Lecture Witholding Tax

WITHHOLDING TAX AT SOURCE(Revenue Regulations No. 2-98, as amended)Presented by:

Ms. Susan D. Tusoy, cpa, mpsAsst. Chief, Assessment DivisionRR 19- Davao City

Importance of Withholding Tax SystemIt is an effective tool in the collection of taxes for the following reasons:

It encourages voluntary compliance;It reduces cost of collection effort;It prevents delinquencies and revenue loss; andIt prevents dry spells in the fiscal condition of the government by providing revenues throughout the taxable year.

Types of Withholding TaxesWithholding Tax on Compensation

Expanded Withholding Tax

Final Withholding Tax; and

Withholding Tax on Government Money Payment

I. REGISTER1901 SELF-EMPLOYED/PROFESSIONALS/TRUST

1903 CORPORATIONS / GOCC /PARTNERSHIP

1903 GOVERNMENT AGENCIES / LGUs

WHEN: ON OR BEFORE COMMENCEMENT OF BUSINESS/ BEFORE PAYMENT OF ANY TAX DUE/ UPON FILING A RETURN 10 DAYS AFTER BECOMING AN EMPLOYER ( SEC 2.83.6 Rev. Regulations No. 2-98)

WHERE: RDO

II. WITHHOLD TAXES

TIMETAX BASECOMPENSATIONWHEN PAID / CONTRUCTIVELY PAIDTAXABLE COMPENSATION INCOMEEXPANDED GMP (VAT PAYEE)WHEN PAID / PAYABLEGROSS PAYMENT(NET OF VAT)GMP (NON VAT PAYEE)WHEN PAID / PAYABLEGROSS PAYMENTFINAL OTHER FINALWHEN PAID / PAYABLEGROSS PAYMENTFRINGE BENEFITS WHEN PAID GROSS UP MONETARY VALUE

III. WITHHOLING TAX REMITTANCE

TYPESFORMMANUAL FILING/PAYMENTEFPS FILINGEFPS PAYMENTCOMPEN-SATION1601-C10th day of the ff month except for the month of December which is due on the Jan. 15

Staggered Filing (RR 26-2002)15th day of the ff month except for the month of December which is due on the Jan. 20

EXPANDED1601-EBANKS1602Real Property(Ordinary Asset)1606 10th day of the ff month Not applicableNot applicableFINALOTHER FINAL1601-F10th day of the ff month Staggered Filing (RR 26-2002)15th day of the ff month W/TAX ONVAT & PERCENTAGE1600 (ALPHALIST)10th day of the ff month10th day of the ff month10th day of the ff month FRINGE BENEFITS160310th day of the month following the end of the qtr. 15th day of the month ff the end of the quarter15th day of the month ff the end of the quarter

IV. WITHHOLDING TAX CERTIFICATES

TYPESFORMTIMECOMPENSATION2316Jan 31 of the ff yearFor terminated employees - last payment of salaryEXPANDED2304 (Exempt)20 days ff. close of the quarteror upon demand2307 (Taxable)GOVT. MONEY PAYMENTS2307For Non-VAT : 10th day of the ff month2306For VAT : 10th day on the month ff monthFINAL TAX2306Jan. 31 of the following yearFRINGE BENEFITS2306Jan. 31 of the following year

V. ANNUAL RETURNS

TYPEFORMDESCRIPTIONTIMECOMPEN-SATION1604 CFAlphalist of employees

Less than 10 employees manual filing10 employees or more - softcopyeFPS Filer - e-attachJan. 31 of the ff yearEXPANDED1604EAlphalist of payees

Less than 10 payees manual filing10 payees or more - softcopyeFPS Filer - e-attachMarch 1 of the ff year

DIFFERENCE: FINAL AND CREDITABLE WITHHOLDING TAX

FINAL CREDITABLE the amount of income tax withheld by the withholding agent is constituted as a full & final payment taxes withheld are intended to equal the tax due of the payee on the said income liability rests with the payor as withholding agent the income recipient is still required to file an income tax return payee is not required to file an ITR for the particular income

EXPANDED WITHHOLDING TAX

Persons Required to Deduct & withholdJuridical persons, whether or not engaged in trade or business;Individuals in connection with his trade or business, however, individual buyers of real properties are also constituted as withholding agents;All government offices.

INCOME PAYMENTS SUBJEC TO EWTDESCRIPTION

A. Professional fees, talent fees, etc., for services rendered by individuals

15% if gross income exceeds P720T 10% if otherwise On the gross professional, promotional and talent fees or any other form of remuneration for the services rendered.Those engaged in the practice of professionProfessional entertainersProfessional athletesDirectors and producers of movies, stage, etc.Insurance agents and adjustersManagement and technical consultantsBookkeeping agents and agenciesOther recipients of talent feesFees of directors who are not employees of the company.


DISCLOSURE REQUIREMENT Every individual shall periodically disclose his gross income for the current year to the BIR by submitting a Notarized Sworn Declaration to the Collection Division

Can also be filed by the income payor on behalf of the professionals/talents/directors whose services were being rendered exclusively to the aforesaid payor;

Should be filed on June 30 of each year or w/in 15 days after the end of the month the professional/talent/directors income reaches P720T, w/ever comes first.


B. Professional Fees, talent fees, etc., for services of taxable juridical persons

C. Rentals 15% if gross income exceeds P720T 10% if otherwise On the gross professional, promotional and talent fees or any other form of remuneration for the services rendered.

