1. Withholding Taxes Regulation
Prepared by:
Luz Magdalena A. Bocita
Chief, Assessment Section
Revenue District No. 36, Palawan

2. Implementing Regulation: Revenue Regulation 2-98 of Republic Act 8424
R.A “An Act Amending the National Internal Revenue Code” RR implementing regulation relative to the withholding on Income subject to Expanded Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes

3. Major Categories of Withholding Tax:
Withholding Tax At Source
A. Final Withholding Tax
B. Creditable Withholding Tax
Withholding Tax on Compensation
Withholding of Creditable Value-Added Tax

4. Withholding Tax At Source
Final Withholding Taxes
“the Tax withheld constitutes the full and final payment of income tax due from the payee on the said income.”
Examples:
Interest income from peso bank deposits or any other monetary benefit, or from long-term deposits; royalties on books, cash or property dividends; sale of real property (capital gains tax) ; winnings (in excess of P10,000.00); prizes (except PCSO and lotto winnings), and Fringe Benefits Granted to Employee (except rank and file employee)

5. BIR Forms:
Form Name
1601-F
Monthly remittance Return of Final Income Taxes Withheld
1602
Monthly Remittance Return of Final Income Taxes Withheld
on Interest Paid on Deposits and Yield on Deposit Substitutes/Trusts/etc.
1603
Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits paid to employees Other than
Rank and File Employees
1604-CF
Annual Information Return of Income Taxes
Withheld on Compensation and Final
Withholding Taxes
1706
Capital Gains Tax Return for Onerous Transfer
of real Property Classified as Capital Asset
(both Taxable and Exempt)

6. Withholding Taxes At Source:
B. Creditable Withholding Tax
a. “Taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income”
b. “CREDITABLE” in nature ,
c. The income recipient is required to file an income tax return, to report the income, and/or pay the difference between the tax withheld and the tax due on the income.

7. Income Payments Subject to Withholding Taxes:
Nature of Income Payment
Tax Rate 1.
Professional Fees (lawyers, engineers, CPAs paid to juridical & nonjuridical persons)
10% or 15% 2.
Professional fees (prof. athletes, management and technical consultants, business, bookkeeping services, director’s fees)
10% or
15%
Rentals (whether real and persona property) (RR 5%

8. Income Payments Subject to Withholding Taxes:
Nature of Income Payment
Tax Rate 3.
Payments to Medical Practitioners by duly registered professional partnership
10 or 15% 4.
Payments for Medical/Dental/Veterinary services to Practitioners Paid by hospitals and clinics (RR )
10 % or 15% 5.
Payments by General Professional Partnership to its partners
10% or 15%

9. RR Salient Provision: “Any amount collected for and paid to medical practitioners paid by hospitals and clinics or paid directly to the medical practitioners by health maintenance organizationsn(HMOs) and/or similar establishments at: 15% if income payments to the medical prctioner on the current year exceeds P720,000; or 10% if otherwise.”

10. Income Payments Subject to Withholding Taxes:
Nature of Income Payments
Tax Rate 6.
Income Payments to Certain Contractors
1%or 2% 7.
Income Payments certain brokers
and Agents
10% 8.
Seller of Real Property classified as ordinary asset, sold by individual, corporation who is habitually engaged
in real estate business
1.5%
3% or 6%

11. Examples of Contractors:
General Engineering Contractors(excavation, railroad, highways,streets, and road, paving, surfacing works)
General Building Contractors (any that is in connection with any structure built for support and shelter of person, animal, chattel or movable property.
Specialty Contractors (installtion of water, electric power; transportation, printers, messengerial, janitorial,security, collection agencies or other business agencies, recruitment agencies, collection of garbage, TV and radio airtime, computer services, etc.

