Member Firm of RSM International Volume 1 Series 1

& ComplianceTax View

Republic Act No. 9504Tax Exemption of Minimum Wage Earners

Revenue Regulation No. 10-2008Tax Free Employee Benefits (De Minimis)Exemptions from Withholding Tax on CompensationUse of Withholding Tax TableProcedures for the Filing of the Application for Registration

excess

An individual, other than a nonresident alien, and a corporation subjectto tax may elect a standard deduction in an amount not exceeding fortypercent (40%) of his gross sales or gross receipts. Unless the taxpayer

deduction, he shall be considered as having availed himself of thedeductions allowed. This election when made in the return shall beirrevocable for the taxable year for which the return is made.

Both the individual and corporation entitled and claimed for the OSDshall not be required to submit with his tax return financial statementsotherwise required by the Code. Except when the Commissionerotherwise permits, the individual and the corporation shall keep therecords pertaining to the gross sales or receipts during the taxable yearas may be required by the rules and regulations promulgated by theSecretary of Finance, upon recommendation of the Commissioner.

The following income payments are exempted from the requirements ofwithholding taxon compensation:

Compensation income of Minimum Wage Earners (MWEs) who work in theprivate sector and being paid the StatutoryMinimumWage (SMW), as fixed byRegional Tripartite Wage and Productivity Board (RTWPB)/National WagesandProductivity Commission (NWPC), applicable to the placewhere he/she isassigned.

Statutory Minimum Wage (SMW) shall refer to the rate fixed by theRegional Tripartite Wage and Productivity Board (RTWPB), as defined by theBureau of Labor and Employment Statistics (BLES) of the Department ofLabor and Employment (DOLE). The RTWPB of each region shall determinethewage rates in the different regions based on established criteria and shallbe the basis of exemption from income tax for this purpose.

Single

Married

P10,000 P25,00012,50016,000

25,00025,000

4,000 12,500

2008 2008

Total2008

P35,00037,50041,000

16,500

Republic Act No. 9504 signed by the President June 17, 2008 pertains tothe amendment of theNational Internal Revenueof 1997.

This is the additional tax relief to individuals and corporations for both inpublic and private sectors. This covers the basic pay, holiday andovertimepay including night shift differential and hazard pay.

The Department of Finance has approved a tax regulation increasingmaximum values of two out of nine tax free benefits for employees. Thesetwo are Rice and Uniform or Clothing allowance increased in maximumvalues for tax exemptions. The tax exemptions were embodied in RevenueRegulation No. 5-2008, which the BIR Issued recently amid the rising costof living resulting partly from higher prices of basic commodities, includingrice and clothing.

The said regulation increased the amount of tax-exempt rice subsidiespreviously P1,000 now P1,500 a month. Also, uniform and clothingallowance previously P3,000 now increased the ceiling for tax exemptionof P4,000ayear.

Under Section 33 of tax code, defines de minimis benefits as privilegesoffered by an employer to its employees that are of relatively small valueand are given to promote health, goodwill, or efficiency of the workforce.These benefits are not subject to fringe benefit nor compensation tax,provided it will not exceed its maximum value set by the tax code fortax exemption.

RR 10-2008, the BIR considers the following as de minimis benefits withtheir respectivemaximumvalue:

Total2009

P50,000n/a50,000

25,000

Holiday pay, overtime pay, night shift differential pay and hazard payearned by MWE shall likewise be covered by the above exemption.Provided, however, that an employee who received/earns additionalcompensation such as commissions, honoraria, fringe benefits, benefits inexcess of the allowable statutory amount of P30,000.00, taxableallowances and other taxable income other than the SMW, holiday pay,overtime pay, hazard pay and night shift differential pay shall not enjoythe privilege of being MWE and, therefore, his/her entire earnings are notexempt from income tax and, consequently, from withholding tax.

MWEs receiving other income, except income subject to final tax, inaddition to compensation income are not exempted from income tax forthe entire earnings.

For purposes of these regulations, hazard pay shall mean the amountpaid by the employer to MWEs who were actually assigned to danger orstrife-torn areas, disease-infested places, or in distressed or isolatedstations and camps, which expose them to danger of contagion or peril tolife. Any hazard pay paid to MWEs which does not satisfy the above criteriais deemed subject to income tax and consequently to withholding tax.

