Bonus Tax Dynamics: PPh 21 Calculation and Corporate Expense Charging Strategies

Annual bonuses, gratuities, production bonuses, and Holiday Allowances (THR) are categorized as Irregular Income. Since the implementation of the new regulations in 2024, the tax calculation on bonuses for employees has been significantly simplified using the Average Effective Rate (TER) method, but the treatment of these expenses in the company's fiscal financial statements varies crucially.

This article discusses the latest PPh 21 calculation mechanism for bonuses and the Corporate Income Tax (CIT) implications based on the source and charging method.

1. New Mechanism: PPh 21 Calculation on Bonus with TER

Based on Government Regulation (PP) No. 58 of 2023 and Minister of Finance Regulation (PMK) No. 168 of 2023, the PPh 21 calculation for tax periods other than the last tax period (January–November) no longer separates regular income (salary) and irregular income (bonus) in the calculation process.

All gross income received in one month is aggregated, then multiplied by the TER rate according to the PTKP status category (A, B, or C).

Later, in December, the total annual income will be recalculated using the Article 17 rate (General Rate) to determine the actual tax liability, and the taxes withheld each month (including tax on the bonus) will serve as a deduction (tax credit).

2. Variations in Corporate Expense Charging

A crucial aspect for companies is whether the bonus can be deducted from the company's gross income (Deductible Expense) or not (Non-Deductible). This depends on how the bonus is charged.

Scenario A: Bonus Charged as Operational Expense (Deductible)

This is the standard scenario. Bonuses, gratuities, and production services given to employees, directors, and commissioners are charged as salary/allowance expenses in the current year's profit and loss statement.

• CIT Aspect: These bonus costs are fully deductible because they are costs to obtain, collect, and maintain income (3M), in accordance with Article 6 of the Income Tax Law.
• PPh 21 Aspect: Employees are withheld PPh 21 on the bonus as income.

Scenario B: Bonus/Tantiem from Retained Earnings (Non-Deductible)

Often, companies provide "Tantiem" or bonuses to Directors/Commissioners and Employees where the distribution is taken from Retained Earnings or charged directly to the previous year's after-tax profit balance.

• CIT Aspect: This payment is considered a distribution of profit (dividend), not an operational expense. Therefore, this type of bonus cannot be expensed (Non-Deductible Expense) in calculating Corporate Income Tax.
• PPh 21 Aspect: For recipients (management/employees), the money is still income subject to PPh Article 21. However, for shareholders receiving it, it is treated as a dividend (dividend tax object).

Scenario C: Bonus with Tax Borne by Company (Benefit in Kind)

In this scenario, the company gives a "net" bonus to the employee, where the company bears/pays the tax without using the gross-up method (tax allowance) in the payslip.

Conclusion

Companies must be careful in recording bonus charges. If the bonus is charged as a current year operational expense, it is deductible. However, if the bonus (tantiem) is taken from the retained earnings balance, it is non-deductible (fiscal correction). Furthermore, with the enactment of the Benefit in Kind regulations, bonus taxes borne by the company are now tax objects for employees but can be deductible expenses for the company.

Regulatory References:

1. Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP).
2. Government Regulation Number 58 of 2023 concerning Article 21 Income Tax Withholding Rates on Income in Connection with Work, Services, or Activities of Individual Taxpayers.
3. Minister of Finance Regulation Number 168 of 2023 concerning Implementing Guidelines for Withholding Tax on Income in Connection with Work, Services, or Activities of Individual Taxpayers.
4. Minister of Finance Regulation Number 66 of 2023 concerning Income Tax Treatment on Reimbursement or Compensation in Connection with Work or Services Received or Obtained in the Form of In-Kind and/or Benefits.
5. Circular of the Director General of Taxes Number SE-16/PJ.44/1992 concerning Distribution of Bonuses, Gratuities, Production Services, and Tantiem.
6. Circular of the Director General of Taxes Number SE-11/PJ.42/1992 concerning Distribution of Bonuses, Gratuities, Production Services, and Tantiem Calculated Based on Last Year's After-Tax Profit.
7. FAQ PMK 66 of 2023 (Directorate General of Taxes).