Seminar on Withholding Taxes

Good morning!!!

Presented by:RODITA B. GALANTO, CPA, MBA

INTRODUCTIONWithholding of tax is mandatory if an income payment

is subject to income tax and it falls under any of the types of withholding taxes.

1. Withholding tax an compensation2. Withholding tax expanded3. Final withholding tax4. Withholding tax on government money payment

Withholding tax system is a very effective tool in the collection of taxes. It is widely accepted and used not only in the Philippines but also in other countries. Due to extensive information dissemination in the amendments of the withholding tax scheme likewise revision of rates and expansion of coverage, these resulted to increase in tax collection.

OBJECTIVES1. Realize the importance of the withholding taxes

system.2. To differentiate the various types of withholding

taxes.3. Be able to compute the withholding tax on

compensation, expanded, final and GMP.4. Determine the duties and obligations of a

withholding agent.5. Identify the different withholding tax returns

required to be accomplished and filed by the withholding agent and certificates to be issued to income recipients.

TOPICS● 1. Importance of the withholding tax

system.● 2. Obligations of withholding agents.● 3. Types of withholdings

● What – What types of withholding taxes● Who – Who are required to file● When – Time of withholding● Where – Where to file● How – How these different types of withholding

taxes are computed4. How certificates are issued5. Penalties

IMPORTANCE OF WITHHOLDING TAX SYSTEM1. It encourages voluntary compliance

The advantage of withholding is its built-in effectiveness of collecting the tax before the ability to pay and the ability to collect disappears

2. It reduces cost of collection effort3. It prevents delinquencies and revenue loss4. It prevents dry spell in the fiscal condition of

the government by providing revenues throughout the taxable year.

BIR started implementing strictly the provision of the Withholding Tax Laws when President Marcos issued Executive Order 651 dated February 16, 1981 directing all ministries, bureaus, offices, agencies and instrumentalities of the Philippines, provincial, city or municipal government as well as government owned and controlled corporations to submit to the BIR the name and position of the employee or officer charged with the duty to withhold and remit taxes not later than 60 days from the issuance of this order and any change of designation thereafter shall be reported within 10 days from the date thereof.

Who are designated as Withholding Agents For Barangays : Brgy. Captain

Brgy. TreasurerFor Municipality : Mayor and Cities Treasurer/AccountantProvincial : Provincial Governor

Treasurer/AccountantGovt. Owned and Controlled Corporation : Accountant/Head of Office

DepartmentsBureausAgenciesOther Government Offices

Withholding Agents – is any person or entity who is in control of the payment subject to withholding taxes and therefore required to deduct and remit taxes for the government. A withholding agent can be an individual, corporation, financing institution or government agency.

The responsibility and liability shall not be delegated to subordinate officials and employees.

They shall be jointly and solidarily liable for the additions to tax.

Any public officer or employee presently charge with the responsibility to deduct, withheld and remit taxes who do not qualify, shall be promptly replaced by qualified officer or employees and their designation shall be submitted to the CIR thru the RDO where the government office is located.

OBLIGATION OF THE WITHHOLDING AGENT● 1. To register● 2. To deduct and withheld● 3. To remit and file the tax withheld● 4. To issue certificate● 5. To file annual return

To registerBIR Form 1901 – Self employed, Professionals Estate, Trust,

Mixed income earners.On or before commencement of business

BIR Form 1902 - Compensation earner/seamen

Procedures for the Filing of the Application for Registration

1. All employers shall require their employees to accomplish in triplicate the Application for Registration BIR Form No. 1902.

Original - RDODuplicate – EmployerTriplicate – Employee

a. New employee/s shall accomplish and file the Application for Registration for Individuals Earnings Compensation Income (BIR Form No. 1902) within ten (10) days from the date of employment;

b. BIR Form 2305 used to update any changes in status within the 10 days after the change.

2. Employers shall transmit all copies of the Application to RDO where employer is registered. RDO shall stamped received all copies.

3. The employer shall review the exemptions of the employees and apply the applicable exemptions as provided in this regulations.

4. In case the husband waives his right to claim the additional exemptions of children in favor of wife he shall accomplish a Sworn Declaration and Waiver of Rights to Claim Exemptions of Qualified Dependent.

Name of qualified dependent child(ren) Date of Birth (mm/dd/yyy)

1

2

3

4

Annex “F”SWORN DECLARATION AND WAIVER OF RIGHT

TO CLAIM EXEMPTIONS OF QUALIFIED DEPENDENT CHILDRENIn accordance with the provisions of Section 29 (1) (2) (A) of the National Internal Revenue Code, as amended, I Mr. _________________________________________________, hereby voluntarily depose and say:

●That my wife and I are both income earners;●That we file a joint income tax return on our taxable income;●That I am a (check pls): ___ self employed: ___ engaged in business; ___ practice profession;●That this waiver will be effective for the taxable year _______ and shall continue for the succeeding years unless sooner revoked;●That I hereby waive my right to claim the additional exemption for all our qualified dependent children in favor of my wife presently employed with:

Name of wife: ___________________________________________________________________________________ Name of wife’s employer __________________________________________________________________________ Address of employer ______________________________________________________________________________ TIN of employer ____________________ Tel No. __________________ Fax No. ______________________

I hereby declared under penalties of perjury that the foregoing representations are true and correct and that the waiver of right is voluntarily and knowingly made in accordance with the provisions of the National Internal Revenue Code, as amended._______________________________ __________________ ____________________(Signature of husband over printed name) TIN Date _________________________________________________________________________________________

ACKNOWLEDGEMENT OF HUSBAND’S EMPLOYER● Name of husband’s employer_______________________________________________________________ ● Address of employer _____________________________________________________________________● TIN of employer_________________________ Tel No. _________________ Fax No.