On real properties 5%

On personal properties - on gross rental or lease in excess of p10,000 annually

Poles, satellites and transmission facilities 5%

Billboards 5%


D. Cinematographic film rental and other payments

Income Payments to certain contractors

Income distribution to the beneficiaries 5% on gross payment

2% on gross payments of the ff:

- General engineering contractors - General building contractors - Specialty contractors - other contractors

15% on the income distributed to the beneficiaries of estates and trusts


G. Gross payments to certain brokers and agents

Income payments to partners of general professional partnerships10% on gross commissions or service fees

On income payments made to partners such as drawings, advances, sharings, allowances and stipends

15% if gross income exceeds P720T 10% if otherwise

INCOME PAYMENTS SUBJECT TO EWTDESCRIPTION

Professional fees paid to medical practitioners15% if gross income exceeds P720T 10% if otherwise

On PF paid by hospitals or clinics, or paid directly to the medical practitioners by patients who were admitted and confined

PF paid by HMOs to medical practitioners

It shall be the duty of the hosp./clinic/HMO to remit taxes withheld from professional fees

The W/tax shall not apply if there is proof that no PF has in fact been charged in a form of sworn declaration

The hosp shall inform the BIR about any medical practitioner who fails or refuses to execute the sworn declaration within ten days from occurrence.


J. Gross selling price or total amount of consideration or its equivalent paid to seller/owner for the sale, exchange, or transfer of real property classified ad ordinary assetHospitals and clinics shall submit the names and address of medical practitioners every 15th day after end of each quarter

The hospitals and clinics shall be responsible for the accurate computation, timely remittance and issuance of withholding tax certificates

Seller/transferor is exempt from CWT in accordance with Sec. 2.57.5 of the regulation

Seller/transferor is habitually engaged in the real estate business:Selling price is P500k of less - 1.5%SP P2M - 3.0%SP


Additional income payments to govt. personnel from importers, shipping and airline companies

Certain income payments made by credit card companies

Income payments made by the top 20K private corp to their local/resident supplier of goods/services other than those covered by other wtax ratesOn gross additional payments to govt. personnel for overtime services as authorized by law - 15%

1% on 1/2of the gross amounts paid

Supplier of goods 1%Supplier of services 2%


Income payments made by the govt. to its local/resident supplier of goods/services other than those covered by other wtax rates

Commissions of independent and/or exclusive sales representatives, and marketing agents and companiesSupplier of goods 1%Supplier of services 2%

10% on gross commissions, rebates, discounts, and other similar considerations


Tolling fees paid to refineries

Payments made by pre-need companies to funeral parlor

Payments to embalmers

Income payments to suppliers of agricultural products5% on gross processing/tolling fees

1% on gross payments

1% on gross payment

1%

On Agricultural Products*For purchases involving agricultural products in their original state, the tax required to be withheld shall only apply to purchases in excess of the cumulative amount of P300,000.00 within the same taxable year.

Illustration:

Number of Transactions YearPurchase AmountOne2009P 90,000Two2010 320,000One2011 400,000One201290,000

Amount of EWT:In 2009 - not subjectIn 2010 - P20,000 x 1% = P200.00In 2011 - P100,000 x 2% = P1,000In 2012 - not subject

On Agricultural ProductsAgricultural Products in their original state shall only include:


Income payments on purchases to minerals, mineral products and quarry resources as defined and discussed in Sec. 151 of the Tax Code

MERALCO payments

Interest income on the refund paid either through direct payment or application against customers billing by other electric distribution utilities.10% on income payments

10% / 20%

10% / 20%

FINAL WITHHOLDING TAX

Income Payments Subject to Final Withholding Tax:Interest from any peso bank deposit, and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements 20%Royalties (except on books as well as other literary works and musical compositions 20%Prizes (except prizes amounting to P10,000.00 or less ) 20%Winnings (except Philippines Charity Sweepstakes Winnings and lotto winnings ) - 20%

Income Payments Subject to Final Withholding Tax:Royalties on books, as well as other literary works and musical compositions 10%Interest income received by a resident individual taxpayer from a depository bank under the Foreign Currency Deposit System 7.5%

Income Payments Subject to Final Withholding Tax:Cash and/or property dividends (received by individuals) - 10%Net capital gains from sale, barter, exchange of shares of stocks in a domestic (except through stock exchange ):

Not over P100,000.00 - 5%On any amount in excess of P100,000.00 10%

Income Payments Subject to Final Withholding Tax:On capital gains from sale, exchange, or other disposition of real property classified as capital assets - 6%Interest income from long-term deposit or investment :

Four years to less than five years 5% Three years to less than four years 12% Less than three years 20%

ON GOVERNMENT MONEY PAYMENTS

RMC 56-2009

RA 9337 NIRC3%on gross payment for the purchase of goods6%on gross receipts for services by contractors 8.5%on government public works contractors

5% Final VAT

Contractors by the government or any of its political subdivisions, instrumentalities or agencies, including government-owned and controlled corporations (GOCCs)Final Withholding VAT on Government Purchases

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATCommunication Services (Smart, PLDT, etc)2%3%5%Repairs and Maintenance of Govt. Facilities and Vehicles2%3%5%Transport of Goods, Merchandise, Cargo domestic air, sea & land (w/in the Phils) 2%3%5% domestic air, sea & land (Phils to foreign country)2%nonenone Intl. air & sea (Phils. To Foreign)2%3%none

