WITHHOLDING TAX on WAGES

1. WITHHOLDING TAX on WAGES (Revenue Regulations No. 2-98, as amended) Presented by: S4SAN D. TUSOY, CPA, MPS Asst. Chief, Assessment Divsion

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. Taxable Compensation • Compensation paid in kind • Living quarters or meals • Exempt when furnished for the convenience of the employer • Facilities and privileges of relatively small value are not considered as compensation: • such as entertainment, medical services, courtesy discounts on purchases otherwise known as “de minimis benefits” • Furnished/offered by the employer as a means of promoting the health, goodwill, contentment, or efficiency of its employees

6. 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.

7. Taxable Compensation • Tips and Gratuities • Pensions, retirement and separation pay (except those specifically exempted) • Fixed or variable transportations, representation and other allowances • Except PERA and RATA • Advances/reimbursement for travelling, representation and other ordinary and necessary expenses

8. Taxable Compensation • The employee is required to account/liquidate • The excess if not returned is taxable income • Reasonable/pre-computed travelling/entertainment expense while on assignment or duty may not be subject to substantiation requirements and to wtax

9. Taxable Compensation • Vacation and sick leave allowances • Deductions made by the employer from compensation of employee • Remuneration for services as employee of a nonresident alien individual or foreign entity • Compensation for services performed outside • the Phils.

10. Exemptions (cont…) Remunerations received as an incident of employment, as follows: (a) Retirement benefits received under RA No. 7461 and those received by officials and employees of private firms, whether individual or corporate, under a reasonable private benefit plan maintained

11. Exemptions (cont…) Private Benefit Plan (i) must be reasonable; (ii) must be approved by the Bureau; (iii) Must have been in the service of the same employer for at least 10 years and is not less than 50 years of age at the time of retirement; & (iv) have not previously availed of the same privilege

12. Exemptions (cont…) (b) Any amount received by an official or employee or by his heirs from the employer due to • death, sickness or other physical disability or • for any cause beyond the control of the said official or employee (Refer to: RMO 26-2011)

13. Exemptions (cont…) (c) Social security benefits, retirement gratuities, pensions and other similar benefits; (d) Payments under the law of the United States administered by the United States Veterans Administration

14. Exemptions (cont…) (e) Payments of benefits made under the Social Security System Act of 1945, as amended; and; (f) Benefits received from the GSIS Act of 1937, as amended,

15. Exemptions (cont…) • 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.

16. 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.

17. Exemptions (cont…) 10. Remuneration for domestic services • GSIS, SSS, Medicare and other contributions (HDMF and Union Dues) • Contributions referred above covers only the mandatory/compulsory contributions

18. 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”

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

20. Latest Minimum Wage in Region XI effective May 1, 2012 Non-Agri - P301.00/day Agri - 291.00/day Retail - 301.00 (if more than 10 employees) - 270.00 (not more than 10 employees)

21. EXEMPT COMPENSATION IF RECEIVED BY MWE • holiday pay • overtime pay • night shift differential pay • hazard pay

22. 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 WME.

23. Take Note! MWEs receiving other income from business or practice of profession, except income subject to Final Tax, shall be subject to Income Tax on their entire income SMW, Holiday pay, overtime pay, night shift differential pay, and hazard pay shall still be exempt from WT

24. 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.

25. Hazardous Employment The employer shall attach to BIR Form 1601C for the months of March, June, Sept., and Dec. A copy of the List submitted to the nearest DOLE Regional/Provincial Office showing the names of the MWEs who received the hazard pay; period of employment; amount of hazard pay per month; and Justification of payment of hazard pay

26. Caution Any reduction or diminution of wages for purposes of exemption from Income Tax shall constitute misrepresentation and therefore, shall result to automatic disallowance of expense on the part of the employer.

27. 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.

28. SMW in the public sector The determination of the SMW in the public sector shall likewise adopt the same procedures and consideration as those of the private sector, except: In case of hazardous employment the employer shall attach to BIR Form 1601C for the months of March, June, Sept., and Dec. a copy of DBM Circular/s, or equivalent, as to who are allowed to receive hazard pay.

29. SMW in the public sector The basic salary of MWEs in the public sector shall be equated to the SMW in the non-agricultural sector applicable to the place where he/she is assigned.

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

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

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

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

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

35. Use of WTax Table Four Tables for monthly, semi-monthly, weekly, and daily Each tax table is groups 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

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 3 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. 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.

40. Computation 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

41. Applicable Wtax Table

42. 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

43. Tax Table

44. Illustration: (2) For the month of January 2011, Mrs. A, married with one qualified dependent child, with basic salary equivalent to the SMW, receives P 7,460.00 (P 286/day x 313 days/ 12) as statutory monthly minimum wage plus other compensation such as: Commission……………….. . P 10,000 Transportation allowance….. 2,000 Hazard Pay…………………. 1,000 Overtime…………………… 5,000 Night shift differential…… 2,000

45. Computation: Statutory Minimum Wage P 7,460.00 Gross Benefits Hazard pay P 1,000.00 Overtime 5,000.00 Night Shift Differential 2,000.00 8,000.00 Sub-total P 15,460.00 Taxable compensation commission* P 10,000.00 Transportation* 2,000.0012,000.00 Total Taxable Compensation Income P 27,460.00 Regular compensation P 7,460.00 Less: Compensation Level (B-1 col3) 7,083.00 Excess P 377.00 Add: Supplementary compensation(8,000+12,000) 20,000.00 Total P 20,377.00

46. Continuation….. Tax on P7,083 (Line B1, col. 3) P 41.67 Tax on excess (P20,377 x 10%) 2,037.70 Withholding tax – January 2011 P 2,079.37 *An employee who receives compensation other than SMW, OT, NS differential, HPay shall no longer enjoy the privilege of being a minimum wage earner, and his entire earnings are no longer considered exempt.

47. Tax Table

48. ILLUSTRATIVE PROBLEM For taxable year 2012, WTD Service Company employed Mr. J, married with two qualified dependent children. He received the following compensation for the year: Basic Monthly Salary P 45,000.00 Overtime Pay for Nov. 5,000.00 Thirteenth Month Pay 45,000.00 Other Benefits 12,000.00 Withholding Tax 98,082.00

50. 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