___________________________________________ _________________________ (Signature over printed name of husband’s employer/ Date (mm/dd/yyy) Chief Accountant/Head, Personnel Office)___________________________________________________________________

ACKNOWLEDGEMENT OF WIFE’S EMPLOYERThis is to acknowledge receipt of the above waiver of right to claim additional exemptions of Mr. ____________________________________________ in favor of his wife Mrs/Ms. ____________________________________ who shall be entitled to claim the additional exemptions for all their qualified dependent children effective __________________ ___________. (Month) (taxable year)

● Name of wife’s employer __________________________________________________________________● Address of employer _____________________________________________________________________● TIN of employer _____________________________ Tel No._______________ Fax No.

_________________

__________________________ ___________________________ (Signature over printed name of wife’s employer/ Date (mm/dd/yyy) Chief Accountant/Head, Personnel Office)

Note: If husband engaged in business, disregard the portion on Acknowledgement of Husband’s Employer.Must be signed by both employers of husband and wife before effecting changes in the payroll of their respective employers.

Must be attached to BIR Form No. 2305 or BIR Form No. 1902.

a. Fill up the 3copies of waiverb. Submit the waiver form to his employer within 10

days from employment for acknowledgement in space provided for

The employer of the husband shall:a. After filing up the acknowledgement portion retain the duplicate copy and furnish the employee the original and the triplicate for submission to the employer of wife.

b. Stop deductions of additional exemptions of qualified dependent children from husband compensation starting the following month.

The employer of the wife upon receipt of the waiver duly acknowledged by the employer of the husband, start deducting additional exemptions for children from the wife’s income on the month when the employer of the husband stopped deducting the exemptions of children.

The waiver exercised during the year shall be made only once in a calendar year and shall take effect for present calendar year and succeeding year until revoked by the husband.

Failure to File Application for Registration (BIR Form 1902 or 2305), the employer shall withhold the taxes under the schedule for zero exemption of the revised withholding tax table.

BIR Form 1903 - Government, Corporations and partnership

BIR Form 1904 - Application for TIN – ONETT and under Executive Order 98

BIR Form 1905 - Updating of Status – self employed

To deduct and withheld

Study the Revenue Regulation which will guide you in deducting and withholding taxes or attend seminar like this to update

Go to the website of BIR – www.bir.gov.ph for more information.

As far as compensation is concerned the first thing you need to know is determine the status of the employee. We need to know if he is a minimum wage earner or not.

Let us take note: That an employee with a total annual compensation that do not exceed P60,000.00 annually or P5,000.00 shall be given two option within which to pay his income tax due as follows:

1. His compensation income shall be subject to withholding tax, but he shall not be required to file the income tax return prescribed under Sec. 21 of the Code.

2. His compensation income shall not be subjected to withholding tax but he shall file his annual income tax return and pay the tax due thereon.

When an employee has opted to have his compensation income subjected to withholding tax so as to relieve him of the obligation of filing an income tax return and paying the tax on a lump sum basis, he shall execute a waiver in a prescribed BIR form of his exemption from withholding, which shall constitute the authority for the employer to apply the withholding tax table provided for by the Regulation.

We should know the sources of income that are subjected to withholding taxes.

We will discuss this as we go along each topic.

To remit the tax withheld● Remittance Return take hold of all the BIR

Forms/Returns used and look at the back of the form for deadlines.

1. Compensation – Monthly – BIR Form 1601C2. Expanded – Monthly – BIR Form 1601E

– BIR Form 1606 – for ONETT3. Final withholding tax – BIR Form 1601F Monthly

– BIR Form 1602 – Interest Monthly – BIR Form 1603 – Fringe Benefit - BIR Form 1706 – For ONETT -

Capital Asset4. GMP - Monthly – BIR Form 1600 GVAT – GMPercentatge

To issue CertificatesBIR Form 2316 - Employers certificate of compensation

payment/tax withheld for compensation with or without withheld tax.

BIR Form 2307 - Creditable, GVAT and GMP

BIR Form 2306 - Certificate of Final Tax withheld at source

BIR Form 2304 - Certificate of Income Payment not subject to withholding tax (excluding

compensation)

BIR Form 2305 - Certificate of update of exemption

Annual Information Returns● Including the Alpha list of Employee and Income recipient

Wages and Final - 1604 CF on or before January 31

Expanded - 1604 E on or before March 1

In addition to manually prepared Alpha list of employees and list of payee who are recipients of income payment subjected to creditable and final withholding taxes which form part of annual information returns on income taxes withheld on compensation and final withholding taxes, the withholding agent shall submit CDs containing the said list of taxpayers with more than 10 employees and payees using excel format under 7-2000 or the data entry module which may be downloaded from BIR website.

This shall be submitted to RDO where the employer is registered.

Types of Withholding

Withholding tax on CompensationCompensation on wages – means all

remuneration for services performed by an employee for his employer under an employer – employee relationship unless specifically excluded by the code.

Compensation includes the following:1. Salaries2. Wages3. Emoluments, honoraria4. Allowances (transportation, representation, entertainment, etc.)5. Commission6. Fees, including directors fees, if the director is at

the same time an employee of the corporation.7. Taxable bonuses and fringe benefits except those

that are fringe benefit tax8. Taxable pension and retirement pay

1. Compensation in kind – if paid in property other than money, the employer shall make arrangements to ensure that the amount of tax required to be withheld is available for payment to the Commissioner.

2. Living quarters or meals – if living quarters or meals are provided, the value to such person of the quarter and meals

shall be added to the remuneration for the purpose of determining the amount of compensation subject to withholding.

However, if the living quarters and meals are furnished to the employee for the convenience of the employer, the value thereof need not be included as part of compensation income.

3. Facility and privilege of small value- If offered by the employer merely as a means of

promoting health, goodwill, contentment or efficiency of his employees. These are called de minimis benefits hence not subject to withholding tax.

a. Monetized unused vacation leave for private employees not exceeding 10 days during the year and the monetized leave credits paid to government officials and employees.

b. Medicine cash allowances to dependents of employees not exceeding P750.00 per employees.

c. Rice subsidy of P1,500.00 or 1 sack of 50 kg. rice per month.

d. Uniform and clothing of P4,000.00 per annum – amended to P5,000.00/RR 8-2002.

e. Actual yearly medical benefits not exceeding P10,000.00.

f. Laundry Allowance – P300.00/month.

g. Employees achievement award P10,000.00.

h. Gifts given during Christmas or anniversary not exceeding P5,000.00/annum.

i. Flowers, fruits, banks or similar item is account of illness, marriage, birth, etc.

j. Daily meals allowances for overtime work not exceeding 25% of the basic, minimum wage.