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATTransport of Passengers:

domestic air, & sea (w/in the Phils) 2%none5% domestic land (w/in the Phils)2%3%none Intl. air & sea (Phils. To Foreign)2%3%nonePurchase of Supplies & Materials, including equipments1%3%5%

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment for Rental of Properties 1. Real Property5%3%5% 2. Cinematographic films5%3%5% 3. Personal Property (in excess of P10,000 except financial leasing)5%3%5%Payment for: a. Use or Lease of property or property rights to non-resident ownerNoneNone12% b. Services rendered by local insurance companies with respect to reinsurance premiums payable to non-residents

None

None

12% c. Other services rendered in the Phils. by non-residentsNoneNone12%

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment to Water Distribution Utilities Manila Water Company, Inc.2%None5% Maynilad Water Services, Inc. (MWSI)*2%None5% *Income Tax Holiday up to Dec. 31, 2009 (BIR Ruling No. DA-278-2009)nonenone5% Other Water Utilities2%2%5%

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment to Power Distribution Utilities2%None5% Meralco, VECO, etc. Electric Coops 1. Registered with NEAnonenone5% 2. Registered with CDA a. Do not transact with non-membersnonenone5% b. Transacting w/ members & non-mem b.1 With membersnonenone5% b.2 With members and have an accumulated reserves and undivided net savings of not more than P10Mnonenone5% b.3 With members and have an accumulated reserves and undivided net savings of more than P10Mnonenone5%

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment to Cooperatives (other than Electric Cooperatives duly registered with CDA)

SERVICES A. 1. With BIR issued exemption certificate -nonenonenone 2. W/o BIR issued exemption certificate2%none5%GOODS B. 1. With BIR exemption certificatenonenonenone 2. Without BIR exemption certificate 1%none5%Payment for Trainings and Seminars2%3%5%Purchase of Gasoline/Petroleum Products1%3%5%For Services Rendered by Gasoline Stations2%3%5%

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment of Insurance Premiums Non-Life2%3%5% Life2%5%nonePayment for Purchase of Library Books1%noneNonePayment for Purchase of Other Library Materials1%3%5%Payment for Services of the contractors: Security, Janitorial, Maintenance of aircon, computers, elevators, etc.2%3%5%Payment of Professional Services rendered by GPPnone3%5%Payment of Professional Fee paid to Juridical Person10% or 15%3%5%Payment of Professional Fee paid to Individuals10% or 15%3%5%

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment for Purchase of Other Goods (for casual or single purchase of P10k & above)1%3%5%Payment for Purchase of Agricultural Products (except corn, coconut etc. per RR 6-2009)1%nonenonePayment of Commissions or Service Fees Paid to Customs, Insurance, Real Estate, Stock, Immigration and Commercial Brokers10%3%5%Payment for Purchase of Services other than those covered by other rates of withholding tax (RR 17-2003) (for single or casual purchase or P10k & above)

2%

3%

5%For Purchase of Land Classified as Ordinary Asset1.5%, 3%, 5% or 6%3%5%

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATFor Land Improvements - goods -services1%2%3%3%5%5%For Buildings and Improvements Straight Contract (Labor & Materials)-Service2%3%5% Separate Invoice/Billing for Materials-goods1%3%5% Separate Invoice/Billing for Labor2%3%5%For Furniture, Fixtures, and Equipment1%3%5%For Information Technology (IT) Equipment - Services - Goods1%2%3%3%5%5%Payment to Radio & TV Broadcasting Companies Whose Annual Gross Receipts do not exceed P10M and who are Non-VAT reg. TP2%3%nonePayment to Agents of Foreign Insurance Companies Insurance Agents2%10%none

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment to Agents of Foreign Insurance Companies Owner of the Property2%5%nonePayment for Sale, barter or exchange of stocksListed and traded through Local Stock Exchange2% of 1%nonePayment for shares of stock sold or exchanged through initial and secondary public offering -not over 2% -over 25% but not exceeding 33 1/3% - Over 33 1/3%

2%2%2%

4%2%1%

NoneNonenone

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATPayment to Banks and Non-Bank Financial Intermediaries performing quasi-banking functions (Sec. 121 of RA 8424 as amended by RA 9337)

On interests, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived: - Maturity period is 5 years or less - Maturity period is more than 5 years

2. On dividends and equity shares and net income of subsidiaries

2%

2%2%

2%

5%

5%1%

0%

None

noneNone

none

CREDITABLEFINALNATURE OF INCOME PAYMENTINCOME TAX % TAXVATOn the following payments treated as gross income under Sec. 32 of the Tax Code: -Royalties -Rental of Property -Profits for exchange and all other items treated as gross income

None 5%none

7%7%7%

NoneNoneNoneOn the net trading gains within the taxable year on foreign currency, debt securities, derivatives, and other similar financial instruments

None

7%

None

IllustrationThe Office of the Provincial Capitol of Davao del Sur purchased the following goods and services for the month of Feb. 2011. Invoice PriceRice-P50,000.00Construction Materials - 44,800.00Repair of Aircon Units- 22,400.00Rental of equipments- 33,600.00Compute for the withholding tax on government money payments assuming the seller is: a) Non-VAT registered b) VAT taxpayer

Answer Non VAT Supplier

Invoice Price Tax BaseTax RateEWTGMP % TaxRice50,000.0050,000.00EWT 1% 500.00NoneConst. Materials44,800.0044,800.00EWT 1%GMP 3% 448.001,344.00Repair of Aircon Untis22,400.0022,400.00EWT 2%GMP 3% 448.00 672.00Rental of Equipments33,600.0033,600.00EWT 5%GMP 3% 1,680.001,008.00

