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TAX UPDATES

AFFECTING
COMPENSATION INCOME
RO LANOEL S. LAJA,CPA

Withholding Taxes on Compensation


Basic Concept :

A method of collecting the income tax at source upon


receipt of income.
Employer shall be responsible for the withholding and
remittance of the correct amount of tax by deducting
and withholding from the compensation income of his
employees. If the employer fails to withhold and remit
the correct amount of tax, such tax shall be collected
from the employer together with the penalties or
additions to the tax otherwise applicable

Compensation Income Defined


In general, the term compensation means all

remuneration for services performed by an


employee for his employer under an employeremployee relationship, unless specifically
excluded by the code.
Remuneration for services constitutes
compensation even if the relationship of employer
and employee does not exist any more at the
time when payment is made between the person
in whose employ the services had been
performed and the individual who performed them

Minimum Wage Earner


In General, MWE is exempt from w/tax and Income

tax
Holiday pay, overtime pay, night shift differential pay
and hazard pay earned by MWE is also covered by
exemption
MWE receiving additional compensation such as
commissions, honoraria, fringe benefits, and other
benefits in excess of the allowable statutory amount
of P30,000.00, taxable allowances, and other income
other than SMW, holiday pay, overtime pay, night shift
differential and hazard pay shall not enjoy the
privilege of being MWE. His entire earnings are not
exempt from income tax and consequently from
withholding tax

Minimum Wage Earner


MWEs receiving other income such as

income from trade, business, or practice of


profession, except income subject to final tax,
in addition to compensation income are not
exempt from income tax.
Statutory Minimum Wage- Rate fixed by
RTWPB, as defined by Bureau of Labor
&Employment Statistics of Dole. Determined
by Region.

De Minimis Benefits
De Minimis Benefits- facilities or privileges of relatively
small value and are offered or furnished by the
employer merely as a means of promoting the health,
goodwill, contentment, or efficiency of his employees.
De minimis benefits amount conforming to the

ceiling prescribed is not considered in determining the


P 82,000.00 ceiling of 13th Month & other benefits.
(RA 10653, RR 3-2015 March 9, 2015)
Excess over respective ceilings are considered as
part of other benefits subject to P 82,000.00 ceiling.

RR 3- 2015
Subject: Implementing the provisions of RA

10653, more particularly on the increase in


the Total Amount of Exclusion to P82,000.00
for 13th Month Pay and Other Benefits from
Gross Income Effectively Further Amending
the Pertinent Provisions of Revenue
Regulations No. 2-98

Section 1.SCOPE
Pursuant to the provisions of Section 4 in relation to

section 244 of the National Internal Revenue Code (NIRC)


of 1997, as amended, these Regulations are hereby
promulgated to implement the provisions of
Republic Act (RA) No. 10653,
An Act Adjusting the 13th Month Pay and Other Benefits C
eiling Excluded from the Computation of Gross Income for
Purposes of Income Taxation, Amending for the Purpose S
ection 32 (B), Chapter VI of the National Internal Reven
ue
Codeparticularly
of 1997, As
, more
onAmended
the increase of the total amount of
exclusion to Eighty Two Thousand Pesos (P82,000.00) for
thirteenth (13th) month pay and other benefits from gross
income, further amending, in effect, the pertinent
provisions of Revenue Regulations 2-98.

Section 2. Amendatory Provision


on RR 2-98
The amount of Thirty Thousand Pesos (P30,000.00),

specifically referring to the total amount of 13th


month pay and other benefits as one of the
exclusions from gross compensation income received
by an employee prescribed under the pertinent
provisions, including the example computations of
Revenue Regulations (RR) No. 2-98, as amended, is
hereby increased to Eighty Two Thousand Pesos
(P82,000.00), pursuant to the provisions of RA No.
10653.

Section 2. Amendatory Provision


on RR 2-98
Accordingly, the amount of P82,000.00 shall ONLY

apply to the 13th month pay and other benefits


prescribed under the provisions of Section 2.78.1 (B)
(11) of RR No. 2-98, as amended, and shall in no
case apply to other compensation received by an
employee under an employer-employee relationship,
such as basic salary and other allowances. Further, it
must be emphasized that this exclusion from gross
income is not applicable to self-employed individuals
and income generated from business.

