WITHHOLDING TAX ON COMPENSATION

1. WITHHOLDING TAX ON COMPENSATION (Revenue Regulations No. 2-98, as amended) Presented by: MS. LILYBETH A. GANER, CPA, MBA 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, as follows: (a) Retirement benefits received under RA No. 7461 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 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.

6. 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.

7. 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

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 30,000 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”

10. Exemptions (cont…) 13. Compensation income of MWEs who work in the private sector and being paid the Statutory Minimum Wageapplicable to the place where he is assigned.

11. Latest Minimum Wage per RR 5-2011 • in Region XI : • P 286.00 + 5.00 – Non-Agricultural Sector • P 276.00 + 5.00 – 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 pay • overtime pay • night shift differential pay • hazard 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. 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. Take note!

15. 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. Hazard Pay

16. 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(As amended by RR 5-2011)

17. 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; DE MINIMIS BENEFITS

18. 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

19. 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 BENEFITS

20. 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.

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, others • If married: • Status of spouse - name/TIN - employed, abroad, ETB, unemployed • Qualified dependents • Name, date of birth of QDC

23. 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

24. 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

25. 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

26. 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.

27. 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.)

28. 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)

29. Duplicate – Employer Original - RDO Triplicate – Employee Employer: review , compute, withheld & apply exemptions File copy File copy

30. 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

31. 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

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 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

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

36. 2. For those who do not work and are not considered paid on Sundays or rest day

37. 3. For those who do not work but are considered paid on rest days, special days and regular holidays

38. 4. For those who are required to work everyday including Sundays or rest day, special days & regular holidays:

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. 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 Use of WTax Table

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 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

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. 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 Right to claim WT exemption

45. PERSONAL AND ADDITIONAL EXEMPTION

46. 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

47. 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 On exemptions

48. 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. 2011.

49. Regular compensation P 12,000.00 Less : compensation level(line A-2 column 5) 10,000.00 Excess 2,000.00 Add: Supplementary compensation 5,000.00 7,000.00 Tax on P10,000 708.33 Tax on excess (P7,000 x 20%) 1,400.00 Withholding tax for Jan. 2011 P 2,108.33 Computation

50. Applicable Wtax Table