Answer VAT Supplier

Invoice Price Tax BaseTax RateEWTGMP VATRice50,000.0050,000.00EWT 1% 500.00NoneConst. Materials44,800.0040,000.00EWT 1%GMP 5% 400.00 2,000.00Repair of Aircon Untis22,400.0020,000.00EWT 2%GMP 5% 400.00

1,000.00Rental of Equipments33,600.0030,000.00EWT 5%GMP 5% 1,500.00

1,500.00

FRINGE BENEFITS TAX (FBT)

fringe benefit means any goods, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees), such as, but not limited to the following:

Housing;

Expense Account;

Vehicle of any kind;

Household personnel;

Interest on loan at less than market rate ;

Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs/similar organizations;

Expenses for foreign travel;

Fringe Benefit (Cont.)(8) Holiday and vacation expenses;

(9) Educational assistance to the employee or his dependents;

(10) Life or health insurance and other non-life insurance premiums

Fringe Benefits Granted to the Employee (Except Rank and File Employee) 32%

on the grossed-up monetary value of fringe benefits granted or furnished by the employer to his employees.

Exception:

if the fringe benefits are required by the nature of or necessary to the trade, business or profession of the employer, or where such fringe benefit is for the convenience and advantage of the employer shall not be subject to the fringe benefits tax.

WITHHOLDING TAX ON COMPENSATION(Revenue Regulations No. 2-98, as amended)Presented by:

Sheila Joy C. BenedictoRevenue OfficerRDO 113-West Davao

Compensation Income DefinedCompensation means all remuneration for services performed by an employee for his employer under an employee-employer relationship unless exempted by the Code.

Exemptions from withholding tax on compensation1. Remunerations received as an incident of employment (retirement/separation)

2. Remuneration paid for agricultural labor

3. Remuneration for domestic services

4. Remuneration for casual labor not in the course of an employers trade or business

Exemptions (cont)Compensation for services by a citizen or resident of the Philippines to a Foreign Government or an International Organization;DamagesLife InsuranceAmount Received by the Insured as a Return of Premium

Exemptions (cont)

9. Compensation for Injuries or sickness10. Income Exempt Under Treaty11. GSIS, SSS, Medicare and other contributions (HDMF and Union Dues)

Exemptions (cont)12. Thirteenth(13th) Month Pay and Other Benefits not exceeding P 30,000 Other Benefits such as Christmas bonusProductivityLoyalty AwardGifts in cash or in kindOther benefits of similar natureExcess over the prescribed ceiling of the de minimis benefits

DE MINIMIS BENEFITSa.) Monetized unused vacation leave credits of employees not exceeding 10 days during the year the monetized value of leave credits paid to government officials and employees b.) Medical cash allowance to dependentsNot exceeding P750/employee/semester or P125/month

DE MINIMIS BENEFITSc) Rice subsidy of P1,500 or 1 sack of 50 kg rice per month amounting to not more than P 1,500.

d.) Uniform and clothing allowance not exceeding P4,000/ annum

e.) Actual yearly medical benefits not exceeding P10,000 per annum

f.) Laundry allowance not exceeding P 300.00 /month

g.) Employees achievement awards in the form of tangible personal property other than cash or gift certificate with annual value not exceeding P10,000 under established written planh.) gifts given during Christmas and major anniversary celebrations - P5,000/annum/employee

DE MINIMIS BENEFITS

DE MINIMIS BENEFITSi.) Flowers, fruits, books or similar items

j.) daily meal allowance for overtime not to exceed 25% of basic min. wage.

DE MINIMIS RulesDE 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.

Exemptions (cont) 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.

The following compensation received by minimum wage earners shall likewise be exempt from income tax:holiday payovertime paynight shift differential payhazard pay

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 WME.

Take Note!MWEs receiving other income from business or practice of profession, except income subject to Final Tax, shall be subject to Income Tax on their entire incomeSMW, Holiday pay, overtime pay, night shift differential pay, and hazard pay shall still be exempt from WT

Hazard Pay the amount paid by the employer to MWEsActually assigned to danger or strife-torn areasDisease-infested placesDistressed 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.

Hazardous EmploymentThe employer shall attach to BIR Form 1601C for the months of March, June, Sept., and Dec. A copy of the List submitted to the nearest DOLE Regional/Provincial Office showing the names of the MWEs who received the hazard pay; period of employment;amount of hazard pay per month; andJustification of payment of hazard pay

CautionAny reduction or diminution of wages for purposes of exemption from Income Tax shall constitute misrepresentation and therefore, shall result to automatic disallowance of expense on the part of the employer.

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.

SMW in the public sectorThe determination of the SMW in the public sector shall likewise adopt the same procedures and consideration as those of the private sector, except:In case of hazardous employment the employer shall attach to BIR Form 1601C for the months of March, June, Sept., and Dec. a copy of DBM Circular/s, or equivalent, as to who are allowed to receive hazard pay.

SMW in the public sectorThe basic salary of MWEs in the public sector shall be equated to the SMW in the non-agricultural sector applicable to the place where he/she is assigned.

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

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

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

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

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

Salient FeaturesSec. 22 Definitionstatutory 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).

