Private Employee Holiday Allowance Subject to Tax: Here's How It's Calculated

Jakarta — The Minister of Labour has reminded companies and employers to pay the annual holiday allowance (THR) to private sector workers in accordance with applicable regulations, at the latest seven days before Eid al-Fitr.

“The mandatory timeframe is indeed seven days before the holiday. We will wait and are currently coordinating with the State Secretariat; it will be announced jointly,” the minister stated at the Labour Ministry office in South Jakarta on Wednesday, 25 February 2026.

Accordingly, the disbursement period is estimated to commence between 11-12 March 2026. This timing represents the most anticipated moment for Indonesian workers ahead of the Eid holiday. However, it is important to note that THR is also subject to tax obligations.

According to the Regulation of the Director General of Tax Number PER-16/PJ/2016 concerning Technical Guidelines for Tax Withholding, Payment, and Reporting of Income Tax Articles 21 and/or 26 Related to Employment, Services, and Individual Activities, THR falls within the category of irregular income that is subject to income tax (PPh) Article 21.

THR is categorised as additional income that is non-routine in nature, so its withholding refers to PPh 21 rates that differ from the regular monthly income received by permanent employees. “This system aims to provide simplification of tax calculation within a specific month,” explained a tax official from the Directorate General of Tax.

Previously, tax on THR was calculated using a method of cumulative gross income subjected to progressive rates. However, this method often resulted in inequities because THR received in a single month could significantly increase taxable income. With the new effective tax rate (TER) scheme based on Finance Ministry Regulation Number 168 of 2023, the tax imposed is more even and reflects an individual’s actual annual income.

“TER is calculated based on the employee’s annual income, so the tax withheld on THR becomes more proportional compared to the previous method,” explained Yolanda Permata Yanra, an official from the Directorate General of Tax. This latest regulation also ensures that workers with lower income are not burdened with excessive tax merely due to the additional THR.

To understand how to calculate THR tax using the TER method, consider a concrete example. If a worker with a monthly salary of Rp5 million receives THR equal to one month’s salary in March 2025, and is married with no dependents, the calculation steps are as follows:

First, determine the effective monthly tax rate category. Based on Government Regulation 58/2023, the worker falls into TER Monthly Category A with a personal income tax non-taxable amount for married individuals with no dependents.

Next, apply the effective average rate. Based on the TER Monthly Category A rate, with total income of Rp10 million in March, the income range of Rp9,650,001 to Rp10,050,000 is subject to an effective rate of 2%.

The tax withholding on THR would therefore be 2% × Rp10 million = Rp200,000. This amount will be directly deducted from the salary and THR received in March, leaving the worker with net income of Rp9,800,000.

At the end of the year, the income earned throughout 2025 will be recalculated using the progressive rates under Article 17 of Law Number 7 of 1983 on Income Tax, as amended most recently by Law Number 7 of 2021 on Harmonisation of Tax Regulations.

THR received by employees is automatically subject to tax withholding by the employer through the PPh 21 mechanism. However, taxpayers with additional income or income from multiple employers remain obligated to report all income in their Annual Tax Return (SPT).

Employees must ensure that the income reported in the SPT matches the Tax Withholding Certificate 1721-A1 provided by the company, or Certificate 1721-A2 for civil servants, military, and police personnel. This ensures there is no discrepancy between the income received and the tax withheld.