The amount of de minimum benefits, conforming to the ceilings herein prescribed shall not be considered in determining the P30,000.00 ceiling of other benefits excluded from gross income. Provided that the excess of the diminish benefits over the prescribed ceiling shall be considered as other benefits which shall be subject to tax.

Provided further, that MWE receiving other benefits exceeding the P30,000.00 – limit shall be taxable on the excess benefits as well as on his salaries, wages and allowances just like an employee receiving compensation income beyond the SMW.

4. Tips and gratuities – paid directly to an employee by a customer which are not accounted for by the employees to the employer are considered taxable income but not subject to withholding.

5. Pension, retirement and separation pay constitute compensation subject to withholding tax except those provided under sub section B of this section (to be

discussed later.)6. Fix or variable transportation, representation and

other allowances.a. in general these are subject to withholding tax.

Except the following:1. Representation and Transportation Allowance

(RATA) given to public officers or employees under General Appropriation Act.

2. PERA (Personnel Economic Relief Allowances)

3. ACA (Additional Compensation Allowance) given to government personnel shall not be subject to withholding tax pending its personal integration into the basic pay.

ACA shall be classified as part of other benefits effective January 2000 which is excluded from gross compensation income provided the total amount does not exceed P30,000.00.

b. Amount paid for advances, or reimbursement for travelling, representation are not compensation if the following conditions are satisfied.

1. Travelling, representation or entertainment expenses paid or incurred by employee in pursuit of trade, business or profession.

2. Employees is required to liquidate reasonable amount of reimbursement which are computed

daily while in assignment. 7. Vacation and sick leave allowances.

Which are paid to employees constitute compensation.

However, 10 days monetized value of leave for private employees and monetized value of leave credits paid to government employee are not subject to tax.

1. Exemption from withholding taxes on compensation

1. Remuneration received as an incident of employment

a. Retirement benefits under RA 7641 under a reasonable private benefit plan maintained by the employer which meet the following requirements.

1. The plan must be reasonable.2. The plan must be approved by BIR 3. The retiring official or employee must have been

in service of same employer for at least 10 years and is not less than 50 years of age at the time of retirement.

4. The retiring employees should not have availed of the privilege under the retirement benefit plan.

2. Any amount received by an official or employee or by his heirs due to death, sickness or physical disability or for any cause beyond the control of the said employee, such as redundancy, retrenchment or cessation of business.

(This connotes involuntariness is the part of the employee. The separation is not of his own making.)

3. SSS benefits retirement gratuities, pensions and similar benefits.

4. Payments of benefits due to any person residing in the Philippines under the law of the USA administered by United States Veterans Administration.

5. Payment of benefits under SSS Act of 1954.6. Benefits received from GSIS Act of 1937.

2. Remuneration paid for Agricultural Labor (paid thru farm produce)

3. Remuneration for domestic services

4. Remuneration for Casual Labor (not in the course of employees trade)

5. Compensation for services by a citizen for a foreign government or international organization.

6. Damages – actual moral or exemplary and nominal damages received by an employees or his heirs pursuant to a final judgment or compromise agreement.7. Life Insurance – proceeds of life insurance paid to the heirs upon death of the insured.8. Amount received by the insured as a return of premium.9. Compensation for injuries or sickness.

10. Income exempt under treaty.11. 13th month pay or other benefits.12. GSIS, Medicare, SSS and other contribution.13. Compensation of MWE, who work in private sector and being paid by the Statutory Minimum Wage Law so

fixed by Regional Tripartite Wage and Productivity Board, National Wages and Productivity Commission

applicable to the place where be is assigned.

Statutory Minimum Wage (SMW)

Shall refer to the rate fixed by the Regional Tripartite Wages and Productivity Board as defined by Bureau of Labor and Employment Statistics (BLES) and the Department of Labor.

Exemption:1. Holiday Pay2. Overtime Pay3. Night Shift Deferential Pay4. Hazard Pay

SUMMARY OF CURRENT REGIONAL DAILY MINIMUM WAGE RATESNon-Agriculture, Agriculture

As of July 2012 (In pesos)

REGION WO No./ NON- AGRICULTURE

DATE OF EFFECTIVITY AGRICULTURE Plantation Non-Plantation NCR a/ WO 17/June 3, 2012 P 409.00 - 446.00 P 409.00 P 409.00CAR b/ WO 15/June 18, 2012 263.00 - 280.00 246.00 - 262.00 246.00 - 262.00I c/ WO 15/July 25, 2012 233.00 - 253.00 233.00 205.00II d/ WO 15/May 16, 2012 247.00 - 255.00 235.00 - 243.00 235.00 - 243.00III e/ WO 16/June 24, 2011 279.00 - 330.00 264.00 - 300.00 244.00 - 284.00IV-A f/ WO 15/May 15, 2012 255.00 - 349.50 251.00 - 324.50 231.00 - 304.50IV-B g/ WO 05/Nov. 11, 2010 252.00 - 264.00 210.00 - 219.00 190.00 - 199.00V h/ WO 15/ April 7, 2012 228.00 - 252.00 228.00 228.00VI i/ WO 20/ May 31, 2012 235.00 - 277.00 245.00 235.00VII j/ WO16/Sept 22, 2011 260.00 - 305.00 240.00 - 287.00 240.00 - 287.00VIII k/ WO 16/June 1, 2011 253.00 228.00-234.00 213.50IX l/ WO 17/ Nov. 25, 2011 267.00 242.00 222.00X m/ WO 16/July 24, 2011 271.00 - 286.00 259.00 - 274.00 259.00 - 274.00XI n/ WO 17/Jan. 1, 2012301.00 291.00 291.00XII o/ WO 17/April 18, 2012 270.00 248.00 243.00XIII p/ WO 11/November 11, 2011 258.00 248.00 228.00ARMM q/ WO 13/ September 2, 2011 232.00 232.00 232.00

However, employees who receive additional compensation such as commission, honoraria, fringe benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and night differential pay shall not enjoy the privilege of being a Minimum Wage Earner (MWE) and therefore his entire earnings are not exempt from income tax and consequently from withholding tax.