12. Income Payments Subject to Withholding Taxes:
Nature of Income Payments
Tax Rate 9.
Seller of Real Property classified as ordinary asset, sold by individual, corporation who is not habitually engaged in real estate business 6% 10
Income Payments made by Top 10,000
Corporations
1% or 2%
11.
Income Payments made by Top 5,000
Individuals

13. Income Payments Subject to Withholding Taxes:
Nature of Income Payments
Tax Rate 12
Income Payments made by the government to its local suppliers of Goods and its Supplier of Service 1% 2%
13.
Income Payments made to Suppliers of agricultural products
14.
Gross Payments to embalmers by funeral companies

14. BIR Forms:
Form Name
1601-E
Monthly remittance Return of Creditable Income Taxes Withheld (Expanded)
1604-E
Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from withholding Tax
1606
Withholding Tax Remittance return For Onerous Transfer of Real Property Other than Capital Asset (both Taxable and Exempt)

15. II. WITHHOLDING TAX ON COMPENSATION
Applicable Regulation: RR “Implementing Pertinent Provisions of reublic Act 9504, an Act which amended R.A. 8424, relative to withholding of Income Tax on Compensation and Other Concerns.”

16. This is a method of collecting the income tax at source upon the receipt of the income of employees, whether citizen or aliens.
Compensation Income, Defined
“all remunerations for services performed by an employee for his employer under an employer-employee relationship.”
- this includes salaries, wages,emoluments and honoraria, allowances, commissions, transportation, representation, entertainment, director’s fees, taxable bonuses, fringe benefits (except subject to fringe benefit tax under Final Withholding Tax)

17. Salient features of RA 9504
defines clearly “de minimis benefits” which are treated as not part of taxable gross compensation of employees because these are “facilities or privileges of relatively small value”
a. Monetized unused vacation leave credits not exceeding 10 days (for private employees) and the moneltized leave credits paid to government officials and employees.

18. “DE MINIMIS BENEFITS”
b. Medical Cash Allowance to employees not exceeding 750 per employee, per sem or P125.00/mo. c. Rice subsidy of not more than P1,500/mo. d. Uniform and clothing allowance not to exceed P4,000.00/annum; e. Actual medical benefits not to exceed P10,000/annum; f. Laundry allowance not to exceed P300/mo; g.Employee’s achievement award not to exceed P10,000/annum

19. “DE MINIMIS BENEFITS”
h. Gifts given during Christmas and major anniversary celebrations not to exceed P5,000 per emp./annum;
Daily meal allowances fo overtime work not exceeding 25% of the basic minimum wage.
RULE: These shall not be included in determining the P30, ceiling of ‘other benefits’, shall be excluded as gross income, and not subect to withholding tax.
In excess of the ceilings shall form part as ‘other benefits’ and it shall be subject to tax only on excess over the P30,000 ceiling.

20. Salient features of R.A.9504
Exemption from Withholding Tax on Compensation to:
a. Minimum Wage Earners (MWEs) being paid under the Statutory Minimum Wage (SMW)
b. Employees in the public sector with compensation income of not more than the SMW in the non-agricultural sector.
The aforesaid income are exempt from Income Tax , hence exempt from withholding tax on compensation.

21. Rule:
Holiday pay, overtime pay, night shift differential pay, hazard pay earned by these earners, shall likewise be exempted.
If these employees earn additional compensation in excess of the statutory amount P30,000, his/her entire earnings are not exempt from income tx, hence, subject to withholding tax.
If engaged in the conduct of trade, business, or profession, his exemption on SMW as MWE shall still be exempt from withholding tax, but respect to his other income, it shall be taxable.

22. Computation of Taxes Withheld:
Requirement of withholding: All employer must withhold from compensation paid an amount computed in accordance with the BIR Regulation. All remunerations that are taxable, exempt fringe benefits received by employees other than rank and file employees.

23. How to compute withholding Tax on Compensation:
I. Using Withholding Tax Table (weekly, semi-monthly, Monthly); or II. Annualized withholding tax method

24. Steps in the Annualized w/tax Method:
Determine the taxable regular and supplementary compensation paid to the employee for the entire calendar year.
If the employee has previous employment within the year, add the taxable regular and supplementary compensation paid be both present and previous employer.
Deduct from the aggregate amount of compensation, the total amount of personal and additional exemptions of the employee.

