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 return of premium
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 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

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 Wage applicable to
the place where he is assigned.

8. Latest Minimum Wage per RR 5-2011
in Region XI :
P – Non-Agricultural Sector
P – Agricultural Sector
(effective January, 2012; Additional P10.00 on )

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. 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.
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

12. 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.

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
Equivalent Monthly Rate (EMR) =
Applicable Daily Wage Rate (ADR) x 261 days
12 months
Where 261 days
247- 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
P 6,329.25

17. 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 days
299- 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
P 7,

18. 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 days
299- 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
P 8,851.25

19. 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 days
ordinary working days
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
P 9,518.13

20. DE 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 credits
paid to government officials and employees;
Medical cash allowance to dependents of employees, not exceeding p750 per employee per semester or P125/month

21. DE MINIMIS BENEFITS
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;

22. DE MINIMIS BENEFITS 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;

23. DE MINIMIS BENEFITS
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.

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. Employer: review , compute, withheld & apply exemptions
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 ,000
Married ,000
Qualified dependent child ,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. 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

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. 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

40. 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

41. 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

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

43. Computation Regular compensation P 12,000.00
Less : compensation level(line A-2 column 5) ,000.00
Excess ,000.00
Add: Supplementary compensation , ,000.00
Tax on P10,
Tax on excess (P7,000 x 20%) ,400.00
Withholding tax for Jan P 2,108.33

44. Applicable Wtax Table
Monthly 1 2 3 4 5 6 7 8
Exemption
Status
0.00
0% over
+5%
41.67
+10%
over
208.33
+15% over
708.33
+20% over
1,875
4,166.67
10,416.67
A. Table for employees without qualified dependent
1. Z
0.0
833
2,500
5,833
11,667
20,833
41,667
2.S/ME 50
4,167
5,000
6,667
10,000
15,833
25,000
45,833

45. Let’s Check: Withholding tax – Jan. 2011 = P 2,108.33
Withholding Tax (Feb.- Dec.11) 1, x ,191.63
Total P14,299.66
Gross Income P149,000.00
Exemption – Single ,000.00
Taxable Income P 99,000.00
Tax due P 14,300.00

46. Tax Table But not Of excess Over over Amount rate Not over 10,000.00
But not
Of excess
Over
over
Amount rate
Not over
10,000.00 5%
30,000.00
P %
70,000.00
2, %
140,000.00
8, %
250,000.00
22, %
500,000.00
50, %
125, %

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

48. 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

49. 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.

50. 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

51. Year-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.

52. 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

53. Annual Information Return
Manual Submission - 3 copies of 1604CF/1604E Including the alphalist of employees and income payees.
Diskette/CD & Submission thru

56. Effectivity of Substituted Filing
Optional for taxable year 2001
Mandatory effective taxable year 2002

57. n n Preparation of BIR Form No. 1604 CF Employer files w/
START
Preparation of BIR
Form No CF
Before Jan. 31
Employer files w/
BIR the duly accomplished
BIR FORM 1604CF
On or before Jan 31
Subject to WTC?
Employer shall issue
2306to the payee (FWT) n
On or before Jan. 31
On or before April 15 y
Entitled to subs-
tituted filing? - n
Employee files ITR
together with 2316 &
other pertinent docs
Employer shall issue
2316 to employee y
Employer/employee to execute sworn
joint certification. Employer to furnish
employee copy of 2316/cert. to employee.
Employer to retain copy of joint cert.
On or before Jan. 31

58. Thank You!