MWE receiving other income such as income from conduct of trade, business or practice of profession are not exempted from income tax on their entire income earned during the taxable year.

This rule not withstanding the SMW, holiday pay, Overtime pay, night shift differential pay and hazard pay shall still be exempted from withholding tax.

Hazard pay – shall mean the amount paid by employer to MWE who were actually assigned to danger or strife – torn areas, disease infected places or in distressed or isolated stations and camps which expose them to great danger of contagion or peril to life.

Any hazard pay paid to MWE which does no satisfy the criteria is deemed subject to income tax and to withholding taxes.

1.Employer shall attached to BIR Form 1601C the following

1. the names of MWE who received hazard pay2. Period of Employment3. Amount of hazard pay per month.4. Justification for payment of hazard pay as

certified by DOLE that the hazard pay is justifiable.

14. Compensation Income of employees in the public sector which compensation income of not more than the SMW in the non-agricultural sector as fixed by Regional Tripartite Wage and Productivity Board or the National Wages and Productivity Commission (NWPC) applicable to where he is assigned.

The basic salary of MWE in the public sector shall be equated to the SMW in the agricultural sector applicable to the place where he is assigned or salary grade 1 to 3.

15. Facilities and privileges of relatively small value or “de minimis” benefits as defined under these regulations.

Computation of Wages- The basis of the computation of the minimum wage

rates prescribed by law shall be the normal working time of eight hours.

The determination of the minimum wage on a monthly basis shall be guided by the prevailing minimum wages as reflected in the latest matrix of wage order and its own policy on whether employers are:1. not considered paid on Saturday and Sunday or rest

days.formula – daily wage x 261 days/12

2. not considered paid on Sunday and rest daydaily wage x 313/12

3. considered paid in rest days, special days and regular holidays

daily wage x 365/124. Required to work everyday including Sundays or rest

days, special days and regular holiday.daily wage x 392.5 days/12

Requirements for withholdingIn general, every employer must withhold from

compensation paid, an amount computed in accordance with these regulation.

Provided, no withholding of tax shall be required in the SMW, including holiday pay, overtime pay, night shift differential and hazard pay of MWE.

Provided further, that an employees who receive additional compensation such as commission, honoraria, fringe benefits is excess of allowable statutory amount of P30,000.00, taxable allowance and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay, night shift differential shall not enjoy the privilege of being an MWE and therefore his/her entire earnings are not exempt from income tax and consequently subject to withholding tax.

Steps to determine the amount of tax to be withheld

1. Determine the total monetary and non-monetary compensation paid to an employee for the payable period segregating gross benefits like:1. 13th month.2. productivity incentive

3. Christmas bonus4. Other benefits5. Employees contribution to SSS, GSIS, HDM, PHIC

and Union deucesGross benefits of P30,000.00 and less shall be

exempted from income and withholding tax.

2. Segregate the taxable from the non-taxable.3. Segregate the taxable compensation income as determined in step 2 into regular compensation income.

1. basic salary2. fixed allowance for representation transportation

and other allowancesSupplementary

1. Commission2. Overtime pay3. Taxable retirement pay4. Taxable bonus5. Other taxable benefits

NOTE: RATA & PERA given to government employees are not subject to income tax

Step 4. Use the appropriate table

Step 5. Fix the compensation level1. Determine the line (horizontal)

corresponding to status and number of qualified dependents

2. Determine the column to be used by taking into account only the total amount of taxable regular compensation income. The compensation level is the amount indicated in the line and column to which the regular compensation income is equal to or in excess, but not to exceed the amount in the next column.

Step 6 – Compute the withholding tax due by adding the tax predetermined in the compensation level indicated at the top of the column, to the tax on the excess of the total regular and supplementary compensation over the compensation level which is computed by multiplying the excess by the rate also indicated at the top of the same column/compensation level .

Example:Mrs. C married with 1 qualified dependent with a

basic salary equivalent to SMW, receives P9,964.00 (382/day x 313 days/12) she receives commission of P10,000.00 – transportation allowance of P2,000.00, hazard of P1,000.00, overtime pay of P500.00 and night shift differential of P2,000.00.

Compute the withholding tax of Mrs. C.Statutory Minimum Wage P 9,964.00Gross Benefits

Hazard P 1,000.00Overtime 5,000.00Night Shift 2,000.00 8,000.00

P17,964.00Add: Taxable Compensation

CommissionP10,000.00Transportation 2,000.00 12,000.00

TOTAL P29,964.00

Regular Compensation P 9,964.00Less: Compensation Level 8,750.00Excess P 1,214.00Add: Supplementary Compensation (8,000 + 12,000) 20,000.00

TOTAL P21,214.00Line 1 Column 4 208.33Tax on excess 21,214 x 15% 3,182.10Withholding tax for the month P 3,390.43

Annualized Withholding Tax Method

Instances when we need to use the Annualized Method of Withholding

1. When employer – employee relationship is terminated before the year ended.

2. When computing for the year-end adjustmentSteps 1. Determine the taxable and supplementary

compensation2. If the employee has previous employment within the

year, add the amount of taxable regular and supplementary compensation paid to the employee by the present employer.

3. Deduct from the aggregate amount of compensation the amount of total personal and additional exemption.

4. Deduct the amount of premium payment on health or hospitalization insurance of employees who have presented evidence that they have paid during the taxable year.

Requisites for deductibility1. Premium payment shall not exceed P2,400.00 annually.2. Family income should not exceed P250,000.00 for the

calendar year. (Family income includes primary income and other income from sources received by all members of the nuclear family.)