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 & beyondSec. 2.79. (B) Computation of Withholding tax

Use of WTax TableFour Tables for monthly, semi-monthly, weekly, and daily

Each tax table is groups 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

Steps to determine the amount of tax to be withheldDetermine 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

(3.)Segregate the taxable compensation income determined in step 3 into regular taxable compensation income and supplementary compensation.Regular compensation basic salary, fixed allowances for representation, transportation and other allowancesSupplementary 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..

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.Illustration

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

Applicable Wtax Table

Lets Check:Withholding tax Jan. 2011 = P 2,108.33Withholding Tax (Feb.- Dec.11) 1,108.33 x 11 12,191.63Total P14,299.66 Gross Income P149,000.00Exemption Single 50,000.00Taxable Income P 99,000.00 Tax due P 14,300.00

Tax Table

But notOf excessOveroverAmount rateoverNot over 10,000.00 5% 10,000.00 30,000.00 P500 + 10% 10,000.00 30,000.00 70,000.00 2,500 + 15% 30,000.00 70,000.00 140,000.00 8,500 + 20% 70,000.00 140,000.00 250,000.00 22,500 + 25% 140,000.00 250,000.00 500,000.00 50,000 + 30% 250,000.00 500,000.00 over 125,000 + 32% 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 7,460.00 (P 286/day x 313 days/ 12) as statutory monthly minimum wage plus other compensation such as:Commission.. . P 10,000Transportation allowance.. 2,000Hazard Pay. 1,000Overtime 5,000Night shift differential 2,000

Computation:

Statutory Minimum Wage P 7,460.00Gross BenefitsHazard pay P 1,000.00Overtime 5,000.00Night Shift Differential 2,000.00 8,000.00Sub-total P 15,460.00Taxable compensationcommission* P 10,000.00Transportation* 2,000.00 12,000.00Total Taxable Compensation Income P 27,460.00

Regular compensation P 7,460.00Less: Compensation Level (B-1 col3) 7,083.00Excess P 377.00Add: Supplementary compensation(8,000+12,000) 20,000.00Total P 20,377.00

Continuation..

Tax on P7,083 (Line B1, col. 3) P 41.67Tax on excess (P20,377 x 10%) 2,037.70Withholding tax January 2011 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.

Tax Table

But notOf excessOveroverAmount rateoverNot over 10,000.00 5% 10,000.00 30,000.00 P500 + 10% 10,000.00 30,000.00 70,000.00 2,500 + 15% 30,000.00 70,000.00 140,000.00 8,500 + 20% 70,000.00 140,000.00 250,000.00 22,500 + 25% 140,000.00 250,000.00 500,000.00 50,000 + 30% 250,000.00 500,000.00 over 125,000 + 32% 500,000.00

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 SalaryP 45,000.00Overtime Pay for Nov. 5,000.00Thirteenth Month Pay 45,000.00Other Benefits 12,000.00Withholding Tax 98,082.00

Right to claim WT exemptionAn 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 Employers and Employees Information

PERSONAL AND ADDITIONAL EXEMPTION

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

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 employed

As if it occurred at the close of such year

Requirement for deductibilityCompensation where no income taxes were withheld shall be allowed as deduction when form 2316 is issued to the employees;Alphabetical list of employees whose compensation are exempt from withholding tax but subject to income tax shall be submitted together with the form 1604-CF;If with previous/successive employers BIR form 2316 and/or ITR filed

RegistrationUse BIR Form 1902 for new employeesSubmit to the employer within10 days from date of employment Use BIR Form 2305 in case of change/s of information data in previously submitted 1902Submit to the employer within 10 days after the following changesStatusPersonal and additional exemptionEmployment or working status of the spouseMultiple employment statusAmount of compensation income

RegistrationThe employer shall review the exemptions of the employeesThe employer shall transmit all copies after accomplishing the employers portion to the RDO where the employer is registered within thirty (30) days following its receipt from the employeeRegistration of employees shall be at the RDO having jurisdiction over the employees place of assignmentIn case of multiple employment, it shall be at the RDO where the main employer is registered

Additional requisites (cont.)

a) Marriage contract b.) Birth certificate of each qualified dependent (child(ren) certified by the Local Civil Registry Office/National Statistics Office/equivalent document issued by government office

Additional requisites (cont..)Certificate of employment of husband if he is working abroad;Sworn Declaration and Waiver of Right to Claim Exemptions of Qualified Dependent Chil(dren) by the husband in case wife is claiming the additional exemption

e.) Medical Certificate of qualified dependent child, if physically/mentally incapacitated;

f.) Court decision of legal adoption of children

g.) Death certificate

Additional requisites (cont.)

Failure to Register / UpdateFailure to file 1902The employer shall withhold under zero exemptionFailure to file 2305The employer shall withhold based on the reported exemption existing prior to the change of such statusAny refund/under-withholding shall be covered by the penalties prescribed under Sec. 80 of the Code

WaiverH is the proper claimant of dependent childrenW shall claim full additional exemptionH is unemployedH is non-resident citizen deriving income from foreign sourcesH waives his rightIn case H waives his right to claim the additional exemptionShall accomplish Sworn declaration and waiver of Right to Claim Exemptions of Qualified Dependent Children

Liability for TaxEmployerResponsible for withholding and remittance of correct amount of taxEmployeeResponsible for submission of 1902 / 2305

Statements and ReturnsBIR 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

Statements and ReturnsForm 2316 cont.It shall be signed by both the employers authorized representative and the employeeShall contain a written declaration that it is made under the penalties of perjuryShall contain a certification that the employers 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.