In case of hazardous employment, the employer shall attach to theMonthly Remittance Return of Withholding Tax on Compensation (BIR FormNo. 1601C) for return periods March, June, September and December acopy of the list submitted to the Bureau of Working Conditions(BWC)/nearest DOLE offices showing the names of MWEs who received thehazard pay per month.

The employer in the private sector shall prepare, certify and submit aquarterly alphabetical list of employees receiving the SMW showing thenames of employees, period of employment, amount of SMW per day,amount of SMW for each month of the three month period, factorused/number of days considered in a year, etc. on or before the fifth (5)day after the end of each calendar quarter to the RTWPB/National Wagesand Productivity Commission (NPWC) or nearest Regional/provincial DOLEoffices which the latter shall attest by indicating the date received, serialnumber of document received and the identity/position of the receivingpersonnel. The NWPC/DOLE offices shall in turn provide the BIRCommissioner, Attention: The Revenue District Officer having jurisdictionover the place where the employer is registered, on or before January 31 ofthe following year in hard copy and soft-copy (excel format), annual list ofemployees with MWEs showing the serial number of document received,name/s of MWEs, minimum wage rate per day, period of employment,factor used/number of days considered in a year, etc., which said RDO shalltransmit to the Chief, Withholding Tax Division for consolidation.

Any reduction or diminution of wages for purposes of exemption fromincome tax shall constitute misrepresentation and therefore, shallresult to the automatic disallowance of expense, i.e. Compensationand benefits account, on the part of the employer. The offenders maybe criminally prosecuted under existing laws.

Number of working/paid days in a Year

For those who do not work and are not consideredpaid on Saturdays and Sundays or rest days

For those who do not work and are not consideredpaid on Sundays or rest days

For those who do not work but are considered paidon rest days, special days and regular holidays

For those who do not work everyday includingSundays or rest days, special days and regular holidays

261 days

365 days

392.5 days

313 days

Use of Withholding Tax Table

In general, every employer making payment of compensation shall deduct andwithhold from such compensation a tax determined in accordance with theprescribed Revised Withholding Tax Tables which shall be used startingJanuary 1, 2009.

There are four (4) withholding tax tables prescribed in these regulations:

a. Monthly Tax Table - to be used by employers using the monthlypayroll period.

b. Semi-Monthly Tax Table - to be used by employers using the semi-monthly payroll period;

c. Weekly Tax Table - to be used by employers using a weekly payrollperiod;

d. Daily Tax Table - to be used by employers using the daily payroll period.

If the compensation is paid other than the above, the tax to be withheld shallbe as follows:

A. Annually - use the annualized withholding tax method. (1) When theemployer-employee relationship is terminated before the end of thecalendar year; and (2) when computing for the year-end adjustment,the employer shall determine the amount to be withheld from thecompensation on the last month of employment or in December of thecurrent calendar year.

B. Quarterly and semi-annually - divide the compensation by three (3)or six (6) respectively, to determine the average monthly compensation.Use the monthly withholding tax table or compute the tax, and the taxcomputed shall be multiplied by three (3) or six (6) accordingly.

For the year 2008, however, being the initial year of implementation of RA9504, there shall be a transitory withholding tax table for the period fromJuly 6 to December 31, 2008 determined by prorating the annual personaland additional exemptions under RA 9504 over a period of six months.Thus, for individuals, regardless of personal status, the prorated personalexemption is P25,000 for each qualified dependent child.

Annual Information Return of Income TaxesWithheld on Compensation and Final WithholdingTaxes (BIR Form No. 1604-CF)

Every employer or other persons required to deduct and withhold the tax isrequired to file with the BIR-Large Taxpayers Assistance Division, LargeTaxpayers District Office of the Excise Taxpayers Assistance Division, or theRevenue District Office where the payor/employer is registered asWithholding Agent on or before January 31 of the following year an AnnualInformation Return of Income Taxes Withheld on Compensation and FinalWithholding Taxes (BIR Form No. 1604-CF, to be submitted with thealphabetical list of employees/payees.

Cont. Exemptions