Presentation on theme: "WITHHOLDING TAX ON COMPENSATION (Revenue Regulations No. 2-98, as amended) Presented by: MS. CYNTHIA E. OMERES, CPA Revenue Officer Assessment Division."— Presentation transcript:
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.
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…)
10. Remuneration for domestic services 11. GSIS, SSS, PHIC, HDMF contributions and Union Dues RMC and RMC 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(13 th) 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 – Non-Agricultural Sector P – Agricultural Sector ( effective January, 2012; Additional P10.00 on ) Latest Minimum Wage per RR
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 days247- ordinary working days 11- regular holidays 3- Special days 261- Total number of days/year Example: P MWE in Region XI Equivalent Monthly Rate=P 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 Rate (EMR) = Applicable Daily Wage Rate (ADR) x 313 days 12 months Where 313 days299- ordinary working days 11- regular holidays 3- Special days 313- Total number of days/year Example: P MWE in Region XI Equivalent Monthy Rate=P x 313 days 12 months P 7,
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 days299- ordinary working days 11- regular holidays 52 – Sunday/Rest days 3- Special days 365- Total number of days/year Example: P MWE in Region XI Equivalent Monthy Rate=P 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 Rate (EMR) = Applicable Daily Wage Rate (ADR) x 261 days 12 months Where days299 - ordinary working days 22 - regular holidays rest days x 130% Special days Total number of days/year Example: P MWE in Region XI Equivalent Monthly Rate=P x days 12 months P 9,518.13
DE MINIMIS BENEFITS (AS AMENDED BY RR ) 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 U nder 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 (w/in 10 days after change of status) RDO (w/in 30 days after receipt)
IN CASE THE HUSBAND WAIVES HIS RIGHT TO EXEMPTION: H- Accomplish “Annex F” 3 copies 1902 Employer of H- acknowledg e 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 SingleP 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… 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 (B) Computation of Withholding tax
USE OF WTAX TABLEWTAX TABLE Withholding tax table RR Annex-C.pdfRR 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 1 st column – exemption status 2 nd 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. -13 th 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 allowances Supplementary 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 Illustration
COMPUTATION Regular compensation P 12, Less : compensation level(line A-2 column 5) 10, Excess 2, Add: Supplementary compensation 5, , Tax on P10, Tax on excess (P7,000 x 20%) 1, Withholding tax for Jan P 2,108.33
Monthly Exemption Status % over % % over % over 1,875 4, , A. Table for employees without qualified dependent 1. Z ,5005,83311,66720,83341,667 15,83325,00045,833 Applicable Wtax Table
LET’S CHECK: Withholding tax – Jan = P 2, Withholding Tax (Feb.- Dec.11) 1, x 11 12, Total P14, Gross Income P149, Exemption – Single 50, Taxable Income P 99, Tax due P 14,300.00
TAX TABLE But not Of excess OveroverAmount rateover Not over 10, % 10, ,000.00P % 10, , , , % 30, , , , % 70, , , , % 140, , , , % 250, , over125, % 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 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 OF YEAR -END ADJUSTMENT Compensation Income-net A B C 230, , ,000 50,000 50,000 50, , , ,000 32,500 32,500 32,500 32,500 30,000 34,500 0__ 2,500 (2,000) Compensation Income-net Less: Exemption (single) Taxable Income Tax Due Less: Tax Withheld Jan-Nov EVEN PAYABLE REFUNDABLE
ANNUAL INFORMATION RETURN JManual Submission - 3 copies of 1604CF/1604E Including the alphalist of employees and income payees. JDiskette/CD & Submission thru
EFFECTIVITY OF SUBSTITUTED FILING * Optional for taxable year 2001 * Mandatory effective taxable year 2002
START Preparation of BIR Form No 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 ITR together 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