3. The spouse claiming the additional exemption for the qualified dependent children shall be the same spouse to claim the deduction for premium payment.

Step 5. Compute the amount of tax on the difference arrived at in Step 4. In accordance with the schedule provided in Sec. 24 (A) of the Code as follows:

Over But not Over Amount/Rate Of Excess OverNot Over 10,000.00 5% -10,000.00 30,000.00 500 + 10% 10,000.0030,000.00 70,000.00 2,500 + 15% 30,000.0070,000.00 140,000.00 8,500 + 20% 70,000.00140,000.00 250,000.00 22,500 + 25% 140,000.00250,000.00 500,000.00 50,000 + 30% 250,000.00500,000.00 over 125,000 + 32% 500,000.00

Step 6. Determine the deficiency if anyIf tax due is greater than the tax withheld from January –

November. The balance be deducted in the salary for December. If the withholding tax is greater than the tax due, the amount shall be refunded by the employer not later than January 15 of the following year. In case of termination the refund shall be given to the employer at the payment of the last compensation during the year.

The employer is entitled to deduct the amount refunded from the remittance amount of taxes withheld from compensation income in the current month in which the refund is made.

Annualized Withholding Tax Format

Gross Compensation Income (Present and Previous Employer)Less: Non-Taxable/Exempt Compensation

13th Month pay xxxOther Non Taxable Benefits xxx

including (de minimis) xxxSSS, GSIS, PHIC, HOME & Union dues xxx xxx

Net Compensation Income xxxLess: Personal Exemption xxx

Additional Exemption xxxHealth Insurance Premium xxx xxx

Taxable Compensation Income xxxTax Due xxxLess: Tax Withheld January – November xxxBalance Payable P xxx

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Example – Mr. J married with 3 children a government officer received basic income of P20,000.00/month,13th month pay of P20,000.00, De Minimis benefit of Uniform Allowance of P6,000.00, Cash Gift of P10,000.00 – last December, PERA of P1,000.00/month, RATA P4,000.00/month and ACA of P500.00/month.

Compute Tax Due:GCI 20,000.00 x 12 240,000.00Less: Non Taxable

13th Month 20,000.00Other Benefits Uniform - 6,000.00 – 5,000.00 1,000.00 Cash Gift – 10,000.00 – 5,000.00 5,000.00 ACA 500.00 x 12 6,000.00

32,000.0030,000.00 2,000.00

Gross Taxable Income 242,000.00Less: GSIS – dues 600 x 12 7,200.00

Philhealth 2,400.00Pag-ibig 2,400.00 12,000.00

Net Taxable Income 230.000.00Less: P. E. 50,000.00

A.E. (25,000 x 3) 75,000.00Less: Insurance Premium 2,400.00 127,400.00Taxable Compensation Income P102,600.00Tax Due 1st 70,000.00 8,500.00

32,600.00 6,520.00 15,020.00Less: Tax withheld January – November 12,000.00 (12,000.00)Withholding Tax for December Balance P 3,020.00

Requirement for deductibility of compensation

Compensation income where no income tax were withheld shall be allowed as deductions from employer’s gross income when the required employees withholding statement (BIR Form 2316) have been issued to subject employees and the Alpha list of the subject employees including MWEs shall be submitted under BIR Form 1604CF.

Right to Claim ExemptionEmployees are entitled to claim exemptionsTo receive the benefits of exemption employees shall file

application for registration under BIR Form 1902 and any update hence forth shall be filed under 2305.

Personal Exemption – P50,000.00Each child to a maximum of 4 P25,000.00 each

Husband shall be the proper claimant of the additional exemption unless he explicitly waives his right in favor of his wife. Provided however, that where the spouses is unemployed

or is a non resident citizen, the employed spouse shall automatically be entitled to claim the additional exemption of children.

The employer should ascertain whether or not the child claimed is a qualified dependent.

Requisites of dependents1. Legitimate, illegitimate2. Legally adopted3. Dependent upon and living with the taxpayer4. Not more than 21 years5. Unmarried6. Not gainfully employed7. Or if such dependent, regardless of age is incapable

of self-support because of mental or physical defect.

1. Marriage Contract2. Birth Certificate of qualified dependent as certified

by Local Civil Registry or NSO3. Certificate of employment of husband if working

abroad.4. Sworn declaration and waiver of right to claim

exemption (in case of wife claims the children as her dependent)5. Medical Certificate of qualified dependent child if

physically and mentally incapacitated6. Court decision of legal adoption of children7. Death Certificate

Application for Registration of Employee – Required attachment

Concurrent multiple employmentsAn employee who is employed concurrently by two or

more employers within the same period of time during the taxable year shall file the Application for Registration (BIR Form No. 1902) with his main employer (employer to whom the said employee renders his services for most of his time during the taxable year) and shall furnish a copy of the duly received Application with his secondary employers (2nd, 3rd, etc. employers). The employed husband and wife shall each file a separate application with their respective employers.

Mixed IncomeAn individual receiving a combination of compensation

and business/professional income shall first deduct the allowable personal and additional exemptions from compensation income only the excess there from can be deducted, from business or professional income.

Requisites for individuals qualified for substituted filing and must not file BIR Form No. 1700 – RR 3-20021. Receiving purely compensation income regardless of

amount;2. Working for only one employer in the Philippines for

the calendar year;3. Income tax has been withheld correctly by the

employer (tax due equals tax withheld);4. The employee’s spouse also complies with all the

three conditions stated above;5. Employer filed to BIR the Annual Information

Returns on Income Taxes Withheld (BIR Form 1604-CF);

6. The employer issues each employee BIR Form No. 2316 (October 2002 ENCS or any later version.)

– is a kind of withholding tax which is prescribed only for certain payment and is creditable against the income tax due of payees for the taxable quarter.

What are the income payments subject to expanded withholding tax

1. Professional fee, talent fees – 15% of gross exceeds P720,000.00 and 10% below P720,000.00.

a. All professional requiring government licensure examination and regulated by PRC and Supreme Court

b. Professional entertainer – actors, actresses, composer, emcee, singers

c. Professional athletesd. All directors, producerse. Insurance agents and adjuster f. Management and technical consultantsg. Bookkeeping agents and agenciesh. Fees of directors whose duties are confined to attending

board meeting.Fees shall include per diems, allowances and other forms of

income payment not subjected to withholding tax on compensation.