25. Steps in the Annualized W/Tax Method:
Deduct the amount of premium payments on Health and Hospital Insurance of employees;
Compute the amount of tax bsed on the difference arrived in Step 4 using the income tax table
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 year.

26. The deficiency tax (the amount computed in Step 5 is greater than the cumulative tax withheld) shall be deducted from the last payment of compensation for the calendar year.
The excess tax (when the amount of the cumulative tax withheld is greater than the tax computed in Step 5), it shall be credited and refunded to the employee not later than January 25, of the following year.

27. Employee shall provide the following:
Status (single, married)
Status of spouse, whether, employed or unemployed, engaged in business
Qualified dependents (name and date of birth
-Claimant of exemption for children

28. ConcurrentMultiple Employer
- an employee who is employed concurrently by two or more employers within the same period of time during the taxable year shall provide 1902 to his main employer, and furnish a duly received copy to his second and other employers
Successive Multiple Employment
An employee who transferred to another employer during the taxable year, who shall furnish his new employer with a Certificate of Update of Exemption and of Employer’s and Employee’s Information (BIR Form 2305)indicating therein his previous employments during the taxable year.

29. Mixed Income – An individual receiving a combination of compensation and business/professional income.

30. Liability for Tax Employer
Shall be liable to remit the correct amount of tax, even if he fails to withhold, including the penalties or additions to the tax as provided under Title X of the NIRC.
For failure or refusal to refund not later than January 25 of the following year, he shall be liable to penalty equal to the amount of refund in addition to the peanlties under Title X of the NIRC
Employee
For failure to update information, or wilfully supplies false or inaccurate information, the excess taxes withheld by the employer shall not be refunded but shall be forfeited in favor of the government.

31. Statements and Returns
BIR Forms
Form Name
1601-C
Monthly remittance Return on Income Taxes Withheld on Compensation
1604-CF
Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes
2305
Application for Registration or Certificate of Update of exemption and of Employer’s and Employee’s Information
2316
Certificate of Compensation payment/Tax Withheld

32. Tax Updates Related to this Matter:
Revenue Regulation
“ Every employer required to deduct and withhold tax on compensation shall furnish every employee (Including MWEs) from whose compensation taxes were withheld the Certificate of Compensation Payment/Tax Withheld (BIR Form 2316) on or before January 31 of the succeeding calendar year or if terminated within the year, on the day on which the last payment of compensation is made.

33. On RR
However, in cases covered by substituted filing, the employer shall furnish each employee with the original copy of BIR Form 2316 and file and submit to the BIR the duplicate copy not later than February 28 following the close of the calendar year.

34. Review on Substituted Filing:
Concept:
The employer’s annual return (BIR Form 1604-CF) may be considered as the “substitute” Income Tax return (ITR) of employee inasmuch as the information provided in the income tax return (BIR Form 1700)would exactly be the same information contained in the employer’s annual return (BIR Form 1604-CF)

35. Who are qualified under Substituted Filing?
Employee receives purely compensation income during the year,
The employee receives the income from one employer in the Philippines during the year,
The amount of tax due is equal to tax withheld by the employer,
The employee’s spouse complies the three requirements mentioned in items a,b, and c;
The employer files the annual information return;
The employer issues BIR Form 2316 to each employee

36. III. Withholding of Creditable VAT
In general, payments made by the government or ny of its political subdivisions, instrumentalities or agencies including Government Owned or Controlled Corporations on account of its purchases of goods and services rendered by contractors shall be subject to 5% Final VAT (RR )

37. Withholding Tax on Percentage Tax
Internal Revenue Taxes Required to be withheld on account of government money payments:
1. Persons exempt from VAT %
2. On gross payments to franchises
of electric, gas, and water utilities – 2%
3. Amusement on cockpits %

38. Returns and Payment of Taxes Withheld
BIR Form
Form Name
1600
Monthly remittance Return of Value-Added Tax and Other Percentage Taxes Withheld

39. Requirements: “to deduct the correct tax to be withheld,
to remit on time the taxes withheld
issue Corresponding Certificates of Tax Withheld

40. Remittance:
Remit, 1601C, 1601E, 1601F and/or 1600 on or before the 10th day following month except for the months of December, which fall on the 20th day of January. For EFPS filers due date is extended for another five (5) dys from the regular due dates.

