Annualized Withholding Tax

7/30/2019 Annualized Withholding Tax

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WITHHOLDING TAX SYSTEM

The withholding tax system

has been regarded as a tool in the collection of taxes.It has been widely accepted and practiced not only inthe Philippines but also in many countries for revenuecollection enhancement.


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In the Philippines, the Withholding Tax System was adoptedin 1951 by virtue of RA 690.

It was in 1977 when the system was made to apply on thepayment of interest on Philippine Currency Bank Depositand Deposit Substitutes.

Then in 1978, the system was expanded to cover other

kinds of specific income and provided for the additionalrequirement of deductibility for the income payment(expense) from the gross income of the payer by requiringproof of remittance of the tax withheld from such incomepayment.For the last ten years, there has been vigorous expansion ofthe withholding tax system whereby nearly all taxpayershave been embraced by the withholding tax either aswithholding agents or recipient of income subject towithholding or in both capacities.


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ANNUALIZED WITHHOLDING TAX(Year-End Adjustment)

Step 1. Determine the taxable regular

and supplementary compensation paidto the employee for the entire calendaryear.


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TAXABLE COMPENSATION INCOME( RR No. 2-98 )

I. REGULAR COMPENSATION

Basic Salary

Representation Allowance

Transportation Allowance

Other remuneration paid regularly per payroll period

II. SUPPLEMENTARY COMPENSATION

Fees, including directors fees

Overtime pay

Taxable Retirement / Separation Pay

Taxable fringe benefits of rank and file employees

Taxable monetized unused vacation and sick leave

Other supplementary compensation


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NON - TAXABLE COMPENSATION INCOME

( RR 2-98 )

GSIS, SSS, PHIC, Pag-ibig contributions and uniondues

Personal Economic Relief Allowance (PERA)

Representation and Transportation Allowance(RATA) which constitute reimbursement forexpenses incurred in the performance of officialduties


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( RR 2-98 )

13th month pay and other benefits up to P30,000:a. 13th month pay equivalent to one month basic salary

b. Christmas bonus

c. Additional Compensation Allowance (ACA)

d. Productivity incentives

e. Loyalty award

f. Gifts in cash or in kind

g. Other benefits of similar nature

De Minimis Benefits (RR 10-2000)These are benefits that are of relatively small value and areoffered or furnished by the employer merely as a means ofpromoting the health, goodwill, contentment, or efficiency ofhis employees.


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De Minimis Benefits includes:

a. Monetized unused vacation leave credits paid to governmentofficials and employees;b. Monetized unused vacation leave credits of private employees

not exceeding ten (10) days during the year;c. Medical cash allowance to dependents of employees not

exceeding P125.00 per month;d. Rice subsidy of P1,000 or one (1) sack of rice of 50-kg per month;e. Uniform and clothing allowance not exceeding P3,000;f. Actual yearly medical benefits not exceeding P10,000 per annum;g. Laundry allowance not exceeding P300 per month;h. Employees Achievement Awards in tangible personal property

other than cash or gift certificates with monetary value of notexceeding P10,000 per annum;

i. Gifts given during Christmas and major anniversary celebrationsnot exceeding P5,000 per annum;

j. Flowers, fruits, books, or similar items given to employees underspecial circumstances;

k. Daily meal allowance for overtime work not exceeding 25% of thebasic minimum wage.


( RR 8-2000, RR 10-2000 )


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De Minimis Benefits Excess

13th Month Pay and Other Benefits

up to P30,000.00

Excess

Taxable Compensation Income


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ANNUALIZED WITHHOLDING TAX

(Year-End Adjustment)

Step 2. If the employee has previousemployment/s within the year, add the

amount of the taxable regular andsupplementary compensation paid to theemployee by the previous employer doingthe annualized computation to the taxable

compensation income received fromprevious employer/s during the calendaryear.


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ANNUALIZED WITHHOLDING TAX

(Year-End Adjustment)

Step 3. Deduct from the aggregateamount of compensation computed

in Step 2 the amount of the totalpersonal and additional exemptionsof the employee.

Step 4. Deduct the amount of premium

payments on Health and/orHospitalization Insurance


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DEDUCTIONS FROM GROSS COMPENSATIONINCOME( RR No. 2-98 )

1. PERSONAL & ADDITIONAL EXEMPTIONS

Single P 20,000

Head of the Family 25,000

Married 32,000

For each Dependent Child

not exceeding four (4) 8,000


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1. PERSONAL & ADDITIONAL EXEMPTIONS

Tax Exemptions of Benefactors of Senior Citizens

RR 4-2006; Sec. 7 (3): The benefactor shall be ENTITLED to

the BASIC PERSONAL EXEMPTION equivalent toP25,000.00 as allowed under the Tax Code for HEAD OFTHE FAMILY.

