WITHHOLDING TAX ON COMPENSATION (Revenue Regulations No. 2-98, as amended) Presented by: MS. CYNTHIA E. OMERES, CPA Revenue Officer Assessment Division.

WITHHOLDING TAX ON COMPENSATION

(Revenue Regulations No. 2-98, as amended)

Presented by:MS. CYNTHIA E. OMERES, CPA

Revenue OfficerAssessment Division

COMPENSATION INCOME DEFINED

Compensation means all remuneration for services performed by an employee for his employer under an employee-employer relationship unless exempted by the Code.

1. Remunerations received as an incident of employment

2. Remuneration paid for agricultural labor.

3. Remuneration for casual labor not in the course of an employer’s trade or business

4. Compensation for services by a citizen or resident of the Philippines for a foreign government or an international organization.

EXEMPTIONS (CONT…)

5. Damages

6. Life insurance

7. Amount received by the insured as a return of premium

8. Compensation for injuries or sickness

9. Income exempt under treaty

EXEMPTIONS (CONT…)

EXEMPTIONS (CONT…)

10. Remuneration for domestic services

11. GSIS, SSS, PHIC, HDMF contributions and Union Dues

• RMC 27-2011 and RMC 53-2011• Voluntary contributions in excess of the amount

considered as compulsory are not excludible from the gross income of the taxpayer and hence, not

exempt from IT and consequently from WT

EXEMPTIONS (CONT…)

12. Thirteenth(13th) Month Pay and Other Benefits not exceeding P 30,000

Other Benefits such as Christmas bonus Productivity Loyalty Award Gifts in cash or in kind Other benefits of similar nature Excess over the prescribed ceiling of the

“de minimis benefits”

EXEMPTIONS (CONT…)

13. Compensation income of MWEs

who work in the private sector and

being paid the Statutory Minimum Wage

applicable to

the place where he is assigned.

in Region XI :

P 286.00 + 5.00 – Non-Agricultural Sector

P 276.00 + 5.00 – Agricultural Sector

(effective January, 2012; Additional P10.00 on 5-1-12)

Latest Minimum Wage per RR 5-2011

The following compensation received by minimum wage earners shall likewise be exempt from income tax:

holiday pay overtime pay night shift differential pay hazard pay

Other Compensation

EXEMPTIONS (CONT…)

(14) Compensation income of employees in the

public sector with compensation income of not

more than the SMW in the non-agricultural

sector, as fixed by RTWPB/NWPC, applicable to

the place where he is assigned.

TAKE NOTE!

• An employee who receives additional compensation other than SMW, holiday pay, overtime, hazard pay, and night shift differential pay such as:

• Commissions• Honoraria• Fringe benefits• Taxable allowances• And other taxable income

shall not enjoy the privilege of being a MWE.

HAZARD PAY

• the amount paid by the employer to MWEs• Actually assigned to danger or strife-torn

areas• Disease-infested places• Distressed or isolated stations and camps which exposed them to great danger or

contagion or peril to life

Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to IT and consequently to WT.

SALIENT FEATURES

• Sec. 22 Definition

‘statutory minimum wage’ shall refer to

the rate fixed by the Regional Tripartite

Wage and Productivity Board, as defined by

the Bureau of Labor and Employment

Statistics (BLES) of the Department of

Labor and Employment (DOLE).

COMPUTATION OF WAGES

The basis of the computation of the minimum wage rates prescribed by law shall be the normal working hours – not more than 8 hours a day.

The computation of wages shall be in accordance with the Collective Bargaining Agreement (CBA), if any or the provisions of the Labor Code as implemented

FACTOR OR NUMBER OF WORKING/PAID DAYS IN A YEAR

1. FOR THOSE WHO DO NOT WORK AND ARE NOT CONSIDERED PAID ON SATURDAYS AND SUNDAYS OR REST DAY

Equivalent Monthly Rate (EMR) =

Applicable Daily Wage Rate (ADR) x 261 days 12 months

Where 261 days 247- ordinary working days 11- regular holidays 3- Special days261- Total number of days/year

Example: P 291.00 MWE in Region XI

Equivalent Monthly Rate=

P 291.00 x 261 days 12 monthsP 6,329.25

2. FOR THOSE WHO DO NOT WORK AND ARE NOT CONSIDERED PAID ON SUNDAYS OR REST DAY

Equivalent Monthly Rate (EMR) =

Applicable Daily Wage Rate (ADR) x 313 days 12 months

Where 313 days 299- ordinary working days 11- regular holidays 3- Special days313- Total number of days/year

Example: P 291.00 MWE in Region XI

Equivalent Monthy Rate=

P 291.00 x 313 days 12 monthsP 7,590.25..25

3. FOR THOSE WHO DO NOT WORK BUT ARE CONSIDERED PAID ON REST DAYS, SPECIAL DAYS AND REGULAR HOLIDAYS

Equivalent Monthly Rate (EMR) =

Applicable Daily Wage Rate (ADR) x 365 days 12 months

Where 365 days 299- ordinary working days 11- regular holidays 52 – Sunday/Rest days 3- Special days365- Total number of days/year

Example: P 291.00 MWE in Region XI

Equivalent Monthy Rate=

P 291.00 x 365 days 12 monthsP 8,851.25

4. FOR THOSE WHO ARE REQUIRED TO WORK EVERYDAY INCLUDING SUNDAYS OR REST DAY, SPECIAL DAYS & REGULAR HOLIDAYS:

Equivalent Monthly Rate (EMR) =

Applicable Daily Wage Rate (ADR) x 261 days 12 months

Where 392.5 days 299 - ordinary working days 22 - regular holidays 67.6 - 52 rest days x 130% 3.9 - Special days392.5 - Total number of days/year

Example: P 291.00 MWE in Region XI

Equivalent Monthly Rate=

P 291.00 x 392.5 days 12 monthsP 9,518.13

DE MINIMIS BENEFITS(AS AMENDED BY RR 5-2011)

a) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;

b) Monetized value of vacation and sick leave credits paid to government officials and employees;

c) Medical cash allowance to dependents of employees, not exceeding p750 per employee per semester or P125/month

DE MINIMIS BENEFITS

d) Rice subsidy of P1,500 or 1 sack of 50 kg rice per month amounting to not more than P 1,500;

e) Uniform and clothing allowance not exceeding P4,000/ annum;

f) Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum;

g) Laundry allowance not exceeding P300 per month

h) Employees achievement awards, e.g., for length of service or safety achievement

• In a form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000

• Under an established written plan which does not discriminate in favor of highly paid employees;

DE MINIMIS BENEFITS

DE MINIMIS BENEFITS

i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;

j) Daily meal allowance for overtime

work and night/graveyard shift not exceeding 25% of basic minimum wage on a per region basis.

DE MINIMIS RULES

“DE MINIMIS BENEFITS” conforming to the ceiling shall not be considered in determining the P 30,000

The excess over the respective ceilings shall be considered as part of the “other benefits” and the employee receiving it will be subject to tax only on the excess over the P30,000.

PROCEDURES FOR FILING 1902:

Employee shall file w/in 10 days

upon employment 1902 (triplicate)

2305(w/in 10 days

after change of status)

RDO (w/in 30

days after receipt)

Original - RDO

Duplicate –

Employer

Triplicate –Employee

Employer: review ,

compute, withheld &

apply exemptions

File copy

File copy

IN CASE THE HUSBAND WAIVES HIS RIGHT TO EXEMPTION:

H-Accomplish “Annex

F”

3 copies

1902

Employer of H-

acknowledge

Duplicate H-

employer

Triplicate-employee

Original- W’s

employer

Stop deductin

g

W- employer:Deduct on the mo

H- employer Stopped deducting

FAILURE TO FILE 1902/2305:

Failure to file 1902: Zero exemption shall be applied based on the revised withholding tax table

Failure to file 2305: Employer shall withhold based on reported personal exemptions existing prior to change

PERSONAL AND ADDITIONAL EXEMPTION

• Single P 50,000• Head of the Family 50,000• Married 50,000 • Qualified dependent child 25,000

Dependent CHILD

For purposes of additional exemption, a “dependent” means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer.

A DEPENDENT IS…...

• 21 years old or younger, or a physically and mentally handicapped child, regardless of age

• dependent for chief support• Unmarried• not gainfully employed• Can be claimed by only one of the spouses

PREMIUMS ON HEALTH &/OR HOSPITALIZATION INSURANCE

• Not to exceed P2,400 or P200/mo.• Total family’s gross income does not

exceed P250,000• present the policy contract and original

official receipt

FAMILY INCOME INCLUDES:

• Primary income and other income from sources received by all members of the nuclear family, I.e., father, mother, unmarried children living together as one household, or a single parent with children.

