Presentation on theme: "WITHHOLDING TAX ON COMPENSATION"— Presentation transcript:
1WITHHOLDING TAX ON COMPENSATION (Revenue Regulations No. 2-98, as amended)Presented by:MS. CYNTHIA E. OMERES, CPARevenue OfficerAssessment Division
2Compensation 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.
3Exemptions (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 businessCompensation for services by a citizen orresident of the Philippines for a foreigngovernment or an international organization.
4Exemptions (cont…) 5. Damages 6. Life insurance return of premium 7. Amount received by the insured as areturn of premium8. Compensation for injuries or sickness9. Income exempt under treaty
5Exemptions (cont…) 10. Remuneration for domestic services 11. GSIS, SSS, PHIC, HDMF contributions andUnion DuesRMC and RMCVoluntary 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
6Exemptions (cont…)12. Thirteenth(13th) Month Pay and Other Benefits not exceeding P 30,000Other Benefits such asChristmas bonusProductivityLoyalty AwardGifts in cash or in kindOther benefits of similar natureExcess over the prescribed ceiling of the “de minimis benefits”
7Exemptions (cont…)13. Compensation income of MWEs who work in the private sector and being paid the Statutory Minimum Wage applicable tothe place where he is assigned.
8Latest Minimum Wage per RR 5-2011 in Region XI :P – Non-Agricultural SectorP – Agricultural Sector(effective January, 2012; Additional P10.00 on )
9Other CompensationThe following compensation received by minimum wage earners shall likewise be exempt from income tax:holiday payovertime paynight shift differential payhazard pay
10Exemptions (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.
11Take note!An employee who receives additional compensation other than SMW, holiday pay, overtime, hazard pay, and night shift differential pay such as:CommissionsHonorariaFringe benefitsTaxable allowancesAnd other taxable incomeshall not enjoy the privilege of being a MWE.Such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000, taxable allowances and other taxable income shall not enjoy these benefits and therefore his entire earnings are not exempt from IT and consequently to wt
12Hazard Pay the amount paid by the employer to MWEs Actually assigned to danger or strife-torn areasDisease-infested placesDistressed or isolated stations and campswhich exposed them to great danger or contagion or peril to lifeAny hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to IT and consequently to WT.
13Salient 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).
14Computation of wagesThe 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
161. 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 days12 monthsWhere 261 days247- ordinary working days11- regular holidays3- Special days261- Total number of days/yearExample: P MWEin Region XIEquivalent Monthly Rate=P x 261 daysP 6,329.25
172. 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 days12 monthsWhere 313 days299- ordinary working days11- regular holidays3- Special days313- Total number of days/yearExample: P MWEin Region XIEquivalent Monthy Rate=P x 313 daysP 7,
183. 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 days12 monthsWhere 365 days299- ordinary working days11- regular holidays52 – Sunday/Rest days3- Special days365- Total number of days/yearExample: P MWEin Region XIEquivalent Monthy Rate=P x 365 daysP 8,851.25
194. 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 days12 monthsWhere daysordinary working daysregular holidaysrest days x 130%Special daysTotal number of days/yearExample: P MWEin Region XIEquivalent Monthly Rate=P x daysP 9,518.13
20DE MINIMIS BENEFITS (As amended by RR 5-2011) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;Monetized value of vacation and sick leave creditspaid to government officials and employees;Medical cash allowance to dependents of employees, not exceeding p750 per employee per semester or P125/month
21DE MINIMIS BENEFITSRice 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;
22DE MINIMIS BENEFITS Laundry allowance not exceeding P300 per month Employees achievement awards,e.g., for length of service or safety achievementIn a form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000Under an established written plan which does not discriminate in favor of highly paid employees;
23DE MINIMIS BENEFITSGifts 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.
24DE MINIMIS Rules“DE MINIMIS BENEFITS” conforming to the ceiling shall not be considered in determining the P 30,000The 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.
25Procedures for filing 1902: Employee shall file w/in 10 days upon employment1902 (triplicate)2305(w/in 10 days after change of status)RDO(w/in 30 days after receipt)
27In case the husband waives his right to exemption: H-Accomplish “Annex F”19023 copiesW- employer:Deduct on the mo H- employer Stopped deductingEmployer of H- acknowledgeOriginal- W’s employerTriplicate-employeeStop deductingDuplicateH-employer
28Failure to file 1902/2305: Failure to file 1902: Zero exemption shall be applied based on the revisedwithholding tax tableFailure to file 2305:Employer shall withhold based on reported personalexemptions existing prior to change
29Personal and Additional Exemption Single P 50,000Head of the Family ,000Married ,000Qualified dependent child ,000
30Dependent CHILDFor purposes of additional exemption, a “dependent” means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer.
