Presentation on theme: " WITHHOLDING TAX ON COMPENSATION (Revenue Regulations No. 2-98, as amended) Presented by: MS. LILYBETH A. GANER, CPA, MBA Revenue Officer Assessment Division."— Presentation transcript:
WITHHOLDING TAX ON COMPENSATION (Revenue Regulations No. 2-98, as amended) Presented by: MS. LILYBETH A. GANER, CPA, MBA 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, 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 Exemptions (cont…)
(c) Social security benefits, retirement gratuities, pensions and other similar benefits received by residents, non-resident citizens and resident aliens Exemptions (cont…)
(d) Payments of benefits due or to become due to any person residing in the Philippines under the law of the United States administered by the United States Veterans Administration; (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, and the retirement gratuity received by government officials and employees. 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. 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, Medicare and other contributions (HDMF and Union Dues)
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 P5.00 on May 1) 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
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.
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, which must be in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under 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.
the application for registration should be accomplished by both employer and employee relating to the following:
(A)Employee: Name/TIN, address & more as indicated in form 1902 Status– single, married, others If married: Status of spouse - name/TIN - employed, abroad, ETB, unemployed Qualified dependents Name, date of birth of QDC
Claimant of exemption for QDC Husband, wife if Husband is unemployed NRC, income from foreign sources WAIVES HIS RIG HT TO CLAIM EXEMPTION for all children and attach the sworn declaration to his 1902 and that of his wife’s
Required forms and attachments: birth certificate marriage contract if married birth 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
sworn declaration and waiver of right to claim exemptions of QDC ( Annex “ F” ) medical cert of QDC, if incapacitated court decision of legally adopted children death certificate other documentary evidence
Concurrent multiple employments: Shall file 1902 to his primary employer and furnish copy to his secondary employer/s Successive 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 separation attach form 2316 (Cert. of compensation payment/ tax withheld) for compensation payment with or without w/holding tax for the CY issued by prev. employers.
Mixed Income 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.)
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- acknowledge Duplicate H- employer Triplicate- employee Original- W’s employer Stop deducting W- employer: Deduct on the mo H- employer Stopped deducting
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
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
(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 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
PERSONAL AND ADDITIONAL EXEMPTION Single 50,000 Married 50,000 Qualified dependent child 25,000
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
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, (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
Computation: Statutory Minimum Wage P 7, Gross Benefits Hazard pay P 1, Overtime 5, Night Shift Differential 2, , Sub-total P 15, Taxable compensation commission* P 10, Transportation* 2, , Total Taxable Compensation Income P 27, Regular compensation P 7, Less: Compensation Level (B-1 col3) 7, Excess P Add: Supplementary compensation(8,000+12,000) 20, Total P 20,377.00
Continuation….. Tax on P7,083 (Line B1, col. 3) P Tax on excess (P20,377 x 10%) 2, Withholding tax – January 2011 P 2, *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.
ILLUSTRATIVE PROBLEM For 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 SalaryP 45, Overtime Pay for Nov. 5, Thirteenth Month Pay 45, Other Benefits 12, Withholding Tax 98,082.00
COMPUTATION:ReceivedNon- For the YearTaxable Basic Salary (P45K x 12) 540, Overtime (Nov.) 5, th Month Pay 45, , , Other Benefits 12, Totals 602, , , Total Gross Compensation 572, Less:Personal exemption 50, Additional exemption (2 x P25k) 50, , Net Taxable Compensation 472, Tax Due (using the Income Tax Table) 116, Less: Tax Withheld from previous months(Jan-Nov) 98, Tax to be collected in Dec ,517.73
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 NLT 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 Among others
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
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. Year-End Adjustment
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. 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 MarriedP50,000 Additional Exemption: P25,000 for each qualified dependent 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. 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. YEA-Annualized Method
Gross Compensation (prev. + present)Pxxx Less:Non-Taxable/Exempt Compensation xxx a)13th month pay & other benefits xxx b)Other non-taxable benefitsxxx 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 Annualized Withholding Tax - Formula
OVER BUT NOT OVER AMOUNT RATE OF EXCESS OVER Not over 10,0000 5% 10,000 30, % 10,000 30,000 70,000 2, % 30,000 70, ,000 8, % 70, , ,000 22, % 140, , ,000 50, % 250, ,000 over 125, % 500,000 33% in % in 2000 and thereafter INCOME TAX TABLE
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
Mr. 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. Sample Problem 1
Total compensation (Jan. - June)P73, Less: Personal Exemption 50, Net Taxable CompensationP23, Tax DueP 1, Tax Withheld from Jan. to May 2, To be refunded on or before 6/30/02 (P1,100.00) Computation:
Mr. 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, Sample Problem 2
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 Computation:
JManual Submission - 3 copies of 1604CF/1604E Including the alphalist of employees and income payees. JDiskette/CD & Submission thru Annual Information Return
WAGES EXPANDED What to use: 1604CF 1604 E + alphalist + alphalist When to submit: On or before on or before Jan. 31 ff year March 1 ff year Where to submit:RDORDO Retention 3 yrs same Annual Information Return
Where to file? B I R Revenue District Office RDO 112- Tagum City RDO 113- West Davao City RDO 132- East Davao City RDO 114- Mati City RDO 115-Digos City
Reiteration 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
Emphasize the Employers to: 1. Withhold 2. Remit 3. Do the Year-End Adjustment 4. Refund employees of the excess of the Withholding Taxes on Compensation Sec. 80(A); Sec. 79(H); Sec. 24(A) Objective:
Sec. 80(A) NIRC, as amended Withhold & Remit Correct amount of tax Employer BIR
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.
FORMS TO BE USED For Monthly Remittance: COMPENSATION ==> BIR Form 1601CBIR Form 1601C For Annual Information Return: COMPENSATION & FINAL ===> BIR Form 1604CFBIR Form 1604CF For Certificate of Taxes Withheld: COMPENSATION ===> BIR Form 2316BIR Form 2316
Due Dates: January to November– On or before the 10 th 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)
Attachments Required: 1.Alphalist of Employees as of Dec. 31 with No Previous Employer within the Year; 2.Alphalist of Employees as of Dec. 31 with Previous Employer(s) within the year; 3.Alphalist of Employees Terminated before Dec. 31; 4.Alphalist of Employees Whose Compensation Income are Exempt from Withholding Tax but Subject to Withholding Tax 5.Alphalist of Employees other than Rank & File Who Were Given Fringe Benefits During the Year
* Optional for taxable year 2001 * Mandatory effective taxable year 2002 Effectivity of Substituted Filing
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
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. Note:
1. 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 Failure to Comply
4. Underremittance -Employer’s remittance is less than total amount withheld 5. Late remittance -Employer remits correct amount withheld beyond the due date 6. Failure to refund excess taxes withheld -Employer ails to refund excess taxes withheld to its employees
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
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
In certain instances as provided under Revenue Memorandum Order No , a compromise penalty in lieu of criminal liability may be imposed and collected. Note: