Panama Payroll Income Tax Brackets 2026

Up to B/.11,000 per year: 0% (exempt)

B/.11,001 to B/.50,000 per year: 15% on the excess

Above B/.50,000 per year: 25% on the excess (plus the 15% from the prior bracket)

Taxable base: annual gross (salary x 12 + Decimo) minus employee CSS (9.75% on salary). Decimo and Prima de Antiguedad have special treatment.

Legal framework: Panama Tax Code, DGI Panama.

How monthly ISR withholding is calculated

Panama payroll ISR is computed with progressive brackets on the annual taxable base. The monthly withholding is 1/12 of the estimated annual ISR, adjusted at year-end when actual income is known.

Calculation steps

  1. Annualize the salary: monthly x 12
  2. Add the estimated 13th-month bonus (one monthly salary)
  3. Subtract employee CSS: 9.75% on salary (not on Decimo, which has a different CSS rate)
  4. Apply the progressive brackets to the result
  5. Divide the annual ISR by 12 for the monthly withholding

Worked example

Employee with B/.2,500 monthly salary

Annualized salary = B/.2,500 x 12 = B/.30,000
Estimated Decimo = B/.2,500
Annual gross income = B/.32,500

Employee CSS (9.75% x B/.30,000) = B/.2,925
Annual taxable base = B/.32,500 - B/.2,925 = B/.29,575

ISR bracket 1 (0% on first B/.11,000) = B/.0
ISR bracket 2 (15% x (B/.29,575 - B/.11,000)) = B/.2,786.25
Total annual ISR = B/.2,786.25

Estimated monthly withholding = B/.2,786.25 / 12 = B/.232.19

Personal deductions that reduce ISR

Estimated ISR can be reduced significantly with legally permitted deductions:

  • Spouse: deduction if the spouse has no income
  • Dependents: deduction for minor children or disabled dependents
  • Donations: to authorized entities
  • Mortgage interest: on the primary residence
  • Medical expenses: own and dependents, with receipts
  • Education: tuition and monthly fees for children
  • Private pension funds: contributions to authorized plans

This calculator does NOT include deductions - it generates base ISR. For personalized calculations consult a Panamanian accountant or use the DGI's e-Tax 2.0 portal.

The 13th-month bonus and ISR

The Decimo pays ISR using the marginal-bracket method to avoid artificial jumps: salary + Decimo are annualized, total ISR is calculated, and the month's withholding is adjusted when the Decimo is paid. Prima de Antiguedad is exempt from ISR up to the legal limit.

Common ISR withholding mistakes

  • Not including the Decimo in the annual calculation. Annualizing only the salary underestimates the taxable base.
  • Subtracting CSS incorrectly. CSS applies to salary (9.75%), not to Decimo (which has 7.25%).
  • Not updating brackets with annual changes. Verify current brackets with DGI at the start of each year.
  • Forgetting employee deductions. If the employee declares deductions, they must apply to the monthly withholding.

Related resources

Frequently asked questions

What are the 2026 Panama payroll income tax brackets?

0% up to B/.11,000 per year, 15% on the B/.11,001 to B/.50,000 band, and 25% on excess. Brackets apply to the annual taxable base (gross income minus employee CSS and permitted deductions).

How is monthly ISR withholding calculated?

Income is annualized (salary x 12 + Decimo), employee CSS (9.75% on salary) is subtracted, progressive brackets apply to the result, and the result is divided by 12. The monthly amount is adjusted at year-end with the personal income tax return.

Does the 13th month bonus pay ISR?

Yes, using the marginal-bracket method to avoid jumps. Salary + Decimo are annualized, total ISR is calculated, and the withholding is adjusted in the Decimo payment month. Prima de Antiguedad is exempt from ISR up to the legal limit.

What deductions reduce ISR?

Spouse without income, dependents (minor or disabled children), donations to authorized entities, mortgage interest on primary residence, documented medical expenses, education of children, private pension contributions. This calculator does not include them.

When do I file my personal ISR return?

The personal income tax return (Form 100 or equivalent) is filed between January and March each year, for the prior fiscal year. The employer withholds monthly; the return reconciles with personal deductions and other income.

Does this calculator replace an accountant?

No. It is a reference calculator applying 2026 brackets without personal deductions. For personalized calculations (deductions, other income, tax credits) consult a Panamanian accountant or use the DGI e-Tax 2.0 portal.