Statements and ReturnsForm 2316 continuedThe applicable box for MWEs shall be indicated (under the enhanced form). This serves as proof of financial capacity for purposes of loans, etcIn case of successive employment during the taxable year, an extra copy of BIR Form 2316 shall be furnished to his new employer

Statements and ReturnsBIR Form 1604CF Annual Info ReturnDue date: Jan. 31 of the succeeding yearEmployers with centralized accounting system, or those mandated to consolidate remittances (large taxpayers), shall prepare alphalist on a regional basis or per branch office, due to the identification of SMW per region where the employee is assigned, which shall be submitted to the BIR where the head office is registered

Statements and ReturnsRequirement for List of PayeesLess than ten (10) payeesManually prepared alphalistWith ten(10) or more payeesManually prepared alphalist + softcopyIn diskette/cd/or email: [email protected]

Transitory Provision5. For those who shall register for the 1st time, BIR Form 1902 shall be submitted to the RDO either to his principal/head office of employment/ place of business or place of residence of the employee-taxpayer at the option of the latter

BASIC CONCEPT OFYEAR -END ADJUSTMENT

Compensation Income-netLess: Exemption (single)Taxable IncomeTax DueLess: Tax Withheld Jan-NovEVENPAYABLEREFUNDABLE A B C200,000 200,000 200,000 50,000 50,000 50,000150,000 150,000 150,000 25,000 25,000 25,000 25,000 22,500 27,000 0__ 2,500 (2,000)

Annualized ComputationTo be used when the employer-employee relationship is terminated before the end of the calendar year;When computing for the year-end adjustment

Steps in the annualized computation1. Determine the taxable regular and supplementary compensationIf the employee has previous employment during the year, add the taxable regular and supplementary compensation paid to the present employerDeduct the personal and additional exemptions of the employee

Steps in the annualized computation4. Deduct the amount of premium payments on health and/or hospitalization insurance on employeesPresent proof of premium payments (origl. OR)Deductible amount shall not exceed P2,400 or P200/monthAggregate family income shall not exceed P250,000Form 2316 or Cert. of Gross Income (Annex E of RR 10-2008) to prove the aggregate income of the nuclear family

Note: the spouse claiming the additional exemptions for the QDC shall be the same spouse to claim the deductions for premium payments.

Steps in the annualized computationCompute the amount of tax Determine the deficiency or excessif Tax due > W/tax, the employer shall pay difference Is a matter of settlement between the employer and employeeIf tax due < w/tax, the employer shall refund not later than Jan.25

Illustrative problem # 1Ms. Jally Vi, single with a qualified dependent brother receives P18,000 (net of SSS, PHIC and Pag-ibig contributions of P1,000/mo.) as monthly regular compensation starting January 1, 2010. On June 1, 2010, he filed his resignation effective June 30, 2010 and was not reemployed for the rest of the year. 13th month pay and other benefits received amounted to P 10,000. The tax withheld from January to May was P15,208.75.

Answer Total Compensation (Jan. 1 May 31, 2010) P 90,000.00Add Compensation to be received on June 18,000.00Gross compensation (Jan. to June 2010) P108,000.00Less Personal Exemption 50,000.00Net Taxable Compensation P 58,000.00Tax Due P 6,700.00*Less Tax Withheld from Jan. to May 15,208.75To be refunded to Ms. Jally Vi (P 8,508.75) *Tax on P30,000 - P 2,500 Tax on excess (P28,000 x 15%) 4,200 Tax on P83,000.00 P 6,700

Illustrative Problem # 2Mr. Jacob, married with 2 qualified dependent children received P14,500 monthly compensation (net of SSS, Philhealth, HDMF employees contributions). Taxes withheld from Jan. to Nov. were P8,158.00.

Computation:Total Compensation (Jan - Nov)P159,500.00Add: Dec. compensation 14,500.00Gross CompensationP174,000.00Less: Personal/additional exemption 100,000.00 Total CompensationP 74,000.00

Tax dueP 9,300.00Less: Tax Withheld 8,158.00 Collectible W/tax for Dec. salaryP 1,142.00

Gross Compensation Income (present + previous employer) P xxxLess: Non-taxable/Exempt Compensation Incomea.) 13th month pay and other benefits30,000b.) Other non-taxable benefits incl. de-minimis xxc.) SSS, GSIS,PHIC, HDMF& Union Dues (employees share only) xx xxx

Less:a.) Personal and additional exemption xxb.) Health /Hospitalization premium payment (if applicable) xx xxxTaxable Compensation Income xxxx====Tax Due xxxTax Withheld (Jan. Nov. OR termination date) xxxCollectible: Tax due > tax withheld Collect before payment of last wage

Refund: Tax due < tax withheld Refund on or before Jan. 25th of the year /last payment of wage

Break even: Tax due = tax withheldDo not withhold for Dec. salaryAnnualized Withholding Tax

Seminar on Annualized Withholding Tax (Year-End Adjustment) and Substituted Filing (BIR Form 1700)

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Annual Information Return (BIR Form 1604CF / 1604-E) Including the Alphabetical List of Employees and Income Recipient

Manual submission 3 copies of 1604CF / 1604E + alphalist of employees and income payees.

2. Diskette Submission ten (10) or more number of employees or payees who are recipient of income payments subject to creditable and final withholding tax, are required to submit 3.5 inch floppy disk using any of the following options:

1. Excel Format Provided under Revenue Regulation No. 7 2000 with technical specification with validation module prescribed byBIR.