(1)Withholding tax table(a) Old table (effective January 1, 2006)

- January 1 to July 5, 2008(b) Revised Transitory Withholding tax Table

- July 6 to December 31, 2008(c) Revised Withholding tax Table

- January 1, 2009 & beyond

Sec. 2.79. (B) Computation of Withholding tax

USE OF WTAX TABLE

Withholding tax table RR-2008-10-Annex-C.pdf

• Four Tables for monthly, semi-monthly, weekly, and daily

• Each tax table is grouped into Tables A and B

• A for employees with no QDC

• B for employees with QDC

• 1st column – exemption status

• 2nd column – amount of exemption in pesos

• Columns 1 to 8 – reflect the portion of the amount of taxes

• Z – for zero exemption

• S – single

• ME – married employee

• Numerals – 1 to 4 represents the number of dependents

STEPS TO DETERMINE THE AMOUNT OF TAX TO BE WITHHELD

1. Determine the total monetary and non-monetary compensation.

-13th month pay-Productivity incentives-Christmas Bonus-other benefits-GSIS/SSS etc

2. Segregate the taxable from non-taxable compensation income paid to an employee for the payroll period.

-P30,000 ceiling-non-taxable retirement benefits / separation pay

(3.)Segregate the taxable compensation income determined in step 2 into regular taxable compensation income and supplementary compensation.Regular compensation – basic salary, fixed allowances for representation, transportation and other allowancesSupplementary compensation – commission, overtime pay, taxable retirement pay, taxable bonus and other taxable benefits

Steps to determine the amount of tax to be withheld

(4)Use the appropriate tables (5) Fix the compensation level using the

regular compensation income.(6) Compute the withholding tax due.

Steps……..

RIGHT TO CLAIM WT EXEMPTION

• An employee receiving compensation income shall be entitled to w/tax exemptions, provided he/she must file

• 1902 – Application for registration• 2305 – Cert.of Update of Exemption

and of Employer’s and Employee’s Information

ON EXEMPTIONS

• Every employer should ascertain whether or not a child being claimed is a qualified dependent

• If TP should have additional exemption during the taxable year, he may claim the corresponding additional exemption in full for such year

• If the TP dies during the taxable year, the estate may claim the full exemptions as if he died at the close of the year

ON EXEMPTIONS

• TP may still claim full exemptions during the taxable year on the following cases:• Spouse or any of the dependent dies• Any of such dependents marries• Becomes 21 y.o.• Becomes gainfully employed

As if it occurred at the close of such year

(1)Mr. Sy, single with no dependent receives

P12,000(net of SSS/GSIS, PHIC, HDMF employee

share only) as monthly regular compensation and

P5,000 as supplementary compensation for

January, 2011 or a total of P17,000.

Compute for the Withholding tax for Jan. 2011.

Illustration

COMPUTATION

Regular compensation P

12,000.00

Less : compensation level(line A-2 column 5)

10,000.00

Excess 2,000.00

Add: Supplementary compensation

5,000.00

7,000.00

Tax on P10,000

708.33

Tax on excess (P7,000 x 20%)

1,400.00

Withholding tax for Jan. 2011

P 2,108.33

Monthly 1 2 3 4 5 6 7 8

ExemptionStatus

0.000% over

0.00+5%

41.67+10%over

208.33+15% over

708.33+20% over

1,875 4,166.67 10,416.67

A. Table for employees without qualified dependent

1. Z 0.0 1 0 833 2,500 5,833 11,667 20,833 41,667

2.S/ME 50 1 4,167 5,000 6,667 10,000 15,833 25,000 45,833

Applicable Wtax Table

LET’S CHECK:

Withholding tax – Jan. 2011 = P 2,108.33

Withholding Tax (Feb.- Dec.11) 1,108.33 x 11 12,191.63

Total P14,299.66

Gross Income

P149,000.00

Exemption – Single 50,000.00

Taxable Income P 99,000.00

Tax due P 14,300.00

TAX TABLE

  But not   Of excessOver over Amount rate over

Not over      10,000.00  5% 

       10,000.00       30,000.00  P500 + 10%                10,000.00 

       30,000.00       70,000.00  2,500 + 15%                30,000.00 

       70,000.00     140,000.00  8,500 + 20%                70,000.00 

     140,000.00     250,000.00  22,500 + 25%             140,000.00 

     250,000.00     500,000.00  50,000 + 30%             250,000.00 

     500,000.00   over  125,000 + 32%             500,000.00 

LIABILITY FOR TAX

• Employer• Responsible for withholding and

remittance of correct amount of tax• Employee

• Responsible for submission of 1902 / 2305

STATEMENTS AND RETURNSBIR Form 2316

Employer shall furnish the employees Not Later Than Jan. 31

Failure to furnish shall be a ground for mandatory audit upon verified complaint of the payee

