Withholding

Taxes on

Wages

Objectives

Gain understanding and appreciation of

withholding tax on wages

Gain basic information needed to

compute withholding tax on wages

Nature of WTW

Method of collecting the income tax on

wages at source upon RECEIPT of income

(not when earned).

Employer is constituted as the withholding

agent of the tax due on the taxable

compensation of the employee.

General Rules Taxation of Resident Citizen

Taxability:

Income Within

Income Without

Yes

Yes

Basic Personal Exemption Php50,000

Additional Personal Exemption Php25,000

Max of 4 or Php100,000

Tax Rates 5% - 32%

Compensation Income

Compensation Income

All remuneration for services

Performed under employer-employee

relationship

Not specifically excluded in tax code

May be paid by piece of work,

percentage of profit, hourly, weekly,

monthly or annually (basis is immaterial)

Kim’s Mindset: All are taxable unless exempted.

TAXABLE INCOME NON-TAXABLE INCOME

Salaries and wages

Honorariums

Fixed allowances

Commissions

Fees

Taxable bonuses

Taxable pension and

retirement pay

OT Pays

COLA (cost of living

allowance)

Compensation paid IN

KIND

Minimum Wage Earner

De Minimis Benefits

SSS, Philhealth and HDMF

contributions

Insurance premiums

under group insurance

plans

Separation pay (direct

result of any cause

beyond the control of the

employee)

Retirement benefits under

the law

“INCOME” means ALL WEALTH which flows to the taxpayer.

De Minimis Benefits De Minimis Benefits Limit

1. Monetized vacation leave 10 days per year

2. Monetized vacation and sick leave

for government employees

No limit

3. Medical cash allowance to

dependents of employees

Php750 per

employee per

semester or

Php125 per month

4. Rice subsidy Php1,500 per

month or 1 sacj of

50kg rice

De Minimis Benefits Limit

5. Uniforms and clothing allowance Not exceeding

Php5,000 per

annum

6. Gifts given during Christmas and

major anniversary

Php5,000 per

employee per

annum

7. Laundry Allowance Php300 per month

8. Actual medical assistance *Requires substantiation

Php10,000 per

annum

9. Employee achievement awards

(must be tangible personal property)

Php10,000 per

annum

De Minimis Benefits Limit

10. Daily meal allowance for OT work

and night/graveyard shift

25% of basic

minimum wage

11. Benefits under CBA Php10,000 per

annum

12. Other bonuses Php82,000

Note: MWEs receiving ‘other benefits’ exceeding Php82,000

limit shall be taxable on the excess benefits, as well as on his

salaries and allowances.

TIPS AND GRATUITIES?

Those paid directly to the employee

by a customer which are not accounted

for by the employee to the employer

Are considered TAXABLE INCOME

not subject to withholding

but subject to INCOME TAX.

Computation of Taxes

Basic Computation Total Compensation Income Php500,000

Less: Tax Exempt Income

Non taxable benefits

Php82,000 tax exempt

SSS and other contributions

Insurance premiums*

10,000

82,000

18,000

2,400

Total tax exempt income 109,400

Taxable Income before exemptions 390,600

Less: Personal Exemptions

Additional Exemptions

50,000

100,000

Taxable Income Php240,600

*For health or hospitalization.

Family income must not exceed PhP250,00 annually

Withholding Exemptions

Personal Exemption:

Php50,000 regardless of status

Additional Exemption:

Php25,000 per dependent child max of 4

Whether married or single

Rightfully claimed by husband unless with

waiver (BIR FORM 1902 or 2305, only once)

or if spouse is unemployed or non-resident

earning from foreign sources

Additional Exemptions

Dependent Child:

Legitimate, illegitimate, legally adopted or

qualified foster child

Chiefly dependent on taxpayer

Not more than 21 years of age, unmarried

and not gainfully employed

Regardless of age, if incapable of self-

support due to mental or physical defect

Computation of Income Tax

Computation Basis

Monthly Tax Table

Semi-monthly Tax Table

Weekly Tax Table

Daily Tax Table

Annual Graduated Income Tax Table

Monthly

Step1: Determine total compensation

income and segregate gross benefits

Step 2: Segregate Taxable from Non-

taxable

Gross Income Php12,000

Gross Benefits 5,000

Monthly

Step 3: Segregate Taxable Income to

Regular and Supplementary

Regular Taxable Supplementary

- Basic salary

- Fixed allowances

- Other allowances

- Commissions

- Overtime Pay

- Taxable retirement

- Taxable Bonus

- Other Taxable benefits

Step 4: Use appropriate tax tables (Monthly)

Regular Compensation Php12,000

Less: Compensation level per table 10,000

Excess 2,000

Add: Supplementary 5,000

Total Excess 7,000

Tax on Php10,000

Php708.33

Tax on Excess (7,000 x 20%) 1,400.00

Withholding Tax Php2,108.33

Assumption: Single with no dependent

Step 4: Use appropriate tax tables (Semi)