Expanded withholding tax

2. Rental

- Real Properties 5%- Personal Properties 5% Pole Satellite and Transmission facilities 5% Bill board 5% Cinematographic film rental 5%

3. Income Payment to certain contractor 2%

General Engineering Contractors Building ContractorsSpecialty ContractorsLabor Recruiting Agency

4. Other Contractors1. Filling, demolition and salvage work and operator of mine

drilling apparatus2. Operation of dockyards3. Persons engaged in the installation of water system and

gas or electric light4. Operator of stevedoring, warehousing or forwarding5. Transportation Contractor6. Printers, lithographers, publishers7. Messenger, janitorial, private detectives, security agency,

credit and collection agency8. Advertising agency9. Independent producer of television, radio and stage

performance10. Independent producers of jingle11. Labor recruiting agencies12. TV and radio station operators on sale of TV and radio

airtime

13. TV and radio block timer on sale of TV and radio commercial

14. Installer of elevator, air conditioning units, computer and maintenance service thereof

15. There engaged in landscaping16. Engage in collection and disposal of garbage

5. Income distribution to beneficiaries – 15% 6. Income payments to certain brokers agents – 10%7. Income payments to partners of general

professional partnership 15% if income payment to partners exceeds P720,000.00 – 10% otherwise

8. Professional fees paid to medical practitioners – 15% if exceeds P720,000.00 – 10% otherwiseA notarized Sworn Declaration of Income shall be

submitted on or before June 30 of the following year to Collection Division

The term medical practitioner shall likewise include medical technologies, allied health other such as occupational therapist, speech therapist, nurses, etc, and other medical practitioners who are not under an employer-employee relationship with the hospital, clinic or HMO and other similar establishment.

AFFIDAVIT – DECLARATION OF CURRENT YEAR’S GROSS INCOME

Republic of the Philippines) Province of Cebu ) City of Cebu )

I, ________________________ also known as ___________________, of legal age, married and residing at _______________________, after being sworn in accordance with law, depose and say that:

1. I received professional/ talent/ service fee as _ (Please check appropriate box/es) ___ Practice of profession or calling ___ Management & technical consultants ___ Professional trainer ___ Bookkeeping agents & agencies ___ Professional athlete ___ Other recipient of talent fees ___ Director ___ Director, who is not an employee of the company ___ Insurance agents & adjusters ___ Juridical person in the practice of profession ___ Others: Specify _________ 2. As such, I have received a gross income of _______________ for the current years as of _______. 3. I am executing this Affidavit – Declaration as a requirement of Revenue Regulations NO. 30-2003 of the Bureau of Internal

Revenue in the determination of the applicable creditable withholding tax rate (10% or 15%) to be imposed by withholding agent/s.

IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of _________ of 20___ in the City of Cebu, Province of

Cebu, Philippines. ____________________

Affiant – Declarant TIN: ___________

SUBSCRIBED and sworn to before me, in the City of Cebu, this _______ day of ____________, 20___affiant exhibiting to me

her Community Tax Certificate No. _____ issued at Cebu City, ______________. Doc. No. _____ Page No. _____ Book No. ____ Series of _____

9. Gross Selling Price or total amount of consideration paid to the seller for sale, exchange or transfer of property classified as ordinary asset

a. Seller is habitually engaged in real estate transactions (Registered with HCURB or HUDCC or consumenated at least 6 taxable transaction during the preceding year

S.P. P 500,000.00 – or less 1.5%S.P. 500,000.00 but not more than

P2,000,000.00 3%S.P. More than 2M 5%

b. Seller/transferor is not habitually engaged in real estate business 6%

10. Additional income payments to government personnel from importer, shipping and airline companies or their agents – 15%

11. Certain income payments made by credit card companies – 1%

12. Income payment by Top 20,000 private corporation to suppliers for goods and services

Supplier of Good - 1%Supplier of Services - 2%

Top 20,000 Corporation are corporations duly notified by the BIR as having satisfied the criteria as top corporation.

a. Net Vat Paid - P100,000.00b. Percentage tax paid -P100,000.00c. Income Tax -P200,000.00d. Gross Sale of P10,000,000.00e. Gross Purchases of P5,000,000.00

Casual Sales/Non Regular Supplier/ Single Purchase

Single purchases of P10,000.00 or more shall be subject to withholding tax

Regular Sales – refers to supplier who are engaged in business for at least 6 transaction regardless of amount.

13. Income payments made by government to its local suppliers

Supplier of Goods - 1%Supplier of Services - 2%

14. Commission of independent and exclusive sales representatives and marketing agents of companies (multi level, marketing companies) – 10%

15. Tolling fees paid to refineries – 5%16. Payments made by pre-need companies to funeral parlors

– 1%17. Payments to embalmer – 1%18. Income payments made to supplier of agricultural

products – 1%19. Income payments on purchase of minerals, mineral

products and quarry resources – 10%20. Meralco payments on gross amount of refund to customer

with active contracts - 25%with terminated contracts - 32%

21. Residential and general services customer whose monthly electric consumption exceed 200 KwH as classified by Meralco - 10%Non residential customer - 20%

Who are required to withhold1. Any juridical person whether engaged or not

engaged in trade or business.

2. Individual with respect to payment made in connection with business.

3. All government offices, including government owned and controlled corporations.

Exemption from withholding1. National government agencies and

instrumentalities2. Persons enjoying exemption from payment of

income tax pursuant to general or special law1. Sale of Real Property by Corporation engaged in

socialized housing project2. Corporation duly registered with Board of

Investment and PEZA3. Corporation exempt from income tax under

Section 30 of the tax code. Like GSIS, SSS, Philhealth, PCSO Philippine Health Insurance Corporation

4. General Professional partnership5. Joint Ventures

Returns and Payment of Taxes withheld at sourceMonthly Return – withholding agent shall remit the withholding

tax expanded under BIR Form 1601E in triplicate copies with Monthly Alpha List of Payees (MAP) attached to the return.

