.
- Enter the Bonus Tax Deduction amount and choose the Bonus Tax Deduction Method.
- In Employee Contributions, select every employee contribution that is tax-deductible.
- Set Exclude Voluntary Contributions and Include 13th month.
- Click Save, then recalculate any open payslip that should change.
What Happens Next
- The deduction amounts show in the payslip's tax breakdown as Deductions, between Gross Income and Net Income (for the period).
- Changes apply the next time a payslip is calculated. Payslips already calculated keep their figures until recalculated.
- Bonus tax shows on the payslip as its own Bonus Tax line, except with the Annualized method.
Tips
- Age limit is a "younger than" rule. An age limit of 60 means employees aged 60 and over get nothing.
- Max amount is monthly, not yearly. Enter the statutory monthly cap, not the annual one.
- Check one high earner and one low earner after changing Rate or Max amount, because the cap only affects people above Max amount ÷ Rate.
- Default gives the full exemption on every bonus payslip. If you pay several bonuses a year, expect the year-end reconciliation to take some of it back. Year End avoids that surprise.
Troubleshooting / FAQ
Q: What does Operational Expenses mean? A deduction of a percentage of gross income, capped per month, such as Indonesia's biaya jabatan (5%, up to 500,000 a month). It lowers taxable income, not pay.
Q: Why is Operational Expenses zero for one employee? They are at or over the Age limit, or Rate or Max amount is 0.
Q: The whole bonus is being taxed. Check Bonus Tax Deduction is above 0, the method is not Year End, and the payment's other payment type has the Bonus tax type.
Q: Why did December tax jump after a year of bonuses? Year-end reconciliation applied the exemption once for the year. Under Default each bonus payslip had used it in full.
Q: SSS is deducted from pay but not from taxable income. It is not selected in Employee Contributions on the employee's income tax type.