How withholding taxes on compensation works?
As a rule under the regulations, employers are appointed withholding agents who shall withhold corresponding taxes on compensation. This is to ensure that employee’s taxes are being paid so that if an employee is under the employ of a single employer with no other taxable income subject to regular income tax rates, there is no need to file an income tax return (ITR) comes April 15 every year, or earlier. Failure of the employer to comply with the obligation to withhold would mean disallowance of salaries and a deductible expense and an assessment by the same amount it should have been withhold plus surcharge, interest and compromise penalties. Employees then, whose compensation income had not been withheld by the employer shall make good of the tax due on such compensation to the government by filing BIR Form 1701 and paying such corresponding taxes.
Computing the amount of withholding tax on compensation is on a per employee basis and would depend on the following: (a) amount of taxable gross compensation, net of exempt compensation income, such as de minimis benefits, (b) number of qualified dependent children, and (c) extent of exempt compensation income. Minimum wage income earners are not subject to withholding tax on compensation with respect to their exempt basis pay, holiday pay, hazard pay, overtime pay, and night shift differential (b-hon). The Bureau of Internal Revenue (BIR) has prescribed a withholding tax table as a guide in the computation. It is actually the annual tax table in a tabulated monthly form for ease in application. Nevertheless, I took the liberty in deriving a simplified table as a substitute which would yield the same tax computations. Please refer hereunder.
Compute the taxable compensation income during the month as follow:
Gross compensation income
Basic salary P x x x
Overtime pay x x x
Holiday pay x x x
Taxable allowances x x x
Other taxable compensation x x x
Total P x x x
Less:
SSS contribution P x x x
Pag-ibig contributions x x x
Union dues, if any x x x
Philhealth contributions x x x P x x x
Taxable compensation income
Compute monthly personal exemptions as follows:
Basic personal exemption, regardless of status – P4,167.67
Additional personal exemption – P2,083.33 per qualified depended child*
*A legitimate, illegitimate, or adopted single child who is not more that 21 years old, not gainfully employed, living with the taxpayer, and dependent upon the taxpayer for chief support (at least 51% furnished by taxpayer).
Deduct amount in step 2 from step 1 and apply the following rates on the amount derived:
First P 833.33 – 5%
Next 1,666.67 – 10%
Next 3,333.33 – 15%
Next 5,833.33 – 20%
Next 9,166.67 – 25%
Next 20,833.33 – 30%
Excess – 32%
The total of the above represents the monthly withholding that the employer should have remitted to the BIR. After January 31, following the end of the year, the employer will furnish the employee BIR Form 2316, a summary of total taxable compensation and withholding taxes made during the year. This will serve as the income tax return (ITR) of employee with only one employer during the year and is not required to file BIR Form No. 1701. For employees with other taxable income under regular rate such as business income, professional income, etc., they are required to file their BIR Form No. 1701 not later than April 15 of the following year.
For expatriates whose employment in the Philippines during the year does not exceed 180 days, in the aggregate, the withholding tax rate on their taxable compensation is 25% straight based on gross compensation income without deductions for personal exemptions. For Overseas Filipino Workers (OFW) who had been abroad for at least 183 days during the year, their compensation from such work abroad is exempt from income tax, thus, not subject to the above withholding taxes. This applies even if the one paying their compensation is an agency based in the Philippines. Moreso, if the same is being paid directly by their employers abroad, if a direct hire.
Tags: 183-days, BIR Form No. 1701, compensation, de minimis benefits, dependent child, expatriates, OFW, personal exemption, withholding tax
Should you need the withholding tax table, please send me mail at pinoytaxation@gmail.com.
Hi Pinoytaxation,
Would like to seek for your comment. I am an employee earning a minimum salary, last year my employer deducted me a withholding tax until December 2008 knowing that there is a new regulation. How will I able to refund the excess tax paid?
thanks,
jhay
thanks jhay for the question, i am sure many there encountered the same sad situation. as minimum wage income earner, your compensation is now exempt with regards to B-HON(basic, holiday and hazard pay, overtime pay, night shift differential). I am looking at two remedies: (a) employer amends the December filed withholding tax returns and 2316, and refund you the excess. This year, no withholding on BHON should be made; (b) employee to file ITR using the issued 2316 and subsequently amending the ITR to extract the excess 2316. Excess amount will then be used this year. If you do not expect to have other taxable income, i suggest you subscribe to (a) above, anyway, its your employer that had cause it.
Hi Pinoytaxation,
I am an employer but i wasnt able to file/remit the witholding tax for my employees. I have been in operation since the middle of last February. What do I have to do? and do I still have to remit for my employees whose excemption is more than the taxable amount (they were employed for only a few months). I know this is complicated and I’d appreciate your help. Thank you.
This is such a wonderful post. I look forward to seeing more of your writing.
I am not new to blogging and genuinely value your site. There is much original message that peaks my interest. I am going to bookmark your internet site and keep checking you out.
This is a good piece of content, I was wondering if I could use this blog on my website, I will link it back to your website though. If this is a problem please let me know and I will take it down right away.
Really good site, where did you come up with the information in this write-up? Im pleased I found it though, ill be checking back soon to see what other articles you have.
Excellent site
Excellent site
This is a good piece, I was wondering if I could use this article on my website, I will link it back to your website though. If this is a problem please let me know and I will take it down right away.
I have read a few of the articles on your website now, and I really like your style of blogging. I added it to my favorites webpage list and will be checking back soon. Please check out my site as well and let me know what you think.
This is a good piece of content, I located your blog page looking around yahoo for a similar subject and came to this. I couldnt find to much different details on this piece, so it was great to discover this one. I will probably end up being returning to look at some other posts that you have another time.
Great post!
Sweet post.