Where to file?- AABs where no AAB – at the municipality where the

principal place of business is located.In case of Sale of Property – ordinary asset BIR Form 1606 –

at the nearest RDO where the property is located.When to file?

- 10th day after the end of each month except for taxes withheld in December of each year which shall be filed on or before January 15 of the following year.

Sale or transfer of properties classified as capital asset – shall be paid within 30 days from the date of notarization.

Revenue Regulation 2-2006

Provides for the mandatory attachment of SAWT (Summary of Alpha List of Withholding Agents of Income Payment subjected to Tax withheld at source to be attached to tax returns like 1700, 1701, 1702Q, 1702, 2550M, 2550Q, 2551M, 2553

To be submitted by payee – recipient of income

Monthly Alpha List of Payees (MAP)Whose income received has been subjected to withholding tax to tax returns

like 1601-E, 1601-F and 1600.

To be prepared by the payor of income

Submit in hard copy attached to the return if 10 income payee only. More than 10 submit in electronic copy with the following options

1. Microsoft excel2. Taxpayer own extract program3. Data Entry Module develop by BIR which

can be downloaded from BIR website http://www.bir.gov.ph

Annual Information ReturnThe withholding agent shall prepare an annual information return using BIR Form 1604-E on or before March 1 of the following year in which payment are made.

3. Final Withholding TaxesUnder the final withholding tax system. The

amount of income tax withheld by the withholding agent constitute as a full and final payment of income tax due from the payee on the said income. The liabilities for payment of tax rest primarily on the payor as a withholding agent. Thus, in case of his failure to withheld the tax or in case of under-withholding the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax return for that particular income.

Income Payments Subject to Final Withholding Tax1. Interest from bank deposit, yield or any monetary benefit

from deposit substitute – 20%2. Royalties on books, as well as other literary works and

musical composition – 10%3. Interest income received by resident individual taxpayer from

a depository bank under the Foreign Currency Deposit System – 7.5%

4. Interest income from long term deposit Holding Period Rate4 years to less than 5 years 5%3 years to less than 4 years 12%Less than 3 years 20%

5. Cash or property dividends 10%Beginning January 1 and thereafter

6. Net Capital gains realized during the taxable year from sale, barter exchange or disposition of shares of stock

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

7. On Capital gains presume to have been realized from sales, exchange or disposition of property classified as capital asset 6%

8. Gross Income derived from contracts by sub contracts from service contractor engaged in petroleum operation 8%

9. Prizes – except prizes amounting to P10,000.00 –and winning from Philippine Charity Sweepstakes and Lotto 10%

10. Tax on branch profit remittance 15%

11. Fringe Benefits granted to the employee (except Rank and file)

Imposed a final tax of34% beginning January 1, 199833% beginning January 1, 199932% beginning January 1, 2000 and thereafter on the grossed up value of fringe benefit granted by employer

Formula:Grossed up value multiplied by rate

12. Informers Reward to Persons Instrumental in discovery of violation of the NIRC and the discovery and seizure of smuggled goods – 10% or

1,000,000 per case which ever is lower.

Withholding tax on Government Money Payments -

The government or any of its political subdivisions, instrumentalities or agencies including government – owned or controlled corporation shall before making payment on account of each purchase of goods and services taxed at 12% VAT under Sec. 106 and 108 of the tax code, deduct and withheld a Final VAT due at a rate of 5%. The 5% unifies the previous rates of 3%, 6% and 8.5%.

The 5% final VAT withholding rate shall represent the Net VAT payable of the seller. The remaining 7% effectively accounts for the standard input VAT for sale of good or services to government in lieu of the actual input VAT directly bitable or ratably appertained to sales. Should actual input VAT attributable to sales to government exceeds 7% of gross payments, the excess may form part of the seller’s expense or cost. On the other hand if actual input VAT attributable to sale to government is less than 7% of gross payment, the difference must be closed to expense or cost.

Assume the following:XYZ – Sold to Municipality the following:Sales 100,000.00 OT 12,000.00Purchases 90,000.00 IN 10,800.00

Government-Computation of withholding Tax on GMP-VAT P 100,000.00

Rate 5%P 5,000.00vvvvvvvvvvv

Computation of withholding Tax Expanded P 100,000.001% Sale of Goods 1%EWT P 1,000.00

vvvvvvvvvvv

XYZ000-123-435 VAT

SALES INVOICE

Sales 100,000.0012% VAT 12,000.00

P112,000.00

Voucher of Municipality

What is the Computation if seller is Non VAT

Voucher of X Municipality

Pay to: XYZ Company

Total Invoice Price P 110,000.00 Less: GMP VAT 5,000.00

EWT 1,000.00 6,000.00 Net Amount Due P106,000.00

ABC CompanyTIN: 000-253-333 Non VAT

Sued to: X MunicipalityTIN:Address:

Sales Goods P 100,000.00

Gross Sales – Sales of Goods 100,000.00 Less: EWT – 1% 1,000.00 GMP – 3% 3,000.00

Total 4,000.00 Net Amount Due P 96,000.00

Remittance of Tax:Use BIR Form 1600 – for GMP Percentage 3,000.00

together with MAPUse BIR Form 1601-E for WT Expanded 1,000.00

Use BIR Form 2307 for GMP Percentage 3,000.00Use BIR Form 2307 for EWT 1,000.00

4,000.00

To be accomplish in quadruplicate and to be given to seller not later than 10th day of the following month.

