In general, companies can choose 3 alternatives for withholding Income Tax Article 21 (PPh 21) for employees, namely borne by the company, gross up, or borne by the employee. Differences in alternative selection result in differences in the amount of take home pay received by employees.

If PPh 21 is borne by the company, then the take home pay received by employees is intact without any reduction in PPh 21. However, with the issuance of regulation PMK 66 of 2023 which has been in effect since July 2023, it has been explained that the tax borne by the company is in kind. This must be added to the Income Addition component, in this case what is meant is Gross Income. Thus, since the enactment of PMK 66 of 2023, only 2 methods are permitted for calculating Income Tax Article 21, namely:

1. Borne by employee 
2. Gross up

Furthermore, if PPh 21 is borne by the employee, the take home pay received by the employee will be reduced by the amount of PPh 21 deducted by the company. Meanwhile, for the gross up PPh 21 alternative, the company will provide a tax allowance equal to the amount of PPh 21 employees. Thus, the total income calculation received by the employee will increase by PPh 21 which is deducted by the company, but the take home pay received by the employee is intact (without addition or deduction to PPh 21).

TER Provisions of PPh 21

Starting from the January 2024 tax period, all PPh 21 deductions are carried out on the basis of the provisions of PMK Number 168 of 2023. These provisions regulate the existence of a new scheme for calculating PPh 21 for employees, namely using the average effective rate (TER).

TER itself consists of a monthly effective rate and a daily effective rate. The effective monthly tariff is divided into 3 categories based on the Non-Taxable Income (PTKP) status of each Taxpayer, while the tariff layers in each category are determined based on the amount of gross income. Furthermore, the effective daily rate is divided into 2 tariff layers which are determined based on the amount of daily gross income.

Also read: Calculating PPh 21 Using TER

The application of TER in calculating PPh 21 is quite easy. PPh 21 payable is calculated by multiplying the TER by the gross income received by the employee in the month concerned.

Challenges in Using Monthly TER in Calculating Gross Up PPh 21

There are at least 40 tariff layers in each monthly TER category. Category A monthly TER consists of 44 tariff layers, category B monthly TER consists of 40 tariff layers, and category C monthly TER consists of 41 tariff layers. Each tariff layer has varying gross income limit intervals.

When compared with the tariff layers of Article 17 paragraph (1) letter a of the Income Tax Law, the range of monthly TER layers tends to be narrower. This is a challenge that needs to be considered by companies that use the gross up PPh 21 alternative. The reason is that the amount of the gross up PPh 21 calculation which is  part of the employee's income can changes the monthly TER layer. For this reason, companies must be careful in paying attention to the limits of each tariff layer when calculating PPh 21 benefits for employees. The potential for changes in tariff layers can also be used as a consideration for companies in choosing alternative PPh 21 deductions.

Example:

Mr R is a permanent employee who works for the company PT ABC. The salary for January 2024 that Mr R will receive is IDR 10,000,000. Mr R is married and has no dependents (PTKP K/0).

Based on the data above, Mr R falls into category A (TER A). Based on the size of Mr. R's salary in January 2024, the tariff layer imposed on Mr. R in the January 2024 tax period is TER A layer number 9, which is 2% for gross income between IDR 9,650,001 to IDR 10,050,000.

The calculation of PPh 21 for the period January 2024 is as follows:

PPh 21 is Borne by The Company

PPh 21 = Gross Income x Monthly TER

PPh 21 = IDR 10,000,000 x 2%

PPh 21 = IDR 200,000

However, it should be noted that PPh 21 of Rp. 200,000 is also an object of PPh 21 and is part of the employee's gross income, so Mr. R's gross income is Rp. 10,200,000.

However, the total gross income exceeds the upper limit of TER A layer number 9, namely IDR 10,050,000. Thus, Mr. R must use TER A layer number 10, namely 2.25% for gross income between IDR 10,050,001 to IDR 10,350,000.

The recalculation of PPh 21 payable under the company-borne scheme is:

PPh 21 = (Gross Income plus PPh 21 borne by the company) x Monthly TER

PPh 21 = (Rp. 10,000,000 + Rp. 200,000) x 2.25%

PPh 21 = IDR 229,500

Using the alternative PPh 21 borne by the company, Mr. R's take home pay amount for January 2024 is IDR 10,000,000. Mr. R's PPh 21 amounting to IDR 229,500 will be a company expense that can be recognized fiscally for the company.

PPh 21 is Borne by Employees

PPh 21 = Gross Income x Monthly TER

PPh 21 = IDR 10,000,000 x 2%

PPh 21 = IDR 200,000

Using the alternative PPh 21 borne by employees, Mr. R's take home pay amount for January 2024 is IDR 9,800,000. This amount was obtained from salary reductions with PPh 21 borne by employees (Rp. 10,000,000 - Rp. 200,000).

Gross Up PPh 21 

PPh 21 allowance = (Gross income before additional PPh 21 allowance) x 2/98

PPh 21 allowance = IDR 10,000,000 x 2/98

PPh 21 allowance = IDR 204,081.63

Based on the calculation above, Mr. R's total gross income for January 2024 is IDR 10,204,081.63. This amount was obtained from the sum of salaries with gross up PPh 21 (Rp. 10,000,000 + Rp. 204,081.63).

However, the total gross income exceeds the upper limit of TER A layer number 9, namely IDR 10,050,000. Thus, Mr. R must use TER A layer number 10, namely 2.25% for gross income between IDR 10,050,001 to IDR 10,350,000.

Using TER A layer number 10, the calculation of gross up PPh 21 becomes:

PPh 21 allowance = (Gross income before additional PPh 21 allowance) x 2.25/97.75

PPh 21 allowance = IDR 10,000,000 x 2.25/97.75

PPh 21 allowance = IDR 230,179.03

Mr. R's total gross income for January 2024 is IDR 10,230,179.03. This amount is obtained from the sum of salaries with gross up PPh 21 (Rp. 10,000,000 + Rp. 230,179.03).

Thus, the calculation of PPh 21 using the TER scheme is:

PPh 21 = Gross Income x Monthly TER

PPh 21 = IDR 10,230,179.03 x 2.25%

PPh 21 = IDR 230,179.03

Using the gross up PPh 21 alternative, Mr. R's take home pay amount for January 2024 is IDR 10,000,000. Mr. R's PPh 21 amounting to IDR 230,179.03 will be a company expense that can be recognized fiscally for the company.

These calculations can also be detailed as follows:

Wages	Rp10,000,000.00
PPh allowance	Rp230,179.03
Gross Income: Salary + Income Tax Allowance	Rp10,230,179.03
TER	2.25%
PPh 21: Gross Income x TER	Rp230,179.03

Tax Calculator

To make calculating income tax and VAT easier, the Directorate General of Taxes (DJP) has issued a web-based system called a tax calculator. Through a tax calculator, taxpayers can easily calculate the amount of tax owed. To use the tax calculator, please visit the following page https://kalkulator.pajak.go.id/.

In relation to PPh 21, the tax calculator has accommodated the calculation of PPh 21 with a monthly TER scheme for permanent employees and periodic pension recipients. Apart from that, the tax calculator also has a feature that allows taxpayers to calculate PPh 21 with alternative deductions gross (borne by employees) or gross up.

If the company uses the alternative of withholding PPh 21 borne by the company, then the company can choose the gross calculation scheme and fill in the gross income column equal to gross income plus PPh 21 borne by the company in the tax calculator.

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