How to understand your Malaysian payslip: What taxes are deducted from your salary?

If you’re a new employee or simply trying to make sense of your payslip in Malaysia, you’ll see a few standard deductions. These aren’t just random fees; they’re mandatory contributions that fund your future retirement, provide a safety net, and cover your income tax obligations.

For any full-time employee in the private sector, there are three main statutory deductions:

• Monthly Tax Deduction (MTD) or Potongan Cukai Bulanan (PCB)
• Employees Provident Fund (EPF) or Kumpulan Wang Simpanan Pekerja (KWSP)
• Social Security Organization (SOCSO) and Employment Insurance System (EIS)

Let’s dive into the details of how each one works, how to calculate them, and why they’re important.

1. Monthly Tax Deduction (MTD) / PCB

This is your income tax. Malaysia uses a progressive tax system, meaning the more you earn, the higher your tax rate. Your employer deducts this amount from your salary each month and pays it to the Inland Revenue Board of Malaysia (LHDN). This system, also known as PCB, prevents you from having to pay a large tax bill at the end of the year.

How is MTD/PCB calculated?

The calculation is based on your chargeable income, not your gross salary. Your chargeable income is your total annual income after deducting a range of tax reliefs and exemptions. These can include:

• Personal Relief: A standard deduction for every taxpayer.
• EPF contributions: Your annual EPF contributions are tax-deductible.
• Lifestyle reliefs: Deductions for expenses like books, sports equipment, and gym memberships.
• Spouse and child reliefs: If applicable, you can claim reliefs for your family.

You can use the official LHDN PCB calculator to get a precise estimate.

Example: Calculating MTD/PCB

Let’s say a single employee, Ahmad, earns a gross monthly salary of RM5,000.

• Annual Gross Income: RM5,000 x 12 = RM60,000
• EPF Contribution (11%): RM550 x 12 = RM6,600
• Personal Relief: RM9,000
• Chargeable Income: RM60,000 – RM6,600 – RM9,000 = RM44,400

Based on the tax brackets, a portion of this chargeable income will be taxed at different rates.

2. Employees Provident Fund (EPF) / KWSP

The EPF is a compulsory retirement savings fund for private-sector employees. Both you and your employer contribute to this fund, which is then invested to grow your savings for when you retire.

How to calculate EPF contributions:

The rates depend on your monthly salary and age. For most employees under 60, the rates are:

• Employee contribution: 11% of your monthly salary.
• Employer contribution: 13% for employees earning RM5,000 and below, or 12% for those earning above RM5,000.

Example: How EPF works

• If your monthly salary is RM4,000:
  • Your contribution: RM4,000 x 11% = RM440
  • Employer’s contribution: RM4,000 x 13% = RM520
  • Total contributed to your account: RM960
• If your monthly salary is RM6,000:
  • Your contribution: RM6,000 x 11% = RM660
  • Employer’s contribution: RM6,000 x 12% = RM720
  • Total contributed to your account: RM1,380

3. Social Security Organization (SOCSO) and Employment Insurance System (EIS)

SOCSO is a social security scheme that protects employees against workplace accidents, occupational diseases, invalidity, and death. It’s a vital safety net for every worker.

How to calculate SOCSO and EIS:

Contributions for both SOCSO and EIS are based on your monthly wages, up to a wage ceiling of RM6,000 (effective from October 1, 2024).

• SOCSO: The employee contributes 0.5% and the employer contributes 1.75% of your monthly wages.
• EIS: Both the employer and employee contribute 0.2% of your monthly wages.

Example: SOCSO and EIS deductions

• If your monthly salary is RM4,000:
  • SOCSO (employee): RM4,000 x 0.5% = RM20
  • EIS (employee): RM4,000 x 0.2% = RM8
  • Total deductions: RM28
• If your monthly salary is RM7,000, your contributions are capped at the RM6,000 wage ceiling:
  • SOCSO (employee): RM6,000 x 0.5% = RM30
  • EIS (employee): RM6,000 x 0.2% = RM12
  • Total deductions: RM42

These deductions are essential for ensuring a secure financial future and providing peace of mind. To manage your finances effectively, it’s crucial to understand what these deductions are and what they provide.

Frequently Asked Questions (FAQs)

1. How can I check my tax and contribution details in Malaysia?

You can check your EPF, SOCSO, and EIS contributions by using their respective online portals and mobile apps, such as i-Akaun for EPF and My Account for SOCSO/EIS. For income tax, you can use the LHDN MyTax portal to review your MTD/PCB payments.

2. What is the minimum salary to be taxed in Malaysia?

An individual is only required to pay income tax if their annual chargeable income (after reliefs and deductions) exceeds the taxable threshold. Generally, if your annual income after EPF deductions is more than RM34,000, you’ll likely have to pay MTD/PCB.

3. What is the difference between MTD/PCB and my annual tax return?

MTD/PCB is the monthly deduction by your employer, an estimate to spread out your tax payments. Your annual tax return (e-Filing) is where you calculate your final tax liability for the year, claim all eligible reliefs, and either pay any remaining tax or receive a refund if you overpaid.

4. Can I voluntarily contribute more to EPF?

Yes, you can make voluntary contributions to your EPF account to boost your retirement savings. These voluntary contributions also qualify for tax relief, allowing you to save more for retirement while potentially reducing your tax bill.

5. Is there a way to reduce my MTD/PCB?

You can’t change the calculation method, but you can reduce your overall tax liability by maximizing your tax reliefs and deductions. This includes reliefs for lifestyle expenses, medical check-ups, insurance premiums, and more. Keeping good records of these expenses is key.

6. What happens if my employer doesn’t deduct these taxes?

It’s a serious offense. Employers are legally obligated to deduct and remit these contributions on time. Failure to do so can result in penalties, fines, or legal action from the relevant government bodies like LHDN and EPF.

7. Are foreign workers in Malaysia subject to the same taxes?

Foreign workers in Malaysia are subject to income tax and SOCSO contributions. Their EPF contributions can be different, often with a flat rate for employers. Non-residents are typically taxed at a flat rate of 30% on all income earned in Malaysia.