WITHHOLDING TAX ON COMPENSATION

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

2. 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.

3. Exemptions (cont…) Remunerations received as an incident of employment Remuneration paid for agricultural labor. Remuneration for casual labor not in the course of an employer’s trade or business Compensation for services by a citizen or resident of the Philippines for a foreign government or an international organization.

4. 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

5. 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

6. 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”

7. Exemptions (cont…) 13. Compensation income of MWEs who work in the private sector and being paid the Statutory Minimum Wageapplicable to the place where he is assigned.

8. 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)

9. 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

10. 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.

11. 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. Take note!

12. 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. Hazard Pay

13. 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).

14. 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

15. FACTOR OR NUMBER OF WORKING/PAID DAYS IN A YEAR

16. 1. For those who do not work and are not considered paid on Saturdays and Sundays or rest day

17. 2. For those who do not work and are not considered paid on Sundays or rest day

18. 3. For those who do not work but are considered paid on rest days, special days and regular holidays

19. 4. For those who are required to work everyday including Sundays or rest day, special days & regular holidays:

20. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year; Monetized value of vacation and sick leave credits paid to government officials and employees; Medical cash allowance to dependents of employees, not exceeding p750 per employee per semester or P125/month DE MINIMIS BENEFITS(As amended by RR 5-2011)

21. Rice subsidy of P1,500 or 1 sack of 50 kg rice per month amounting to not more than P 1,500; Uniform and clothing allowance not exceeding P4,000/ annum; 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

22. Laundry allowance not exceeding P300 per month 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

23. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of basic minimum wage on a per region basis. DE MINIMIS BENEFITS

24. 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.

25. 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)

26. Duplicate – Employer Original - RDO Triplicate – Employee Employer: review , compute, withheld & apply exemptions File copy File copy

27. In case the husband waives his right to exemption: H-Accomplish “Annex F” 1902 3 copies W- employer: Deduct on the mo H- employer Stopped deducting Employer of H- acknowledge Original- W’s employer Triplicate- employee Stop deducting Duplicate H-employer

28. 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

29. Personal and Additional Exemption • Single P 50,000 • Head of the Family 50,000 • Married 50,000 • Qualified dependent child 25,000

30. 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.

31. 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

32. 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

33. 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.

34. Sec. 2.79. (B) Computation of Withholding tax • 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

35. 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 Use of WTax Table

36. Steps to determine the amount of tax to be withheld • Determine the total monetary and non-monetary compensation. • -13th month pay • -Productivity incentives • -Christmas Bonus • -other benefits • -GSIS/SSS etc • 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

37. 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

38. Steps…….. (4) Use the appropriate tables (5) Fix the compensation level using the regular compensation income. (6) Compute the withholding tax due.

39. 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 Right to claim WT exemption

40. 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

41. 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 On exemptions

42. Illustration • 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.

43. 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 Computation

44. Applicable Wtax Table

45. 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 Let’s Check:

46. Tax Table

47. Employer Responsible for withholding and remittance of correct amount of tax Employee Responsible for submission of 1902 / 2305 Liability for Tax

48. 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

49. 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

50. 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 Statements and Returns