Withholding Tax

Index for Withholding Tax

• Codal Reference And Related Issuances
• Importance Of Withholding Tax System
• Persons Required To Withhold Withholding Taxes
• Classification Of Withholding Taxes
• Withholding Tax On Compensation
• Responsibilities Of The Employer
• Exemptions And Exclusions From Gross Income
• Minimum Wage Earners
• De Minimis Benefits Not Subject To Withholding Tax
• Withholding Tax Table
• Annual Tax Table
• Year-End-Adjustment
• Withholding Tax Forms
• Mode Of Filing And Payment
• Substituted Filing
• Expanded Withholding Tax
• Final Withholding Tax
• Fringe Benefits Granted To Employees (Except Rank And File Employees)
• Withholding Tax On Government Money Payments (Gmp) - Percentage Taxes
  

CODAL REFERENCE AND RELATED ISSUANCES

Republic Act Nos. 8424, 9337, 9442, 9504, 10963

Sections 57 to 58 and 78 to 83 of the National Internal Revenue Code (NIRC)

Revenue Regulation Nos. 2-98, 17-2003, 30-2003, 10-2008, 11-2018

Revenue Memorandum Circular Nos. 72-2004, 91-2010, 50-2018, 51-2018

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IMPORTANCE OF WITHHOLDING TAX SYSTEM

It is considered as 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; and
• It prevents dry spell in the fiscal conditions of the government by providing revenues throughout the taxable year.

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PERSONS REQUIRED TO WITHHOLD WITHHOLDING TAXES

• Individuals engaged in business or practiced of profession
• Non-individuals (corporations, associations, partnertship, cooperatives) whether engaged in business or not
• Government agencies and its instrumentalities (National Government Agentcies (NGAs), Government-owned or Controlled Corporations (GOCCs), Local Government Units including Baranggays (LGUs

A WITHHOLDING AGENT - is any person or entity who is in control of the payment subject to withholding tax and therefore is required to deduct and remit taxes withheld to the government.

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CLASSIFICATION OF WITHHOLDING TAXES

• Creditable withholding tax   

1. 1. Compensation - is the tax withheld from income payments to individuals arising from an employer-employee relationship.
   2. Expanded - is a kind of withholding tax which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned.
   3. Withholding Tax on GMP - Value Added Taxes (GVAT) - is the tax withheld by National Government Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations (GOCCs) and local government units (LGUs), before making any payments to VAT registered taxpayers/suppliers/payees on account of their purchases of goods and services.
   4. Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the tax withheld by National Government Agencies (NGAs) and  instrumentalities, including government-owned and controlled corporations (GOCCs) and local government units (LGUs), before making any payments to non-VAT registered taxpayers/suppliers/payees

• Final Withholding Tax is a kind of withholding tax which is prescribed on certain income payments and is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the particular income subjected to final withholding tax.

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WITHHOLDING TAX ON COMPENSATION

Compensation or Wages - refers to all remuneration for services performed by an employee for his employer under an employee-employer relationships unless exempted by the NIRC and pertinent laws.

KINDS OF COMPENSATION

• Regular

1. Basic Salary
2. Fixed allowances

• Supplmentary

1. Commission
2. Overtime pay
3. Fees, including directors fees
4. Profit sharing
5. Monetized vacation leave in excess of ten (10) days
6. Sick leave
7. Fringe benefits received by rank and file employees
8. Hazard pay
9. Taxable 13th month pay and other benefits
10. Other remuneration received from an employee-employer relationships

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RESPONSIBILITIES OF THE EMPLOYER

• Submit the duly accomplished BIR Form Nos. 1902 and/or 1905 to the RDO within thirty (30) days from receipt;
• Withhold the tax due from the employees following the prescribed manner;
• Remit the amount of tax withheld from the employee within the prescribed due dates;
• Do the year-end adjustment;
• Submit Annual Information return (BIR Form 1604-C, 1604-F and 1604-E), including the required alphabetical list of employees/payees on or before January 31 following the close of the calendar year;
• Issue the Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) to the employees; and
• Refund excess tax withheld.

