How Income Taxes Work

There is a very famous saying that the only things that are certain are death and taxes. You would understand the truth that is contained in the statement when you say that death is certain but what about taxes? Is it really true that you are always meant to pay taxes during your whole life? Well, if you want the straight answer, it's a resounding "Yes!"

Of course, you could argue that you probably won't have any problem cheating taxes in the same way that you could cheat death maybe once in your life. But when you do get caught evading your taxes, you do end up in a place you don't want to be for the rest of your natural born life.

So, as a professional, it's well-established that you have to pay your taxes or else you won't be able to work properly. This is because most of the companies that you will be working for directly subtract your taxes from your pay at the end of each week or month. This particular method of tax collection is PAYE which stands for "Pay As You Earn".

The reason why you should be contributing a part of your pay as taxes is that you give the government part of what you earn as contribution for being part of a developed economy. The benefits that people enjoy are transport, health, education and the like. The point is, the more you earn, the more taxes you pay.

The amount that is deducted from you as part of your taxes is directly shown on your payslip and it represents the amount of money that goes to the government. Everything is done transparently and most, if not all, companies will be happy to explain to you why your monthly salary was deducted by that specific amount.

There are tax codes and allowances however. These are provisions that allow your salary to be so-called "un-taxable" unless it reaches a specific level. The amount that  you can essentially earn tax-free is what you call your "tax allowance" this particular value often changes depending on the government tax policies that are in place at that time as well as other factors.

Other reasons why your tax allowance could be higher or lower will vary perhaps because of your age or marital status. For most people, there is a set allowance.

If you will be earning anything beyond that particular tax allowance, then that is the time that your salary will be then deducted the necessary percentage of tax. This changes with the amount of money that you earn. For example, let's say, for argument's sake, that your tax allowance is $2,000. Then anything that you earn below or equal to P2,000 is not taxable.

However, if you do get promoted and then your salary increases from $2,000 to $2,800, then that next $800 will be taxed at around 10%. If it increases, even more as the years go by then the percentage of tax will be much higher.