It shall include the fringe benefits given to rank & file employees

Employers of MWEs are still required to issue BIR Form 2316 (June 2008 Encs version)

It shall indicate the health &/or hosp. insurance, if any

The amount of SMW, OT, Holiday pay, Night diff, and hazard pay shall be indicated

STATEMENTS AND RETURNS

• Form 2316 cont….• It shall be signed by both the employer’s

authorized representative and the employee• Shall contain a written declaration that it is

made under the penalties of perjury• Shall contain a certification that the

employer’s filing of BIR Form 1604-CF shall be considered as substituted filing

• The employer shall retain the duly signed 2316 for a period of three (3) years.

STATEMENTS AND RETURNS

• Form 2316 continued…• The applicable box for MWEs shall be

indicated (under the enhanced form). This serves as proof of financial capacity for purposes of loans, etc…

• In case of successive employment during the taxable year, an extra copy of BIR Form 2316 shall be furnished to his new employer

YEAR-END ADJUSTMENT

PURPOSE:• TAX DUE = TAX WITHHELD

WHEN:• On or before the end of the calendar year, prior to the

payment of compensation for the last payroll.

• If terminated, on the day on which the last payment of compensation is made.

BASIC CONCEPT OFYEAR -END ADJUSTMENT

Compensation Income-net A B C230,000 230,000 230,000 50,000 50,000 50,000180,000 180,000 180,000

32,500 32,500 32,500

32,500 30,000 34,500 0__ 2,500 (2,000)

Compensation Income-netLess: Exemption (single)Taxable IncomeTax DueLess: Tax Withheld Jan-NovEVENPAYABLEREFUNDABLE

ANNUAL INFORMATION RETURN

Manual Submission - 3 copies of 1604CF/1604E Including the alphalist of employees and income payees.

Diskette/CD & email Submission thru

[email protected]

Seminar on Annualized Withholding Tax (Year-End Adjustment) and Substituted Filing (BIR Form 1700) TMD

SF 200 Slide 2

Receiving purely compensation income regardless of amount;

Working for only one employer in the Philippines for the calendar year;

Income tax has been withheld correctly by the employer (tax dueequals tax withheld);

The employee’s spouse also complies with all the three conditionsstated above, and

Employer filed to BIR the Annual Information Returns on IncomeTaxes Withheld (BIR Form 1604-CF).

Note: All of the above requisites must be present. The Annual Information Returnof Income Taxes Withheld on Compensation and Final Withholding Taxes(BIR Form No. 1604-CF) filed by their respective employers duly stamped“Received”, shall be tantamount to the substituted filing of income taxreturns by said employees.

1.

2.

3.

5.

Individuals qualified for substituted filing and must not file BIR Form No. 1700

4.

Seminar on Annualized Withholding Tax (Year-End Adjustment) and Substituted Fi ling (BIR Form 1700) TMD

SF 200 Slide 8

Proof of financial capacity for purposes of loan, creditcard, or other applications;

Proof of payment of tax or for availing tax credit inthe employee’s home country;

Securing travel tax exemption, when necessary; and

Other purposes with various government agencies.

Uses of BIR Form 2316

EFFECTIVITY OF SUBSTITUTED FILING

* Optional for taxable year 2001

* Mandatory effective taxable year 2002

START

Preparation of BIRForm No. 1604 CF

Employer files w/ BIR the duly accomplished

BIR FORM 1604CF

Subject to WTC?

Entitled to subs-tituted filing?

Employer/employee to execute sworn joint certification. Employer to furnish

employee copy of 2316/cert. to employee.Employer to retain copy of joint cert.

Employer shall issue 2306to the payee (FWT)

Employer shall issue 2316 to employee

Employee files ITRtogether with 2316 &other pertinent docs

Before Jan. 31

On or before Jan 31

-

On or before Jan. 31 On or before April 15

On or before Jan. 31

n

y

y

n

Thank You!