Presentation on theme: "WITHHOLDING TAX ON COMPENSATION"— Presentation transcript:
1 WITHHOLDING TAX ON COMPENSATION (Revenue Regulations No. 2-98, as amended)Presented by:MS. LILYBETH A. GANER, CPA, MBARevenue OfficerAssessment 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, as follows:(a) Retirement benefits received under RA No and under a reasonable private benefit plan(b) Benefits received due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee
4 Exemptions (cont…)(c) Social security benefits, retirement gratuities, pensions and other similar benefits received by residents, non-resident citizens and resident aliens
5 Exemptions (cont…)(d) Payments of benefits due or to become due to anyperson residing in the Philippines under thelaw of the United States administered by theUnited States Veterans Administration;(e) Payments of benefits made under the SocialSecurity System Act of 1945, as amended; and(f) Benefits received from the GSIS Act of 1937, asamended, and the retirement gratuity received bygovernment officials and employees.
6 Exemptions (cont…) 2. Remuneration paid for agricultural labor. 3. Remuneration for casual labor not in thecourse of an employer’s trade or business.4. Compensation for services by a citizen orresident of the Philippines for a foreigngovernment or an international organization.
7 Exemptions (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
8 Exemptions (cont…)10. Remuneration for domestic services 11. GSIS, SSS, Medicare and other contributions (HDMF and Union Dues)
9 Exemptions (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”
10 Exemptions (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.
11 Latest Minimum Wage per RR 5-2011 in Region XI :P – Non-Agricultural SectorP – Agricultural Sector(effective January, 2012; Additional P5.00 on May 1)
12 The following compensation received by minimum wage earners shall likewise be exempt from income tax:holiday payovertime paynight shift differential payhazard pay
13 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.
14 Take 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
15 Hazard 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.
16 DE MINIMIS BENEFITS (As amended by RR 5-2011) a.) Monetized unused vacation leave credits of privateemployees not exceeding 10 days during the year;b.) Monetized value of vacation and sick leave creditspaid to government officials and employees;c.) Medical cash allowance to dependents of employees,not exceeding p750 per employee per semester orP125/month
17 DE MINIMIS BENEFITSd) Rice subsidy of P1,500 or 1 sack of 50 kg rice permonth amounting to not more than P 1,500;e.) Uniform and clothing allowance not exceedingP4,000/ annum;f.) Actual medical assistance, e.g. medical allowance tocover medical and healthcare needs, annualmedical/executive check-up, maternity assistance,and routine consultations, not exceeding P10,000per annum;
18 DE MINIMIS BENEFITS g.) Laundry allowance not exceeding P300 per month h.) Employees achievement awards,e.g., for length of service or safety achievement,which must be in the form of tangible personalproperty other than cash or gift certificate, with an annual monetary value not exceeding P10,000received by the employee under an establishedwritten plan which does not discriminate in favor of highly paid employees;
19 DE MINIMIS BENEFITSi.) 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.
20 DE 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.
21 Sec. 4. Sec 2.79.1 Application for individuals Earning Compensation Income (Form1902) the application for registration should be accomplished by both employer and employee relating to the following:
22 (A)Employee: Name/TIN, address & more as indicated in form 1902 Status– single, married, othersIf married:Status of spouse - name/TIN- employed, abroad, ETB, unemployedQualified dependentsName, date of birth of QDC
23 Claimant of exemption for QDC Husband, wife if Husband isunemployedNRC, income from foreign sourcesWAIVES HIS RIG HT TO CLAIM EXEMPTION for all children and attach the sworn declaration to his and that of his wife’s
24 Required forms and attachments: birth certificatemarriage contract if marriedbirth certificate of QDC certified by Local Civil Registry/ NSO ( if not applicable, any doc. issued by a gov’t office)certificate of employment if Husband works abroad
25 sworn declaration and waiver of right to claim sworn declaration and waiver of right to claim exemptions of QDC ( Annex “F” )medical cert of QDC, if incapacitatedcourt decision of legally adopted childrendeath certificateother documentary evidence
26 Concurrent multiple employments: Shall file 1902 to his primary employer and furnish copy to his secondary employer/sSuccessive multiple employment:furnish his new employer with form 2305 (Cert. of Update of Exemption and of Employer’s and Employee’s Information)previous employer’s name, address, TIN And date of separationattach form 2316 (Cert. of compensation payment/ tax withheld) for compensation payment with or without w/holding tax for the CY issued by prev. employers.
27 Mixed Income (B) EMPLOYER: Individual with mixed income shall first deduct the allowable personal and add’l exemptions from compensation income, only the excess there from can be deducted from business/prof. income(B) EMPLOYER:accepts the 1902 filed by the new hired, indicate the date of receipt, accomplish part V (employer’s name, add, TIN, and other relevant infos.)
28 Procedures 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)
30 In 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
31 Failure to file 1902:Zero exemption shall be applied based on the revised withholding tax tableFailure to file 2305:employer shall withhold based on reported personal exemptions existing prior to change
32 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).
