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TAX UPDATES AFFECTING COMPENSATION INCOME RO LANOEL S. LAJA,CPA

Withholding Taxes on CompensationBasic 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 DefinedIn 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.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 EarnerIn General, MWE is exempt from w/tax and Income taxHoliday pay, overtime pay, night shift differential pay and hazard pay earned by MWE is also covered by exemptionMWE 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 EarnerMWEs 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 BenefitsDe 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.SCOPEPursuant 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 Ceiling Excluded from the Computation of Gross Income for Purposes of Income Taxation, Amending for the Purpose Section 32 (B), Chapter VI of the National Internal Revenue Code of 1997, As Amended, more particularly on 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 2-98The 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 2-98Accordingly, 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 employee-transferee 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 ClauseIf 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 ClauseThe 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 5-2011Medical cash allowance to dependents of employees P 750/ Semester or P 125/ monthRice Subsidy- 1 sack (50 kg) not more than P 1, 500.00Uniform and Clothing Allowance not exceeding P 5,000.00/annum RR 8-2012Actual Yearly Medical Benefits not exceeding 10,000/yrLaundry 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 employeesGift given during Christmas & major anniversary celebrations not exceeding P 5,000.00/yrDaily meal allowance for overtime work and night/graveyard shift not exceeding 25% of basic minimum wage on a per region basis; RR 5-2011All 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

ABC13TH Month PayP 19,550.00 P 19,550.00P 19,550.00Annual Christmas Bonus 5,000.00 5,000.00 5,000.00Productivity Incentive Bonus 5,000.00 20,000.00 20,000.00Grocery Allowance 0.00 0.00 40,000.00Total P 29,550.00 44,550.00 84, 550.00Allowed Exclusion 29,550.00 44,550.00 82,000.00TAXABLE BENEFITS 0.00 0.00 2,550.00 EXEMPTIONSPersonal Exemption P50,000.00Additional Exemption QDC P 25,000.00/Child not to exceed 4 QDCPremium 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 DueBasic Compensation Income xxxTaxable Other Benefits xxxTotal Compensation Income xxxLess: GSIS/SSS/ Philhealth /Union Dues xxx Net Taxable xxxLess: Exemptions BPE/AE/Premium Payment on Hosp, if any xxxCompensation Income Subject to Tax xxxTax Due (Sect 24 a NIRC) xxx Tax Withheld xxx Tax still due xxx

Tax TableOVERNOT OVEREXCESS OVER10,000.005%10,000.0030,000.00500.00 +10%10,000.00 30,000.0070,000.002,500.00+ 15%30,000.0070,000.00140,0008,500+ 20%70,000.00140,000.250,00022,500 + 25%140,000.00250,000 500,00050,000 + 30%250,000.00500,000125,000+32%500,000.00End NotesThank you ..have a nice day.