The benefactor of a senior citizen shall NOT, however, be

entitled to claim the additional exemption of P8,000.00 perdependent allowable only to married individual or head offamily with qualified dependent child/children under Sec.35(B) of the Tax Code.


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2. Premium payment on Health and/orHospitalization Insurance of an individualtaxpayer, including his family, in the amount of

P2,400.00 per year.

Provided: The taxpayer, including his family, has a gross income

not exceeding P250,000.00 for the taxable year.

In case of married taxpayers, only the spouse claimingthe additional exemption for dependents shall beentitled to this deduction.


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Step 5. Compute the amount of tax onthe difference arrived in Step 4, in

accordance with the scheduleprovided in Sec. 24 (A) of the TaxCode


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Annualized Withholding Tax Formula:

Gross Compensation Income(present and previous employer) P XXX

Less: Non-Taxable/Exempt Compensation Income

a) 13th month pay & other benefits P XXX

b) Other Non-Taxable benefits XXX

c) SSS, GSIS, PHIC, Pag-ibig cont., union dues(employees share only) XXX XXX

Less: Deductions from gross compensation income

a) Personal & Additional Exemptions P XXX

b) Health/Hospitalization Premium Payment XXX XXX

Taxable Compensation Income P XXX

Tax Due P XXX


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Over But Not Amount Rate Of Excess

Over Over

Not over 10,000 5%

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

30,000 70,000 2,500 + 15% 30,00070,000 140,000 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

Schedule of Income Tax

Rates:Sec. 24 (A) of the Tax Code


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Step 6. Determine the deficiency orexcess, if any, of the tax computed in

Step 5 over the cumulative tax alreadydeducted and withheld since thebeginning of the current calendar year.

Deficiency tax (Collectible) = Tax Due > Tax Withheld (Jan.-Nov.)

Excess tax (Refund) = Tax Due < Tax Withheld (Jan.-Nov.)

Break Even = Tax Due = Tax Withheld (Jan.-Nov.)



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Sample Problem 1:

(Use of annualized computation when employer-employee relationship was

terminated before December) Mr. Dexter, head of the family with a qualified

dependent brother receives P8,000.00 (net of SSS, Philhealth, HDMF) as monthlyregular compensation starting January 1, 2002. He files his resignation effective

June 30, 2002. The tax withheld from January to May was P2,900.00.

COMPUTATION:(To be done before payment of the last compensation June 2002):

Total taxable compensation received fromJanuary 1 to May 31, 2002 P40,000.00

Add: Compensation to be received in June __ 8,000.00Gross Compensation Jan-June P48,000.00

Less: Personal Exemption - Head ofthe Family _ 25,000.00

Net Taxable Compensation P23,000.00


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Tax Due * P 1,800.00Less: Tax Withheld from Jan to May _2,900.00To be refunded to Employee Mr. Dexter (P 1,100.00)

by the employer upon the payment ofthe last compensation during the year

* Tax on P10,000.00 P 500.00Tax on excess (P13,000.00 x 10%) __ 1,300.00Tax on P23,000.00 P _1,800.00


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Sample Problem 2:

Mr. Jacobson, married with 2 qualified dependent children receives P10,000

monthly compensation (net of SSS, Philhealth, HDMF, employee contribution)

COMPUTATION:

Total compensation Jan. Nov. (P10,000.00 x 11 mos. ) P 110,000.00Add: Compensation to be received in December 10,000.00Gross Compensation P 120,000.00Less: Personal Exemption married P 32,000.00

Additional Exemption2 QDC x P8,000.00 16,000.00 48,000.00

Taxable Compensation P 72,000.00


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Tax Due * P 8,900.00

Less: Tax withheld from Jan. to Nov. 8,158.00

Collectible, withholding tax for December Salary P 742.00

* Tax on 70,000 P 8,500.00

Tax on excess (P2,000 x 20%) 400.00

Tax on P23,000.00 P 8,900.00


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Deadlines: Employees withholding statements (BIR Form 2316) should be

furnished by the employer to his employees on or beforeJanuary 31 of the succeeding calendar year or in case ofterminated employees, it shall be the day on which the lastpayment of compensation is made.

Failure to furnish the same shall be a ground for mandatoryaudit of payors income tax liabilities (including withholding

tax) upon verified complaint of the payee.

Annual information return (BIR Form 1604CF) w/ alphalist of theemployees deadline is January 31 of the succeeding year.

Monthly Remittance Return of Income Taxes Withheld on

Compensation (BIR Form 1601C):

e-filing staggered filing (RR 26-2002)

e-payment on or before January 20 of the succeedingyear

(RR 12-2001)

Documents

Annualized Withholding Tax