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WITHHOLDING TAX ON

COMPENSATION

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

Presented by:
MS. CYNTHIA E. OMERES, CPA
Revenue Officer
Assessment 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.
EXEMPTIONS (CONT)
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


employers 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)

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.


Latest Minimum Wage per RR 5-2011

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)
Other Compensation

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
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 Applicable Daily Wage Rate (ADR) x 261


days
Rate (EMR) =
12 months

Where 261 days 247- ordinary working days


11- regular holidays
3- Special days
261- Total number of days/year

Example: P 291.00 MWE


in Region XI

Equivalent Monthly Rate= P 291.00 x 261 days


12 months
P 6,329.25
2. FOR THOSE WHO DO NOT WORK AND ARE NOT
CONSIDERED PAID ON SUNDAYS OR REST DAY

Equivalent Monthly Applicable Daily Wage Rate (ADR) x 313 days


12 months
Rate (EMR) =

Where 313 days 299- ordinary working days


11- regular holidays
3- Special days
313- Total number of days/year

Example: P 291.00 MWE


in Region XI
Equivalent Monthy Rate= P 291.00 x 313 days
12 months
P 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 Applicable Daily Wage Rate (ADR) x 365


days
Rate (EMR) =
12 months

Where 365 days 299- ordinary working days


11- regular holidays
52 Sunday/Rest days
3- Special days
365- Total number of days/year
Example: P 291.00 MWE
in Region XI
Equivalent Monthy Rate= P 291.00 x 365 days
12 months
P 8,851.25
4. FOR THOSE WHO ARE REQUIRED TO WORK
EVERYDAY INCLUDING SUNDAYS OR REST DAY,
SPECIAL DAYS & REGULAR HOLIDAYS:

Equivalent Monthly Applicable Daily Wage Rate (ADR) x 261 days


12 months
Rate (EMR) =

Where 392.5 days 299 - ordinary working days


22 - regular holidays
67.6 - 52 rest days x 130%
3.9 - Special days
392.5 - Total number of days/year

Example: P 291.00 MWE


in Region XI
Equivalent Monthly Rate= P 291.00 x 392.5 days
12 months
P 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;
DE MINIMIS BENEFITS

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

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 RDO
(w/in 10 days (w/in 30
after change of days after
status) receipt)
Duplicate

Employer

Original - Employer:
Triplicate review ,
RDO
Employee compute,
withheld &
apply
exemptions

File
copy
File
copy
IN CASE THE HUSBAND WAIVES HIS RIGHT
TO EXEMPTION:
H-
Accomplish
1902
Annex 3 copies
F
W- employer:
Deduct on the mo
H- employer
Stopped deducting
Employer of
H-
acknowledg
e
Original-
Ws
Triplicate- employer
employee

Duplicate Stop
H- deductin
employer g
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 familys 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.
Sec. 2.79. (B) Computation of
Withholding tax

(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
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
Steps to determine the amount of tax
to be withheld

(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 allowances
Supplementary compensation commission,
overtime pay, taxable retirement pay, taxable
bonus and other taxable benefits
Steps..

(4) Use the appropriate tables


(5) Fix the compensation level using the regular
compensation income.
(6) Compute the withholding tax due.
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 Employers and Employees
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


Illustration

(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.


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


Applicable Wtax Table

Monthly 1 2 3 4 5 6 7 8

Exemption 0.00 0.00 41.67 208.33 1,875 4,166.67 10,416.67


Status 0% over +5% +10% +15%
over over

A. Table for employees without qualified dependent

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

15,833 25,000 45,833


LETS 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 excess


Over 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 RETURNS
BIR 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 employers
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 employers
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 OF
YEAR -END ADJUSTMENT

Compensation Income-net
A B C
Compensation Income-net 230,000 230,000 230,000
Less: Exemption (single) 50,000 50,000 50,000
Taxable Income 180,000 180,000 180,000
Tax Due 32,500 32,500 32,500
Less: Tax Withheld Jan-Nov 32,500 30,000 34,500
EVEN 0__
PAYABLE 2,500
REFUNDABLE (2,000)
ANNUAL INFORMATION RETURN

Manual Submission - 3 copies of 1604CF/1604E


Including the alphalist of employees and income
payees.
Diskette/CD & email Submission thru
esubmission@bir.gov.ph
Individuals qualified for substituted filing
and must not file BIR Form No. 1700
1. Receiving purely compensation income regardless of amount;
2. Working for only one employer in the Philippines for the calendar year;
3. Income tax has been withheld correctly by the employer (tax due
equals tax withheld);
4. The employees spouse also complies with all the three conditions
stated above, and
5. Employer filed to BIR the Annual Information Returns on Income
Taxes Withheld (BIR Form 1604-CF).

Note: All of the above requisites must be present. The Annual Information Return
of 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 tax
returns by said employees.

TMD
Seminar on Annualized Withholding Tax (Year-End Adjustment) and Substituted Filing (BIR Form 1700) SF 200 Slide 2
EFFECTIVITY OF SUBSTITUTED FILING

* Optional for taxable year 2001


* Mandatory effective taxable year 2002
START

Preparation of BIR
Form No. 1604 CF Before Jan. 31

Employer files w/
BIR the duly accomplished On or before Jan 31
BIR FORM 1604CF

n Employer shall issue


Subject to WTC? 2306to the payee (FWT)
On or before Jan. 31 On or before April 15
y
-
Entitled to subs- n Employer shall issue Employee files ITR
tituted filing? 2316 to employee together with 2316 &
other pertinent docs
y
Employer/employee to execute sworn
joint certification. Employer to furnish
On or before Jan. 31
employee copy of 2316/cert. to employee.
Employer to retain copy of joint cert.
Thank You!