31A dependent is…...21 years old or younger, or a physically and mentally handicapped child, regardless of agedependent for chief supportUnmarriednot gainfully employedCan be claimed by only one of the spouses
32Premiums on health &/or Hospitalization Insurance Not to exceed P2,400 or P200/mo.Total family’s gross income does not exceed P250,000present the policy contract and original official receipt
33Family 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.
34Sec. 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
35Use of WTax Table Withholding tax table RR-2008-10-Annex-C.pdf Four Tables for monthly, semi-monthly, weekly, and dailyEach tax table is grouped into Tables A and BA for employees with no QDCB for employees with QDC1st column – exemption status2nd column – amount of exemption in pesosColumns 1 to 8 – reflect the portion of the amount of taxesZ – for zero exemptionS – singleME – married employeeNumerals – 1 to 4 represents the number of dependents
36Steps 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 etcSegregate the taxable from non-taxable compensation income paid to an employee for the payroll period.-P30,000 ceiling-non-taxable retirement benefits / separation pay
37Steps 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
38Steps……..(4) Use the appropriate tables(5) Fix the compensation level using the regular compensation income.(6) Compute the withholding tax due.
39Right to claim WT exemption An employee receiving compensation income shall be entitled to w/tax exemptions, provided he/she must file1902 – Application for registration2305 – Cert.of Update of Exemption and of Employer’s and Employee’s Information
40On exemptionsEvery employer should ascertain whether or not a child being claimed is a qualified dependentIf TP should have additional exemption during the taxable year, he may claim the corresponding additional exemption in full for such yearIf the TP dies during the taxable year, the estate may claim the full exemptions as if he died at the close of the year
41On exemptionsTP may still claim full exemptions during the taxable year on the following cases:Spouse or any of the dependent diesAny of such dependents marriesBecomes 21 y.o.Becomes gainfully employedAs if it occurred at the close of such year
42IllustrationMr. 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
43Computation Regular compensation P 12,000.00 Less : compensation level(line A-2 column 5) ,000.00Excess ,000.00Add: Supplementary compensation , ,000.00Tax on P10,Tax on excess (P7,000 x 20%) ,400.00Withholding tax for Jan P 2,108.33
44Applicable Wtax TableMonthly12345678ExemptionStatus0.000% over+5%41.67+10%over208.33+15% over708.33+20% over1,8754,166.6710,416.67A. Table for employees without qualified dependent1. Z0.08332,5005,83311,66720,83341,6672.S/ME504,1675,0006,66710,00015,83325,00045,833
45Let’s Check: Withholding tax – Jan. 2011 = P 2,108.33 Withholding Tax (Feb.- Dec.11) 1, x ,191.63Total P14,299.66Gross Income P149,000.00Exemption – Single ,000.00Taxable Income P 99,000.00Tax due P 14,300.00
46Tax Table But not Of excess Over over Amount rate Not over 10,000.00 But notOf excessOveroverAmount rateNot over10,000.005%30,000.00P %70,000.002, %140,000.008, %250,000.0022, %500,000.0050, %125, %
47Liability for Tax Employer Responsible for withholding and remittance of correct amount of taxEmployeeResponsible for submission of 1902 / 2305
48Statements and Returns BIR Form 2316Employer shall furnish the employees Not Later Than Jan. 31Failure to furnish shall be a ground for mandatory audit upon verified complaint of the payeeIt shall include the fringe benefits given to rank & file employeesEmployers of MWEs are still required to issue BIR Form 2316 (June 2008 Encs version)It shall indicate the health &/or hosp. insurance, if anyThe amount of SMW, OT, Holiday pay, Night diff, and hazard pay shall be indicated
49Statements and Returns Form 2316 cont….It shall be signed by both the employer’s authorized representative and the employeeShall contain a written declaration that it is made under the penalties of perjuryShall contain a certification that the employer’s filing of BIR Form 1604-CF shall be considered as substituted filingThe employer shall retain the duly signed 2316 for a period of three (3) years.
50Statements 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
51Year-End Adjustment PURPOSE: WHEN: TAX DUE = TAX WITHHELD 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.
52BASIC 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
53Annual Information Return Manual Submission - 3 copies of 1604CF/1604E Including the alphalist of employees and income payees.Diskette/CD & Submission thru
56Effectivity of Substituted Filing Optional for taxable year 2001Mandatory effective taxable year 2002
57n n Preparation of BIR Form No. 1604 CF Employer files w/ STARTPreparation of BIRForm No CFBefore Jan. 31Employer files w/BIR the duly accomplishedBIR FORM 1604CFOn or before Jan 31Subject to WTC?Employer shall issue2306to the payee (FWT)nOn or before Jan. 31On or before April 15yEntitled to subs-tituted filing?-nEmployee files ITRtogether with 2316 &other pertinent docsEmployer shall issue2316 to employeeyEmployer/employee to execute swornjoint certification. Employer to furnishemployee copy of 2316/cert. to employee.Employer to retain copy of joint cert.On or before Jan. 31