Your Employer Pays Your Tax? That Is a Perquisite — Here Is How It Is Calculated

Introduction

In some employment contracts, the employer agrees to pay the employee's income tax — for example a "net salary" offer. Many employees assume that tax paid by the employer is not their income. But under Malaysian tax law, that is not the case.

When your employer pays your income tax, the amount of tax borne is regarded as a perquisite (benefit) to you and is subject to tax under s.13(1)(a) of the Income Tax Act 1967 (ACP). This article explains this tax treatment and its calculation principle based on HASiL's Public Ruling No. 3/2024 (PR 3/2024).

Basic principle: employer-paid tax is a perquisite

• If the employer agrees to pay the employee's income tax, the amount of tax borne is regarded as a perquisite to the employee and is subject to tax under s.13(1)(a) ACP — PR 3/2024; Notes for Form B.
• An agreement by the employer to pay the tax does not relieve the employee of tax liability on the amount borne — PR 3/2024.
• If the employer pays only part of the employee's tax, only the portion borne by the employer is a perquisite — PR 3/2024.

How it is calculated (gross-up)

Because the tax borne by the employer becomes a taxable perquisite, the calculation involves a gross-up process (increasing the amount so that the tax on the perquisite itself is taken into account). Public Ruling No. 3/2024 provides a step-by-step calculation, including:

• Step 2 — final calculation to determine the actual amount of tax payable including tax on the final amount of tax borne by the employer.

Forms involved

• Form BE: item D4 (Tax borne by employer) — BE Notes eBE2026.
• The calculation is made on Working Sheet HK-2.3 / Appendix B2 — BE Notes eBE2026; Notes for Form B.

Why this matters to you

• If you are evaluating a "net salary" job offer, be aware that employer-borne tax adds to your income for tax purposes.
• Employers also need to take this implication into account when calculating PCB/MTD and reporting in Form E/EA.
• Seek professional advice for an accurate calculation for your situation.

Frequently Asked Questions (FAQ)

Q. Does tax paid by my employer need to be reported by me? A. Yes — it is regarded as a perquisite under s.13(1)(a) ACP and is subject to tax. In Form BE, item D4 (Tax borne by employer) is relevant.

Q. What if my employer pays only part of my tax? A. Only the portion borne by the employer is regarded as a perquisite — PR 3/2024.

Q. Does an agreement by my employer to pay the tax release me from liability? A. No. The agreement does not release the employee from tax liability on the amount borne — PR 3/2024.

Glossary

• Perquisite — a benefit received in connection with employment that can be subject to tax (s.13(1)(a)).
• Gross-up — a calculation that increases an amount so that the tax on that amount itself is taken into account.
• ACP — Income Tax Act 1967 (Act 53).
• PCB/MTD — Monthly Tax Deduction (Potongan Cukai Bulanan).
• HK-2.3 — working sheet for the calculation in Form BE.