2. Own extract program that shall meet the requirements specified in RR 7 2000 with validation module prescribed by BIR.

3. Data Entry Module using Visual Fox Pro.

The alphabetical list of employees separate listing of the ff.:Employees terminated before December 31;Employees whose compensation income are exempt from withholding tax but subject to income tax;Employees whose compensation income are exempt from withholding tax and not subject to income tax (minimum wage earners);Employees as of December 31 without previous employment during the year;

Annual Information Return of Income taxes withheld on compensation and final withholding taxes (Form 1604-CF version June 2008)

(5) Employees as of December 31 with previous employment; (6) Employees who received fringe benefits subjected to fringe benefit tax; andAlien employees subject to final tax

Annual Information Return of Income taxes withheld on compensation and final withholding taxes (Form 1604-CF version June 2008)


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Receiving purely compensation income regardless of amount;

Working for only one employer in the Philippines for the calendar year;

Income tax has been withheld correctly by the employer (tax due equals tax withheld);

The employees spouse also complies with all the three conditions stated above, and

Employer filed to BIR the Annual Information Returns on Income Taxes Withheld (BIR Form 1604-CF).

Note: All of the above requisites must be present. The Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) filed by their respective employers duly stamped Received, shall be tantamount to the substituted filing of income tax returns by said employees.

1.

2.

3.

5.

Individuals qualified for substituted filing and must not file BIR Form No. 1700

4.


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Proof of financial capacity for purposes of loan, credit card, or other applications;Proof of payment of tax or for availing tax credit in the employees home country; Securing travel tax exemption, when necessary; and

Other purposes with various government agencies.

Uses of BIR Form 2316

u

v

w

x

WHERE TO FILE:

BIR (Collection Division of the Regional Office having jurisdiction over the taxpayers principal place of business/Large Taxpayers Collection Division for large taxpayers in Metro Manila/LTDO for large taxpayers outside Metro-Manila)

IN 3 COPIESOriginal - BIR Collection DivisionDuplicate - BIR Withholding Tax DivisionTriplicate - taxpayers copy

(copy furnished all payors)

MANDATORY ATTACHMENTS :

SUMMARY ALPHALIST OF WITHHOLDING AGENTS OF INCOME PAYMENTS SUBJECTED TO TAX WITHHELD AT SOURCE (SAWT) TO TAX RETURNS WITH CLAIMED TAX CREDITS DUE TO CREDITABLE TAX WITHHELD AT SOURCE

2. MONTHLY ALPHALIST OF PAYEES (MAP) WHOSE INCOME RECEIVED HAVE BEEN SUBJECTED TO WITHHOLDING TAX IN THE WITHHOLDING TAX REMITTANCE RETURN FILED BY THE WITHHOLDING AGENT/PAYOR OF INCOME PAYMENTS

REVENUE REGULATIONS NO. 2-2006

SAWT- defined a consolidated Summary alphalist of withholding agents from whom income was earned or received and subjected to withholding tax

S- Summary A- Alphalist of withholding agentsW- subjected to WithholdingT- Tax

SAWT - definedto be submitted by the payee-recipient of income as attachment to its duly filed return for a given period

which Summary List contains a summary of information showing, among others, total amounts of income/gross sales/gross receipts and

claimed tax credits taken from all Certificates of Creditable Withholding Tax at Source (BIR Form Nos. 2307/2304/2306/2316) issued by the payors of income payment

FORMATAnnex A BIR REGISTERED NAME TRADE NAMEADDRESSTINSUMMARY ALPHALIST OF WITHHOLDING AGENTS OF INCOME PAYMENTS SUBJECTED TO WITHHOLDING TAX AT SOURCE (SAWT)From _______________ to _________________I declare under the penalties of perjury, that this certificate has been made in good faith, verified by me, and to the best of my knowledge and belief, is true and correct pursuant to the provisions of the NIRC, and the regulations issued under the authority thereof ; that the information contained herein completely reflects a summary of information on all Certificates of Creditable Withholding Tax at Source (BIR Form No. 2307/2304/2306/2316) issued by the payor; that, the income payments has been declared part of the gross income/receipt in the our Income Tax/ VAT/ Percentage Tax Returns where the taxable income was earned or received; that, the information appearing herein is consistent with the information contained in the Certificate of Tax Withheld at Source and that, inconsistent information shall result to denial of the claims for refund/tax credit. __________________________ Signature over printed nameTaxpayer/Authorized representativeAttachments to BIR Form Nos. 1700, 1701Q, 1701, 1702Q, 1702, 2550M, 2550Q, 2551M, 2553

Seq no.1TINInclu-ding branch code2Registered name (Alphalist)3Return period FromMm/dd/yy4aReturn PeriodToMm/dd/yy4bATC5Nature of income payment6AMOUNTTax base7Tax rate8Tax Withheld912345 TOTAL AMOUNTP

Monthly Alphalist of Payees(MAP)is a consolidated alphalist of income earners from whom taxes have been withheld by the payor of income for a given return period and in whose behalf, the taxes were remitted.

It contains a summary of information on taxes withheld and remitted through the monthly remittance returns (BIR Form Nos. 1601-E, 1601-F, 1600) showing , among others, total amounts of income/gross sales/gross receipts and taxes withheld and remitted.