41. Mode of Remittances:
Through Direct Payments through Accredited Agent Banks, or to Revenue Collection Officers designated in the locality, where there is no AAB;
EFPS
-mandated under RR-2001 and reiterated in RMC
eTRAs
Mandated under RR
4. To submit Information returns as Required by existing rules and regulations

42. EFPS (RR 9-2001, as amended) Coverage of EFPS filers:
Large Taxpayers duly Notified by the BIR,
Top 20,000 Private Corporations,
Top 5,000 Individual Taxpayers,
Taxpayers who wishes to enter into contract with government offices,
Corporation with paid-up C/A of P10,000,000 and above,
Peza-Registered entities,
Government Offices, with respect to BIR Form1600 remittances (RR )

43. RMC
Provides for the strict implementation on the compliance hereof, and provides penalties of 1, for each failure to e-file return or e-pay the tax. Only the first and 2nd violation may be compromised, but for third and subsequent violations, it shall be strictly subjected to the provisions of Section 275 of the Tax Code.

44. eTRAs (RR )
Mandates All National Government Agencies (NGAs) to use Electronic Tax remittance Advice (eTRA)

45. 3. To Issue Corresponding Certificates of Tax Withheld
Kind of Tax
Certificate to be Issued
Remitted under What For by WA
Time of Issuance
W/Tax on Compensation
2316
1601-C
On or before January 31 of the succeeding year or on the last salary, if employee is terminated before the year ends
W/Tax (Expanded)
2307
1601-E
20th day after the close of the quarter/upon request of the payee
W/Tax (Final)
2306
1601-F
GVAT
1600
GPT

46. Accountable Government Officials (RMO 8-2003, reiterated under RMC 23-2012
LGUs
Provinces Governors, Provincial Treasurer, Provincial Accountant
City Mayor, City Treasurer, City Accountant
Municipalities - Mayor, Municipal Treasurer, and Municipal Accountants
Barangay Bgy. Captains & Bgy. Treasurer

47. Accountable Government Officials (RMO 8-2003, reiterated under RMC 23-2012
NGAs, GOCCs, Other Government Agencies, Govt Agencies with decentralized Accounting System duly registered with the RDO: Heads of Offices (official with the highest position) and Chief Accountants or persons holding similar position

48. Applicable Penalties for Violation of Withholding Tax provisions:
Section 251 – Under or non-withholding, including non-remittance - collection of the basic tax with penalties under section Section 249,which is 20% interest p.a. and 25% surcharge Section Failure to refund Collection of excess Tax not refunded Section 275 – Failure to do year-end adjustment.

49. Criminal Liabilities
Provided under Title X of the NIRC which may impose penalties ranging from 10,000 – P20, and suffer imprisonment between 1 year but not exceeding 10 years.

50. For Private WAs
“NO DEDUCTION WILL ALSO BE ALLOWED NOTWITHSTANDING PAYMENTS OF WITHHOLDING TAX AT THE TIME OF THE AUDIT INVESTIGATION OR REINVESTIGTION/RECONSIDERATION IN CASES WHERE NO ITHHOLDING OF TX WAS MADE IN ACCORDANCE WITH THE NIRC. “
(Rev. Regulation 12—2013 dated July 12, 2013.)

51. because of conscience.”
“It is necessary to submit to the authorities, not only because of possible punishment but also
because of conscience.”
Romans 13:5