SEC. 3. TRANSITORY
PROVISIONS.
The amount of P82,000.00 shall apply to the 13th

month pay and other benefits paid or accrued


beginning January 1, 2015.
For the effective implementation of these
Regulations, all taxpayers-employers shall ensure
the correct computation and application of the said
increase on the 13th month and other benefits of the
employees, in the year-end adjustments and the
same shall be clearly indicated, among others, in the
Certificate of Compensation/Tax Withheld (BIR Form
No. 2316). The said BIR form shall be issued by the
employer to the employee on or before January 31
of the succeeding calendar year,

SEC. 3. TRANSITORY
PROVISIONS.
or if the employment is terminated before the close of

such calendar year, on the day on which the last


payment of compensation is made. In case the
employee whose employment is terminated and
subsequently employed by another employer before
the close of the calendar year, the employeetransferee shall immediately furnish the new
employer the accomplished BIR form issued by the
previous employer for the appropriate withholding tax
computation of the employees regular compensation
and subsequent year-end adjustment, if any.

Section 4. Penalties
Any violation of these Regulations shall be subject to
the corresponding penalties under the pertinent
provisions of the NIRC of 1997, as amended, and
applicable regulations issued by the BIR.

Section 5. Separability Clause


If any provisions of these Regulations is declared

invalid by a competent court, the remainder of these


Regulations or any provision not affected by such
declaration of invalidity shall remain in force and
effect.

Section 6. Repealing Clause


The provisions of any existing regulations,

rulings or orders, or portions thereof


inconsistent with the provisions of these
Regulations are hereby revoked, repealed or
amended accordingly.

De Minimis Benefits
Monetized leave credits

10 days unused VL- Private Employee RR 5-2011


Unused VL & SL Govt Employee RR 5-2011
Medical cash allowance to dependents of employees
P 750/ Semester or P 125/ month
Rice Subsidy- 1 sack (50 kg) not more than
P 1, 500.00
Uniform and Clothing Allowance not exceeding P
5,000.00/annum RR 8-2012
Actual Yearly Medical Benefits not exceeding
10,000/yr
Laundry allowance not exceeding P 300.00/month

De Minimis Benefits
Employee Achievement Awards for length of service or

safety achievements in the form of tangible personal


property other than cash or gift certificate with annual
monetary value not exceeding P 10,000.00 under a
established written plan w/c does not discriminate in favor
of highly paid employees
Gift given during Christmas & major anniversary
celebrations not exceeding P 5,000.00/yr
Daily meal allowance for overtime work and night/graveyard
shift not exceeding 25% of basic minimum wage on a per
region basis; RR 5-2011
All other benefits given by employers which are not included in the
above enumeration shall not be considered as de minimis benefits,
and hence, shall be subject to income tax as well as withholding tax
on compensation income.

Illustration
A
13TH Month Pay

P 19,550.00

P 19,550.00

P 19,550.00

Annual Christmas
Bonus

5,000.00

5,000.00

5,000.00

Productivity
Incentive Bonus

5,000.00

20,000.00

20,000.00

0.00

0.00

40,000.00

Grocery
Allowance
Total

Allowed Exclusion
TAXABLE

P 29,550.00

44,550.00

84, 550.00

29,550.00

44,550.00

82,000.00

0.00

2,550.00

0.00

EXEMPTIONS
Personal Exemption P50,000.00
Additional Exemption QDC P 25,000.00/Child

not to exceed 4 QDC


Premium Payment on Health and/ or
Hospitalization Insurance P 2,400.00/yr
Provided, family income does not exceed P
250,000.00.

Computing the Tax Due


Basic Compensation Income
xxx
Taxable Other Benefits
xxx
Total Compensation Income
xxx
Less: GSIS/SSS/ Philhealth /Union Dues xxx
Net Taxable
xxx
Less: Exemptions
BPE/AE/Premium Payment on Hosp, if any

Compensation Income Subject to Tax


Tax Due (Sect 24 a NIRC)
Tax Withheld

xxx
xxx
xxx
xxx

Tax Table
OVER

NOT OVER
10,000.00

EXCESS
OVER

5%

10,000.00 30,000.00

500.00 +10%

10,000.00

30,000.00 70,000.00

2,500.00+ 15%

30,000.00

70,000.00 140,000

8,500+ 20%

70,000.00

140,000.

250,000

22,500 + 25%

140,000.00

250,000

500,000

50,000 + 30%

250,000.00

End Notes
Thank you ..have a nice day.