Taxation 101 - Withholding Tax on Compensation PDF

Taxation 101 Withholding tax on Compensation  WITHHOLDING OF TAX ON COMPENSATION The withholding of tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or alie...

Taxation 101 Withholding tax on Compensation  WITHHOLDING OF TAX ON COMPENSATION The withholding of tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or aliens, deriving income from compensation for services rendered in the Philippines. The employer is constituted as the withholding agent. SECTION 2.78 of RR 2098, as amended  Compensation Income Defined In general, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code.  Compensation Income Defined The name by which the remuneration for services is designated is immaterial. The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation.  Compensation Income Defined Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them.  "De Minimis" Benefits "De Minimis" Benefits furnished or offered by an employer to his employees, are not considered as compensation subject to income tax and consequently to withholding tax, if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as means of promoting the health, goodwill, contentment, or efficiency of his employees.  "De Minimis" Benefits (a) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year; (b) Monetized value of vacation and sick leave credits paid to government officials and employees; (c) Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per semester or P250 per month; (d) Rice subsidy of P2,000 or one (1) sack of 50 kg. rice per month amounting to not more than P2,000; (e) Uniform and Clothing allowance not exceeding P6,000 per annum;  "De Minimis" Benefits (f) Actual medical assistance, e.g., medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000.00 per annum; (g) Laundry allowance not exceeding P300 per month; (h) Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; (i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;  "De Minimis" Benefits (j) Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basic minimum wage on a per region basis; (k) 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 (Php10,000.00) per employee per taxable year;  Amount in Excess of "De Minimis" Benefits Shall be included in the “Thirteenth (13th ) month pay and other benefits” threshold Excess is subject either to 1. Withholding Tax on Compensation (for Rank and File) [deducted from the employee] or 2. Fringe Benefits Tax (for Managerial and Supervisory) (paid by the Employer)  Thirteenth (13th ) month pay and other benefits Exempt provided that the total amount shall not exceed ninety thousand pesos (P90,000.00), which may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner  Exempt Statutory Contributions GSIS, SSS, Medicare and Pag-IBIG contributions, and union dues of individual employees.  BIR Form No. 2316 A Certificate to be accomplished and issued to each employee receiving salaries, wages and other forms or remuneration by each employer indicating therein the total amount paid and the taxes withheld therefrom during the calendar year. This Certificate in turn should be attached to the Annual Income Tax Return (BIR Form 1700 - for individuals receiving purely compensation income, or BIR Form 1701 for individuals with mixed income). To be issued to payee on or before January 31 of the succeeding year, or on the same day the last payment of wages. https://www.bir.gov.ph/images/bir_files/taxpayers_service_programs_a nd_monitoring_1/2316%20Jan%202018%20ENCS%20final2.pdf Exercise 1 – Rank-and-File Exercise 2– Rank-and-File Exercise 3– Rank-and-File Exercise 4 – Rank-and-File