33 Computation 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
34 FACTOR OR NUMBER OF WORKING/PAID DAYS IN A YEAR
35 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 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
36 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 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,
37 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 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
38 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 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
39 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
40 Use of WTax TableFour 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
41 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 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
42 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
43 Steps……..(4) Use the appropriate tables(5) Fix the compensation level using the regular compensation income.(6) Compute the withholding tax due.
44 Right 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
45 PERSONAL AND ADDITIONAL EXEMPTION Single ,000Married ,000Qualified dependent child ,000
46 On 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
47 On 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
48 IllustrationMr. 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
49 Computation 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
50 Applicable 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
51 Let’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
52 Tax 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, %
53 Illustration: For the month of January 2011, Mrs. A, married with one qualified dependent child, with basic salary equivalent to the SMW, receives P 7, (P 286/day x 313 days/ 12) as statutory monthly minimum wage plus other compensation such as:Commission……………… P 10,000Transportation allowance… ,000Hazard Pay………………… ,000Overtime…………………… ,000Night shift differential…… ,000
54 Computation: Statutory Minimum Wage P 7,460.00 Gross Benefits Hazard pay P 1,000.00Overtime ,000.00Night Shift Differential 2, ,000.00Sub-total P 15,460.00Taxable compensationcommission* P 10,000.00Transportation* , ,000.00Total Taxable Compensation Income P 27,460.00Regular compensation P ,460.00Less: Compensation Level (B-1 col3) ,083.00Excess PAdd: Supplementary compensation(8,000+12,000) ,000.00Total P ,377.00
55 Continuation…..Tax on P7,083 (Line B1, col. 3) PTax on excess (P20,377 x 10%) ,037.70Withholding tax – January 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.
56 ILLUSTRATIVE PROBLEMFor taxable year 2010, WTD Service Company employed Mr. J, married with two qualified dependent children. He received the following compensation for the year:Basic Monthly Salary P 45,000.00Overtime Pay for Nov ,000.00Thirteenth Month Pay ,000.00Other Benefits ,000.00Withholding Tax ,082.00
57 COMPUTATION:ReceivedNon-For the YearTaxableBasic Salary (P45K x 12)540,000.00Overtime (Nov.)5,000.0013th Month Pay45,000.0030,000.0015,000.00Other Benefits12,000.00Totals602,000.00572,000.00Total Gross CompensationLess:Personal exemption50,000.00Additional exemption (2 x P25k)100,000.00Net Taxable Compensation472,000.00Tax Due (using the Income Tax Table)116,600.00Less: Tax Withheld from previous months(Jan-Nov)98,082.27Tax to be collected in Dec 201018,517.73
58 Liability for Tax Employer Responsible for withholding and remittance of correct amount of taxEmployeeResponsible for submission of 1902 / 2305
59 Statements and Returns BIR Form 2316Employer shall furnish the employees NLT 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 indicatedAmong others
60 Statements 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.
61 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
62 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.
63 YEA-Annualized Method STEP 1 - Determine the taxable regular and supplementary compensation paid to the employee for the entire calendar year;STEP 2 - If the employee has previous employment/s within the year, add the amount of taxable compensation paid to the employee by the previous employer.
64 YEA-Annualized Method STEP 3 - Deduct from the aggregate amount of compensation computed in Step 2 the amount of the total personal and additional exemptions of the employee; Personal Exemptions: Single - P50,000 Married P50,000 Additional Exemption: P25,000 for each qualified dependent
65 YEA-Annualized Method STEP 4 - Deduct the amount of premium payments on Health and/or Hospitalization Insurance of employees who have presented evidence that they have paid the same during the taxable year. Note: The deductible amount shall not exceed P2,400/annum or P200/month whichever is lower and total family gross income does not exceed P250,000 for the calendar year.
66 YEA-Annualized Method STEP 6 - Determine the deficiency or excess, if any, of the tax computed in Step 5 over the cumulative tax already deducted and withheld since the beginning of the current calendar year.
67 Annualized Withholding Tax - Formula Gross Compensation (prev. + present) Pxxx Less:Non-Taxable/Exempt Compensation xxx a)13th month pay & other benefits xxx b)Other non-taxable benefits xxx c)SSS, GSIS, PHIC, Pag-ibig and Union Dues (Employees share only) xxx xxx Less: a) Personal and additional exemption xxx b) Health/Hosp. Premium payment xxx xxx Taxable Compensation Income xxx Tax due xxx
68 INCOME TAX TABLE OVER BUT NOT OVER AMOUNT RATE OF EXCESS OVER 10, , % ,00030, , , % ,00070, , , % ,000140, , , % ,000250, , , % ,000500, over , % ,00033% in 199932% in 2000 and thereafter
69 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
70 Sample Problem 1Mr. Dexter, head of the family with a qualified dependent brother receives P12, (net of SSS, Philhealth, HDMF) as monthly regular compensation starting January 1, 2011, he filed his resignation effective June 30, The tax withheld from January to May was P2,900.