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EXEMPTIONS AND EXCLUSIONS FROM GROSS INCOME

1. Remuneration received as an incident of employment (RA 7641; those with approved reasonable private retirement plan; Social Security Act of 1954, as amended; GSIS Act of 1937, as amended; and etc.
2. Remuneration paid for agricultural labor;
3. Remuneration for domestic services;
4. Remuneration for casual labor not in the course of an employer's trade or business;
5. Compensation for services by a citizen or a resident of the Philippines for a foreign government or international organization;
6. Damages (Actual, moral, exemplary and nominal);
7. Life insurance;
8. Amounts received by the insured as a return of premium;
9. Compensation for injuries or sickness;
10. Income exempt under treaty
11. 13th Month pay and other benefits
12. GSIS, SSS, Medicare and other contributions (employee's share only)
13. Compensation income of minimum wage earners (MWEs) who work in the private sector and being paid the Statutory Minimum Wage (SMW), as fixed by the Regional Tripartite Wage and Productivity Board (RTWPB)/National Wages Productivity Commission (NWPC), applicable to the place where he/she is assigned;
14.  Compensation income of employees in the public sector with compensation income of not more the the SMW in the non-agricultural sector as fixed by the RTWPB?NWPC applicable to the place where he/she is assigned.
15. De Minimis benefits
16. Fringe benefits given to employees other than rank and file and subjected to Fringe Benefit Tax (FBT);
17. Personnel Economic Relief Allowance (PERA) given to government employees; and Representation and transportation allowance (RATA granted to public officers and employees under the General Appropriations Act.

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MINIMUM WAGE EARNERS

No withholding tax shall be required on the Statutory Minimum Wage (SMW) of the Minimum Wage earner in the private/public sectors as defined in RR 2-98, as amended by RR 11-2018, including:

• Holiday pay
• Overtime pay
• Night shift differential
• Hazard pay

of Minimum Wage earners in the private/public sectors as defined by these Regulations.

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DE MINIMIS BENEFITS NOT SUBJECT TO WITHHOLDING TAX

1. Monetized unused vacation leave credits to employees not exceeding ten (10) days during the year;
2. Monetized value of vacation and sick leave credits paid to government officials and employees;
3. Medical cash allowance to dependents of employees, not exceeding ₱ 1,500.00 per employee per semester of ₱ 250.00 per month;
4. Rice subsidy of ₱ 2,000.00 or one sack of 50kg rice per month amounting to not more than ₱ 2,000.00;
5. Uniform and clothing allowance not exceeding ₱ 6,000.00 per annum;
6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding ₱ 10,000.00 per annum;
7. Laundry allowance not exceeding ₱ 300.00 per month;
8. Employees achievement awards, e.g. for length of service or safety achievement, which in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding ₱10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;
9. Gifts given during Christmas and major anniversary celebrations not exceeding ₱5,000.00 per employee per annum;
10. Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage;
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total annual monetary value received from both CBA and productivity incentive schemes combined do not exceed ten thousand pesos (Php 10,000.00)per employee per taxable year;

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WITHHOLDING TAX TABLE

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ANNUAL TAX TABLE

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YEAR-END-ADJUSTMENT

On or before the calendar year and prior to the payment of the compensation for last payroll period, the employer shall determine the sum of the taxable regular and supplementary compensation paid to each employee for the whole year and must ensure that the tax due is equal to tax withheld.

ANNUALIZED WITHHOLDING TAX FORMULA

Gross Compensation Income (present + previous employer)                                                      ₱ x x x x 

Less: Non-Taxable/Exempt Compensation Income

1. 13th month pay and other benefits                                               ₱ 90,000.00
2. SSS, GSIS, PHIC, HDMF and union dues (employee share)          x x x x x x
3. Other Non-Taxable salaries (₱ 250,000.00)                                     x x x x x x                     x x x x 

Taxable Compensation Income                                                                                                    ₱ x x x x

Tax Due                                                                                                                                        ₱ x x x x

Less: Tax Withheld (January to November/termination date)                                                      ₱ x x x x 

Tax to be withheld for December/last payroll period                                                                    ₱ x x x  x

Collectible : Tax Due> tax withheld  - collect before payment of last salary

Refund:      Tax Due< tax withheld -  refund on or before January 25th of the year/ last payment of salary

Break even:  Tax due = tax withheld    - no more withholding for December salary

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WITHHOLDING TAX FORMS

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MODE OF FILING AND PAYMENT

SCHEDULE OF STAGGERED FILING

Note: The staggered manner of filing is only allowed to taxpayers using the Electronic Filing and Payment System (EFPS) based on the industry classification groupings per RR No. 26-2002.

