The Bonus PCB calculation was one of the most difficult part of writing the payroll software. We recommend using a software as everything is fast and easy as all the calculations are automatic, but there are many who still need do this manually.
This detailed article shows you step by step how to do the PCB calculation without using a software or the Online PCB calculator.
We have a lot of traffic for this post as manual bonus calculation is quite complicated. We have designed an Excel sheet to simplify the task of doing the Bonus PCB calculation. It makes the calculations much easier. Please read Manual PCB calculation Variation 1 first before using it.
You can download an Excel template to do “Bonus calculations based on Variation 1” at the following link.
You can also download the trial version to do the Bonus calculations using manual mode.
To download a Trial version of Actpay, go to following page.
Check following page to see how to set manual mode : http://actpayroll.com/kb/payroll-default-values-screen/
In our our research on PCB calculation using the MTD schedule, we found conflicting explanations online on how to calculate Bonus PCB. Over the years, the rules for calculating additional income has also changed. Most of the examples available are actually out of date.
Taking into account how the MTD Schedule is derived and the difference results between manual and computerized income tax calculations we have come up with 3 methods for calculating Bonus PCB and have provided a detailed explanation on the reason for the differing results.
Calculating PCB for bonus and additional income is quite difficult because of the complex calculations required. We haven’t yet found a simple example and explanation of this process online or offline. Below we will attempt to give a simple and step by step explanation that hopefully everyone is able to understand.
This calculation method for bonus applies to all additional income including adhoc commission or other income. Below we outline 3 ways calculate the PCB for bonus without using a computer software. All the methods shown below will give valid results, although the answer will differ slightly for each method.
The basic principle of PCB calculation is to extrapolate the monthly wage over 12 months to arrive at the best possible estimate of the the annual wage.
Both the computerized and manual calculations are geared towards a best guess of what the total wage will be at the end of the year.
Calculating PCB using the MTD Schedule provided by LHDN is based on the principal of taking each months wages in isolation. Therefore accumulated (YTD) wages and PCB do not come into play. In computerized PCB calculation, the actual Year to date figures are used to come at a more accurate computation of PCB.
If you have any queries, please leave a comment below.
Manual PCB calculation Variation 1
This is the example is based on the most common example of PCB calculation for bonus found online. It is similar to the example found on the LHDN examples for 2008 bonus calculations, found at : http://www.hasil.gov.my/goindex.php?kump=5&skum=3&posi=1&unit=5100&sequ=7
For these examples, we have made some changes to make it easier to follow.
Employee details :
- Employee (Married) and wife working
- 2 children entitled for deduction
- Monthly salary of RM4,000
- Bonus of RM8,000
CATEGORY 3 (KA2)
|PCB from table (KA2)||19.65|
|Maximum allowed EPF deduction per month is RM500|
|Balance EPF deductable (500 - 440)||60.00|
|Taxable Bonus Income (8000 - 60)||7,940.00|
|Monthly estimated salary with bonus|
|Basic + (Taxable Bonus)/12|
|3560 + (7940 / 12)||4,221.67|
|PCB for 4,221.67 from table (KA2)||97.50
|Tax difference with and without bonus|
|Total PCB - Basic PCB (97.50 - 19.65)||77.85|
|PCB for Bonus = Extra PCB x 12 (77.85 x 12)||934.20|
|Total PCB for month (934.20 + 19.65)||953.85|
Manual PCB calculation Variation 2
The official PCB 2014 calculation example for LHDN does not use the MTD schedule for the bonus income. Instead of using the MTD schedule to calculate the final value, it uses the actual income tax formula table.
The original example can be found in this document : http://www.hasil.gov.my/pdf/pdfam/MTDNotes2014.pdf
Step 1 – MTD from schedule
MTD for current month = RM19.65 (Schedule of MTD2016)
Total MTD for a year = [RM19.65 x 12 month] = RM235.80
Step 2 – Use formula to calculate P
Yt1 and Kt1 are not applicable as accumulated (YTD) values are not used in manual calculations.
Yt = additional income and Kt = EPF deducted for additional income.
Unfortunately the example found in the MTDNotes2014.pdf is misleading with respect to the EPF deductable. In that example, the full value of Kt is included. This is possible because 396 x 12 + 396 x 2 = 5544 is less than 5544.
In this example, 440 x 12 + 440 x 2 = 6160 which is greater than 6000. Taking into account the possibility of increment and/or other income during the rest of the year, it is better to play safe and limit the monthly EPF deducted to 500. Therefore Kt will be 500-440 = 60 as in the previous example. Where the basic salary is much lower, for example 3,500 (385 x 12=4620) or less, it should be alright for Kt to be 880 or even higher.