Certificates to be issue to Supplier

On the Part of the SupplierLet us go back to same problem

Assuming again thatSales 100,000.00Purchases 90,000.00

Sales 100,000.00 x 12% 12,000.00Purchases 90,000.00 x 12% 10,800.00

Output tax 12,000.00Actual Input – 90,000 x 12% 10,800.00Less: Standard Input

100,000.00 x 7% 7,000.00 7,000.00Income and Expense Summary 3,800.00

Net VAT Payable 5,000.00Less: Creditable withholding Input VAT 5,000.00

xJournal Entry to take up sales

Cash 106,000.00Creditable withholding VAT 5,000.00Creditable Expanded 1,000.00

Sales 100,000.00OT 12,000.00

Journal Entry to take up PurchasesPurchases 90,000.00Input 10,800.00

Cash 100,800.00

Journal Entry to reflect the excess of actual input VAT over allowable input of 5% of gross payment/gross sales

OT VAT Payable 12,000.00Income & Expense Summary 3,800.00

15,800.00Input Tax 10,800.00Creditable withholding VAT

5,000.0015,800.00

GOVERNMENT MONEY PAYMENTS CHART

EXP.COD

E

INCOME/EXPENSE PAYMENTS GOODSSERVICE

S

ENTBIR

FORM1601-E

CREDITABLEVATBIR

FORM 1600

GMPFINAL VATBIR

FORM 1600

NON-VATPercenta

geTaxBIR

FORM 1600

FINAL TAXBIR

FORM1601-

F

TOTAL%

MAINTENANCE AND OPERATING EXPENSES03 Communication Services (PLDT,

Smart, etc.)Service 2% NONE 5% 3% 1% or 5%

04 Repairs & Maintenance of Government Service 2% NONE 5% 3% 1% or 5%

Facilities Goods 1% NONE 5% 3% 6% or 4%

05 Repairs & Maintenance of Government Service 2% NONE 5% 3% 1% or 5%

Goods 1% NONE 5% 3% 6% or 4%

07 Supplies & Materials Including Equipment

Goods 1% NONE 5% 3% 6% or 4%

08 RENT: (see NOTE no. 2)

1. Real Property Service 5% NONE 5% 3% 10% or 8%

2. Cinematographic Films Service 5% NONE 5% 3% 10% or 8%

3. Personal Property Service 5% NONE 5% 3% 10% or 8%

08 Property or property rights Service NONE NONE 10% NONE 10%

Revenue Memorandum Circular No. 21-2010 and 23-2012

Reiteration of the Responsibilities of the Officials and Employees of Government Offices for the Withholding of Applicable Taxes on Certain Income Payments and the Imposition of Penalties for Non-Compliance ThereofAPPLICABLE PENALTIES FOR SPECIFIC VIOLATIONS

Section 80(A) of the National Internal Revenue Code (Tax Code), as amended, provides that the employer shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld. Further, it is also required under Section 79(H) that “On or before the end of the calendar year but prior to the 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 in accordance with Section 24(A). The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to November shall either be withheld from his salary in December of the current calendar year or refunded to the employee not later than January 25 of the succeeding year.” Illustrative example on the year-end adjustment is shown under Section 2.79(B)(5)(b) of Revenue Regulations (RR) No. 2-98, as amended.

Failure to comply with the provisions relative to withholding taxes on compensation and its year-end adjustment may result in the following violations of the employer/withholding agent.

1. The following penalties (additions to the tax) are applicable to the following violations all types of withholding taxes.

VIOLATION APPLICABLE/PENALTY ADDITIONS TO THE TAX

BASIS

1. Non-withholding of tax a. Collection of the amount the withholding agent failed to withhold

Section 251, Tax Code

b. 20% Interest Section 249, Tax Code

2. Under-withholding of tax a. Collection of the under-withheld tax Section 251, Tax Code

b. 20% Interest Section 249. Tax Code

3. Non-remittance of tax withheld

a. Collection of the amount withheld but not remitted

Section 251, Tax Code

b. 20% Interest Section 249, Tax Code

4. Late remittance a. 25% Surcharge Section 248, Tax Code

b. 20% Interest Section 249, Tax Code

5. Failure to refund excess taxes withheld (WTC only)

a. Collection of excess tax not refunded Section 252,Tax Code

b. Failure to do the year-end adjustment Section 275,Tax Code

Criminal Liabilities – Aside from the additions to the tax under Title X, Chapter I of the Tax Code as enumerated above, criminal liabilities shall likewise be imposed for the violations under the following provisions of the Code, as follows:

1. Section 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. – Any person required under this Code or by rules and regulations promulgated there under to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten Thousand Pesos (P10,000.00) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an internal revenue office wherein the same was actually filed shall, upon conviction therefore, be punished by a fine of not less than Ten Thousand Pesos (P10,000.00) but not more than Twenty Thousand Pesos (P20,000.00) and suffer imprisonment of not less than one (1) year but not more than three (3) years.

2. Section 256. Penal Liability of Corporations. – Any corporation, association or general co-partnership liable for any of the acts or omissions penalized under this Code, in addition to the penalties imposed herein upon the responsible corporate officers, partners, or employees, shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty Thousand Pesos (P50,000.00) but nor more than One Hundred Thousand Pesos (P100,000.00).

3. Section 272. Violation of Withholding Tax Provision. – Every officer or employee of the Government of the Republic of the Philippines or any of its agencies and instrumentalities, its political subdivisions, as well as government-owned or controlled corporations, including the Bangko Setral ng Pilipinas (BSP), who, under the provisions of this Code or rules and regulations promulgated there under, is charged with the duty to deduct and withhold any internal revenue tax and to remit the same in accordance with the provisions of this Code and other laws is guilty of any offense herein below specified shall, upon conviction for each act or omission be punished by a fine of not less than Five Thousand Pesos (P5,000.00) but not more than Fifty Thousand Pesos (P50,000.00) or suffer imprisonment of not less than six (6) months and one (1) day but not more than two (2) years, or both.

(a)Failing or causing the failure to deduct and withhold any internal revenue tax under any of the withholding tax laws and implementing rules and regulations;

(b) Failing or causing the failure to remit taxes deducted and withheld within the time prescribed by law, and

implementing rules and regulations; and

(c) Failing or causing the failure to file return or statement within the time prescribed, or rendering or furnishing a false or fraudulent return or statement required under the withholding tax laws and rules and regulations.

End of Presentation

Thank You