However, the staggered filing of returns allowed for withholding agents/taxpayers enrolled in the EFPS facility of the Bureau shall not apply in the case of the NGAs per RR 1-2013.

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SUBSTITUTED FILING

An individual taxpayer will no longer have to personally file his own Income Tax Return (BIR Form 1700) but instead the employer's Annual Information Return on Income Taxes Withheld (BIR Form No. 1604-C) filed will be considered as the "substitute" ITR of the employee.

REQUISITES FOR INDIVIDUALS QUALIFIED FOR SUBSTITUTED FILING OF BIR FORM NO. 1700

1. Receives purely compensation income regardless of amount;
2. Compensation from 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 files the BIR Form No. 1604-C; and
6. The employer issues each employee BIR Form No. 2316 (latest version)

NOTE:

All the above requisites must be present. The annual Information Return of Income Taxes Withheld on Compensation (BIR Form No. 1604-C) filed by their respective employers filed their respective employers duly submitted to the eSubmission facility of the BIR.

REQUISITES FOR INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED FILING OF BIR FORM NO. 1700

1. Individuals with two or more employers concurrently and/or successively at anytime during the taxable year.
2. Employees whose income tax have not been withheld correctly resulting to collectible or refundable return.
3. Individuals deriving other non-business, non-profession-related income in addition to compensation income not otherwise subject to final tax.
4. Individuals receiving purely compensation income from a single employer whose income tax has been correctly withheld but whose spouse does not qualify tor substituted filing.
5. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income or compensation income and other non-related business, non-profession-related income.

SUBMISSION OF BIR FORM NO. 2316 

The employer are required to submit the duplicate original copy of BIR Form No. 2316 to the Revenue District Office where they are registered on or before February 28 

For Large Taxpayer or other Non-LT Taxpayers who opted to submit thru the Digital Versatile Disk (DVD) prescribed under RR2-2015 shall use Universal Storage BUS (USB) memory stick or other similar storage devices may be used in the absence or unavailability of the DVD's provided that the scanned copies of the said forms shall be made uneditable format.

For Large Taxpayer or Non-LT taxpayers shall use the prescribed format (Annex F) in RR 11-2018 for the preparation of the Certified List of Employees Qualified for Substituted Filing of ITR. 

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EXPANDED WITHHOLDING TAX

The Withholding of Creditable Tax at Source or simply called Expanded Withholding Tax is a tax imposed and prescribed on the items of income payable to natural or juridical persons, residing in the Philippines, by a payor-corporation/person which shall be credited against the income tax liability of the taxpayer for the taxable year.

Tax Rates

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FINAL WITHHOLDING TAX

The amount of income tax withheld by the withholding agent is constituted as a full and final payment of income tax due from the payee of the said income.

The liability for payment of tax rests primari;y on the payor as a withholding agent. Failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from payor/withholding agent.

The payee is not required to file an income tax return for the particular income.

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FRINGE BENEFITS GRANTED TO EMPLOYEES (EXCEPT RANK AND FILE EMPLOYEES)

Fringe Benefit means any good, service or other benefits furnished or granted in cash or in kind by an employer to an individual employee (except rank and file) such as but not limited to the following:

1. Housing
2. Expense account
3. Vehicle of any kind
4. Household personnel (maid, driver and others)
5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted
6. membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to employee or his dependents; and
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

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WITHHOLDING TAX ON GOVERNMENT MONEY PAYMENTS (GMP) - PERCENTAGE TAXES

Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the tax withheld by National Government Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations (GOCCs) and local government units (LGUs), before making any payments to non-VAT registered taxpayers/suppliers/payees.

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