71 Computation:Total compensation (Jan. - June) P73, Less: Personal Exemption 50, Net Taxable Compensation P23, Tax Due P 1, Tax Withheld from Jan. to May 2, To be refunded on or before 6/30/02 (P1,100.00)
72 Sample Problem 2Mr. Jacob, married with 2 qualified dependent children received P18,500 monthly compensation (net of SSS, Philhealth, HDMF employees contributions). Taxes withheld from Jan. to Nov. were P8,
73 Computation:Total Compensation (Jan - Nov) P203, Add: Dec. compensation 18, Gross Compensation P222, Less: Personal/additional exemption 150, Total Compensation P 72, Tax due P 8, Less: Tax Withheld 8, Collectible W/tax for Dec. salary P
74 Annual Information Return Manual Submission - 3 copies of 1604CF/1604E Including the alphalist of employees and income payees.Diskette/CD & Submission thru
77 Annual Information Return WAGES EXPANDEDWhat to use: CF E+ alphalist + alphalistWhen to submit: On or before on or beforeJan. 31 ff year March 1 ff yearWhere to submit: RDO RDORetention yrs same
78 Where to file? B I R Revenue District Office RDO 112- Tagum City RDO 113- West Davao CityRDO 132- East Davao CityRDO 114- Mati CityRDO 115-Digos City
79 RMCReiteration of the Applicable Penalties for Employers Who Fail to Withhold, Remit, Do the Year-End Adjustment and Refund Employees of the Excess Withholding Taxes on Compensation
80 Objective: Emphasize the Employers to: 1. Withhold 2. Remit 3. Do the Year-End Adjustment4. Refund employees of the excessof the Withholding Taxes on CompensationSec. 80(A); Sec. 79(H); Sec. 24(A)
81 Sec. 80(A) NIRC, as amended Employer Withhold & Remit Correct amount of taxBIR
82 Sec. 79(H)* On or before year end but prior to payment of the compensation for the last payroll period, the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year - Sec. 24(A).*The difference of the tax due and tax withheld will either be withheld on Dec. or refunded to the employee not later Jan. 25, following year.
83 FORMS TO BE USED For Monthly Remittance: COMPENSATION ==> BIR Form 1601CFor Annual Information Return:COMPENSATION &FINAL ===> BIR Form 1604CFFor Certificate of Taxes Withheld:COMPENSATION ===> BIR Form 2316
84 Annually - On or before Jan. 31 of the following year (RR 3-02) Due Dates:January to November– On or before the 10th day of the following the month, whether W/A is LT or Non-LT (RR 6-01)December - On or before Jan. 15 of the following year, whether W/A is LT or Non-LT (RR 6-01)Annually - On or before Jan. 31 of the following year (RR 3-02)
85 Attachments Required: Alphalist of Employees as of Dec. 31 with No Previous Employer within the Year;Alphalist of Employees as of Dec. 31 with Previous Employer(s) within the year;Alphalist of Employees Terminated before Dec. 31;Alphalist of Employees Whose Compensation Income are Exempt from Withholding Tax but Subject to Withholding TaxAlphalist of Employees other than Rank & File Who Were Given Fringe Benefits During the Year
86 Effectivity of Substituted Filing Optional for taxable year 2001Mandatory effective taxable year 2002
87 n 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
88 Note:An illustrative example on the year-end adjustment is shown under Sec. 2.79(B)(5)(b) of Revenue Regulations (RR) No. 2-98, as amended.
89 Failure to Comply1. Non-withholding of tax - Employer fails to withhold the tax 2. Underwithholding - Employer fails to correctly withhold the tax 3. Non-remittance -Employer fails to remit total amount withhled
90 -Employer’s remittance is less than total amount withheld 4. Underremittance-Employer’s remittance is less than total amount withheld5. Late remittance-Employer remits correct amount withheld beyond the due date6. Failure to refund excess taxes withheld-Employer ails to refund excess taxes withheld to its employees
91 Penalties for Non-Compliance: 1. Additions to the tax: a. Sec Penalties for Non-Compliance: 1. Additions to the tax: a. Sec. 248 – 25% of the amount due (failure) 50% of the amount due (fraud) b. Sec. 249 – 20% interest per annum c. Sec. 251 – other penalties + total tax not withheld d. Sec penalties + refundable amount
92 2. Criminal Liabilities: (upon Conviction) a. Sec 2. Criminal Liabilities: (upon Conviction) a. Sec. 255 – other penalties + P10,000 + imprisonment of 1 yr to 10 yrs b. Sec. 256 – (Corp.) penalties + fine of P50,000 to P100,000 c. Sec. 272 – (Public Officers) penalties + fine of P5000 to P50,000 or imprisonment of 6 mos. to 2 yrs, or both d. Sec. 275 – (no specific penalty) fine of <P1,000 or imprisonment of < 6 mos. Or both
93 Note:In certain instances as provided under Revenue Memorandum Order No , a compromise penalty in lieu of criminal liability may be imposed and collected.
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