In carrying out its obligations as an employer, companies have an important role in ensuring that employee income tax (PPh) is paid correctly. There are several approaches that companies can use to calculate and pay PPh 21, including through salary deductions or providing certain allowances for tax payments. The three common methods used are the Net Method, Gross Method, and Gross-Up Method. Each method has different characteristics and accounting implications, which are important for employers and employees in charge of tax calculations to understand.

Gross Method

The Gross Method is a method where the company provides salaries to employees by first deducting PPh 21 before the salary is given. Thus, employees bear the burden of PPh 21 themselves.

Net Method

In this method, the company provides net salaries to employees without deducting PPh 21 because this tax is borne by the company. However, the tax burden borne by this company cannot be charged as an expense in calculating the company's Corporate Income Tax.

Gross-Up Method

The Gross-Up method is similar to the Net method, in which the company bears the employee's tax burden. However, the difference lies in the calculation where the tax burden borne by the company is included as a component of the employee's gross income and calculated as a PPh 21 allowance. This allows the company to charge this cost in the calculation of Corporate Income Tax.

Formula for calculating PPh 21 using the Gross-Up Method

Formula for calculating PPh 21 allowances for January - November:

 

Formula for calculating PPh 21 allowances for December period:

*PKP : Taxable Income 

Example of calculating PPh 21 using Net, Gross and Gross-Up Methods

Mr A works at PT ABC and receives a monthly salary of Rp10.000.000 Mr. A does not receive a bonus or THR (Religious Holiday Allowance) and has no contributions or fees. His marital status is married with one child.

Calculation of January-November Tax Period:

• Monthly Gross Income: Rp10.000.000
• PPh 21 Monthly TER (TER B): 1.5% x Rp10.000.000= Rp150.000

Gross Method:

• Money received by employees: Rp10.000.000– Rp150.000= Rp9.850.000
• Tax of Rp150.000 is borne by the employee.
• Gross method accounting journal (Jan-Nov 2024):

Net Method:

• The money received by permanent employees is Rp 10.000.000.
• Tax of Rp150.000 is borne by the company. but cannot be recognized as an expense in calculating Corporate Income Tax and must be corrected fiscally.
• Net method accounting journal (Jan-Nov 2024):

Gross-Up Method:

• The money received by permanent employees is Rp10.000.000.
• Using the Gross-Up method, PPh 21 allowance is calculated as follows:

• Gross income received by employees (including PPh 21 allowance): Rp10.000.000 + Rp152.284 = Rp10.152.284.
• Tax amounting to Rp152.284 is borne by the company and can be recognized as an expense in calculating corporate income tax.
• Gross-Up method accounting journal (Jan-Nov 2024):

December Tax Period Calculation

Gross Method:

• Money received by employees: Rp10.000.000 – Rp900.000 = Rp9.100.000
• Tax of Rp900.000 is borne by the employee.
• Gross method accounting journal (Dec 2024):

Net Method:

• The money received by permanent employees is Rp10.000.000.
• Tax amounting to Rp900.000 is borne by the company. but cannot be recognized as an expense in calculating Corporate Income Tax and must be corrected fiscally.
• Net method accounting journal (Dec 2024):

Gross-Up Method:

• The money received by permanent employees is Rp10.000.000.
• The Taxpayer's Taxable Income (PKP) is Rp51.000.000 so that in Gross-Up method formula it falls into the PKP range of Rp0 - Rp57.000.000.
• PPh 21 allowance is calculated as follows:

• Income Tax 21 Allowance for December Period: Rp2.684.211 - Rp1.650.000 = Rp 1.034.211
• Gross income received by employees (including allowances): Rp10.000.000 + Rp1.034.211 = Rp11.034.211
• Tax amounting to Rp1.034.211 is borne by the company and can be recognized as an expense in calculating Corporate Income Tax.
• Gross-Up method accounting journal (Dec 2024):

The three methods for calculating PPh 21, namely Net, Gross and Gross-Up Methods. each have advantages and disadvantages that companies need to consider. The Gross Method shifts the tax burden entirely to employees while Net Method allows the company to bear the tax but cannot be charged as an expense in calculating Corporate Income Tax. The Gross-Up method offers a solution where the company bears the tax but can still recognize these costs in the Corporate Income Tax Calculation.

Selecting the appropriate method will depend on company policy. compensation structure. and broader tax considerations. Therefore. it is important for entrepreneurs and tax teams to understand the implications of each method and choose the one that best suits the company's needs.

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