FORMATAnnex B BIR REGISTERED NAME TRADE NAMEADDRESSTINMONTHLY ALPHALIST OF PAYEES (MAP)RETURN PERIOD (mm/yyyy)I declare under the penalties of perjury, that this has been made in good faith, verified by me, and to the best of my knowledge and belief, is true and correct pursuant to the provisions of the NIRC, and the regulations issued under the authority thereof; that the information contained herein completely reflects all income payments with the corresponding taxes withheld from payees are duly remitted to the BIR and proper Certificates of Creditable Withholding Tax at Source (BIR Form Nos. 2304/2307/2306/2316) have been issued to payees; that, the information appearing herein shall be consistent with the total amount remitted and that, inconsistent information shall result to denial of the claims for expenses. __________________________ Signature over printed nameTaxpayer/Authorized representativeAttachments to BIR Form Nos. 1601-E, 1601-F, 1600

Seq no.1TINInclu-ding branch code2Registered Name(Alphalist)3Return periodmm/yy4ATC5Nature of income payment6AMOUNTTax base7Tax rate8Tax Withheld912345 TOTAL AMOUNT P

SAWT/MAP Below 10 payees - hard copy

10 or more payees - 3.5 diskette

EFPS regardless of the - e-attachnumber of income payees/ income recipient

Returns required to be filed with SAWT & Certificate of Creditable Tax Withheld at SourceBIR Form No. 1701QBIR Form No. 1701BIR Form No. 1700 BIR Form No. 1702QBIR Form No. 1702BIR Form No. 2550QBIR Form No. 2550MBIR Form No. 2551M BIR Form No. 2553

INCOME RECIPIENTS (PAYEES)Note: Transactions beg. Jan. 1, 2006 1702Q/1701Q WITH SAWT 2005 Annual ITR (calendar Jan-Dec) DUE APRIL 15, 2006 NO SAWT

Returns required to be filed with MAP

BIR Form No. 1601-EMonthly Remittance Return of Creditable Income Taxes Withheld (Expanded Withholding tax)BIR Form No. 1601-F Monthly Remittance Return of Final Taxes WithheldBIR Form No. 1600 Monthly Remittance Return of Value Added Tax and Other Percentage Taxes (Under RAs 1051, 4649, 8241 and

The return with the attached MAP shall be filed in three (3) copies to be distributed as follows:Original copy of return with attached MAP - BIR copyDuplicate copy of return with attached MAP - BIR copyTriplicate copy of return with attached MAP - taxpayers file copy

WITHHOLDING AGENTS (PAYORS)

FOR MANUAL/ E-FILERSMAPs shall start JAN 2006To be remitted FEB 10thWith existing MonthlyAlphabetical List

Sheet1

MAP ATTACHMENT BY

WITHHOLDING AGENT (PAYOR)

JANFEBMARAPR

1601-E

1601-F

1600 *

1ST QTR2ND Q3RD QFINAL RETURN

Sheet2

Sheet3

Required Format in the Submission/ attachment of SAWT/ MAP The SAWT/MAP shall be submitted/attached to the return and shall contain all the required information in the prescribed electronic format using any of the following:Option 1Microsoft Excel Format;Option 2Taxpayers own extract program; orOption 3Data Entry Module developed by the BIR that will be available upon request / downloadable from the BIRs web site at http://www.bir.gov.ph with the corresponding job aid to be provided by the BIR.

For those who will choose option 1 or 2, they are required to use a validation module of the BIR which can either be downloaded from the BIR-web or made available in diskette form upon request.Only readable diskettes/CD shall be considered as duly filed or attached to the required return. The RDO/LTS/LTDO shall upload the contents of all the diskettes received within thirty (30) days from receipt of the return.

Required Format in the Submission/ attachment of SAWT/ MAP

RETENTION OF THE HARD COPY OF THE CERTIFICATES OF TAX WITHHELD It shall always be retained within the period prescribed in the law for the preservation of books of accounts and accounting records and presentation of said hard copy may be requested during audit to prove the tax credits arising from withholding taxes which are being claimed in the tax returns filed.

PENALTY PROVISION a person who fails to file, keep or supply a statement, list, or information required herein on the date prescribed therefor shall pay, upon notice and demand by the CIR, an administrative penalty of One Thousand Pesos (P1,000) for each such failure, unless it is satisfactorily shown that such failure is due to reasonable causes and not due to willful neglect.

For this purpose, the failure to supply the required information shall constitute a single act or omission punishable thereof. However, the aggregate amount to be imposed for all such failures during the year shall not exceed Twenty Five Thousand Pesos (P25,000).

PENALTY PROVISIONIn addition to the imposition of administrative penalty, willful failure by such person to keep any record and to supply the correct and accurate information at the time required herein, shall be subject to the criminal penalty under the relevant provisions of the Tax Code of 1997, upon conviction of the offender.

The imposition of any of the penalties under the Tax Code of 1997 and the compromise of the criminal penalty on such violations, notwithstanding, shall not in any manner relieve the violating taxpayer from the obligation to submit the required documents

PENALTY PROVISION

Finally, the corresponding administrative penalty shall be imposed on every violation of the provisions of these Regulations, upon due notice and demand by the CIR. second offense - A subpoena duces tecum for the submission of the required documents shall be issued on the. third offense shall set the motion for a criminal prosecution of the offender.

In cases where a violation hereof is allowed to be compromised, the submission of the unsubmitted lists should always form part of the obligation of the taxpayer to be embodied in the compromise agreement.

The end

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 **

Lecture Witholding Tax

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Transcript of Lecture Witholding Tax