Regular Compensation Php12,000

Less: Compensation level per table 11,042

Excess 958

Add: Supplementary 5,000

Total Excess 5,958

Tax on Php10,000

Php937.50

Tax on Excess (5,958 x 25%) 1,489.50

Withholding Tax Php2,427.00

Assumption: Married with three dependents

Step 4: Use appropriate tax tables (Annual)

Compensation:

Basic Monthly Salary Php45,000

Overtime pay for November 5,000

Thirteen Month Pay 45,000

Other Benefits 12,000

Withholding Tax (Jan-Nov) 98,082.27

Annualized: Married with two QDC

Total Non-

Taxable

Taxable

Basic (45,000x12mons) Php540,000 Php540,000

Overtime November 5,000 5,000

13th Month Pay 45,000 45,000

Other Benefits 12,000 12,000

TOTAL 602,000 57,000* 545,000

Annualized: Married with two QDC

*If in excess of Php82,000 = taxable

Annual Tax Rates on

Compensation

Over But Not

OVER

Amount Rate Of Excess

Over

Not Over 10,000 5%

10,000 30,000 500 +10% 10,000

30,000 70,000 2,500 +15% 30,000

70,000 140,000 8,500 +20% 70,000

140,000 250,000 22,500 +25% 140,000

250,000 500,000 50,000 +30% 250,000

500,000 over 125,000 +32% 500,000

Non-Taxable Taxable

Total Gross Compensation Php545,000

Less: Personal Exemption

Additional Exemption

(Php25,000 x 2)

Php50,000

50,000

100,000

Net Taxable Compensation 445,000

Tax Due

First 250,000 50,000

In excess of 250,000 x 30% (195,000 x 30%) 58,500

Total Tax Due 108,500

Less: Tax Withheld (Jan-Nov) 98,082.27

Tax Due to be paid 10,417.73

TEST

Compensation:

Basic Monthly Salary Php12,000

Thirteen Month Pay 12,000

Other Benefits 80,000

Withholding Tax (Jan-Nov) 9,327

Married with two QDC

Annual Tax Rates on

Compensation

Over But Not

OVER

Amount Rate Of Excess

Over

Not Over 10,000 5%

10,000 30,000 500 +10% 10,000

30,000 70,000 2,500 +15% 30,000

70,000 140,000 8,500 +20% 70,000

140,000 250,000 22,500 +25% 140,000

250,000 500,000 50,000 +30% 250,000

500,000 over 125,000 +32% 500,000

Total Non-

Taxable

Taxable

Basic (12,000x12mons) Php144,000 Php144,000

13th Month Pay 12,000 12,000

Other Benefits 80,000 70,000 10,000

TOTAL Php236,000 82,000* 154,000

Annualized: Married with two QDC

*If in excess of Php82,000 = taxable

Non-Taxable Taxable

Total Gross Compensation Php154,000

Less: Personal Exemption

Additional Exemption

(Php25,000 x 2)

Php50,000

50,000

100,000

Net Taxable Compensation 54,000

Tax Due

First 30,000 2,500

In excess of 30,000 x 15% (24,000 x 15%) 3,600

Total Tax Due 6,100

Less: Tax Withheld (Jan-Nov) 9,327

Tax Refund 3,227

Excess of Withholding Tax

Excess tax shall be refunded to employee

not later than January 25 of the following

year and in case of termination, at the

last payment

Employees can only claim refund from

their EMPLOYER and not from BIR, except

when employer already ceased

operations

Administrative Guidelines

BIR FORMS Forms Purpose Deadline

BIR FORM 1902 Application for

registration of

employee

10 or 30 days from

date of

employment

BIR FORM 2305 Certificate of

Update of

Exemption and of

Employer’s and

Employee’s

Information

10 or 30 days after

the change

Note without these documents EXEMPTIONS are disallowed.

Forms Purpose Deadline

BIR FORM 1601-C Withholding Tax

on Wages

10 days from end

of the month

BIR FORM 1604-CF

and Alphalist

Annual WTW January 31

BIR FORM 2316 Proof of

withholding tax

payment

On or before

January 31.

February 28 to BIR

BIR FORM 1701 or

1700

Annual Income

Tax Return

April 15

Substituted Filing

Form 2316 signed by both employee and

employer in lieu of 1701 Annual Income

Tax Return

Mandatory effective 2002

If not qualified, employee is required to

file ITR 1701 or 1700 (1700 for individuals earning

purely compensation income)

Substituted Filing Qualified:

a. Employee received PURELY compensation income

b. Employee received income only from ONE EMPLOYER in the Philippines during the taxable year

c. Employee’s spouse also complies stated above

d. Tax was withheld and paid correctly by employer

e. Employer files annual return on WTW (1604-CF and alphalist)

f. Employer issues BIR FORM 2316

Timing of Withholding

Section 79 (A) of Tax Code as amended

Whichever comes first:

1. Compensation is paid

2. Compensation is payable

3. Compensation is accrued (recorded)

General Rule: Not withheld = cannot be

claimed as expense in the FS

Thank you and God bless! Bulano Accounting and Audit Firm

Email: bulano_accounting_audit_firm@yahoo.com.ph

Contact No.: 300-4756/305-7805