D = personal deduction = 9,000
S = spouse deduction = 0 because spouse is working, else it is RM4,000 this year (3,000 in 2014/2015)
Q = no. of children, C = deduction per child = 2,000. Deduction per child was 1,000 in 2014/2015.
P = [(Y – K) x 12] + [Σ(Yt1 – Kt1)] + (Yt – Kt) – (D + S + QC)
= [(RM4,000–RM440) x 12] + [RM0.00 – RM0.00] +[RM8,000 – RM60]
– [RM9,000 + RM0.00 + RM4,000]
= RM42,720 + RM7,940 – RM13,000
(D = personal deduction 9000, S = spouse, C = No. of Children = 2 x 2000)
Step 3 – Calculate Total Tax
Total tax for a year = [(P – M) R + B]
= [(RM37,660 – RM35,000) x 10% + RM900]
= RM2,660 x 10% + RM900
= RM266.00 + RM900
P, M, R and B are derived from the Income tax table, based on P = (35,000 – 50,000)
Step 4 – MTD for additional Remuneration
Bonus PCB = RM1,166.00 – RM235.80 = RM 930.20
Annual (MTD with bonus – MTD of basic)
Step 5 – MTD for current month
= RM19.65 + RM 930.20
Note that the difference in value is only RM4.00. This difference is due to rounding of “errors” as the MTD schedule values are rounded to the nearest RM5.
Using Online PCB Income Tax Calculator
There are 2 options in using the online PCB calculator:
- PREVIOUSLY EMPLOYED IN CURRENT YEAR
- PREVIOUSLY NOT EMPLOYED IN CURRENT YEAR
If you are using MTD schedule for your monthly PCB calculations, use “PREVIOUSLY NOT EMPLOYED IN CURRENT YEAR”. There are 2 reasons for this.
- You do not have to enter Y-T-D information
- This will simulate the MTD Schedule values, because it does not take into account Y-T-D information.
Using Values :
Using Values :
Basic : 4000, EPF 440
Bonus : 4000, EPF 60 ( Limit total EPF to 500. Same issues as faced in the 2 earlier variations apply here also. )
Using the Online PCB Calculator the value obtained for month = 949.75
The MTD of bonus (additional income) = 930.08 => 930.10
Additional Notes : Simulating MTD Schedule using the Online PCB Income Tax Calculator
The MTD Schedule can be simulated using the Online PCB Calculator, using the “PREVIOUSLY NOT EMPLOYED IN CURRENT YEAR” option.
Results from MTD Schedule :
MTD for 3560 = 19.65*
MTD for 4221.67 = 97.50
Results from PCB Online Income Tax Calculator :
MTD for 3560 = 19.70*
MTD for 4221.67 = 97.20
MTD for 4225.00 = 97.50
Discrepancy between MTD Schedule and PCB Online Calulator
*Due to the Online PCB calculator rounding up to nearest 0.05, while the MTD schedule rounding to the nearest 0.05, the value from the online calculator will be RM0.05 higher quite often.
The actual MTD result for 3560 is 19.66
The MTD schedule, rounds down to 19.65, while the PCB Online Calculator rounds it up to 19.70.
**The MTD schedule values can be simulated by rounding up the amount to the nearest upper RM5.
e.g. 4221.67 is rounded up to 4225.00, rounded up to the nearest RM5.
As can be seen the values obtained using the Online PCB Calculator with the amount rounded to the nearest RM5, the values obtained are the same as the MTD schedule with a variance of 0.05 in some cases
Using the right EPF values for PCB calculations
It is important to use the right EPF values for PCB calculations. It is recommended that the 500 EPF limit be used when the MTD schedule is used especially if the salary is close to RM4,000. This is because if there are additional bonus, commission or an increase in salary in the future, the monthly calculations EPF may exceed the annual 6000 limit.
To avoid this error it will be necessary to track the YTD EPF values which means additional work.
In conclusion, it has to be noted that there are multiple ways to calculate PCB and some of the methods can be quite tedious. Considering the work involved and the high chance of errors in the calculation, it is recommended that the calculations be done very carefully. To avoid errors it is recommended that a payroll software be used.
The most common mistake in bonus calculations is the not including the basic salary and monthly allowances while calculating bonus. The bonus PCB is the PCB on the amount additional to the monthly gross income.
Although we have tried to make the example as simple as possible, it may still be quite difficult to understand. If you have any questions, please post a comment here or ask a question under “Q&A” and we will try our best to answer.
The following article explains the differences between paying Bonus separately and paying bonus together with the basic pay.
The following article explains how bonus calculations are done in Actpay