Withholding

Taxes on
Wages

Objectives
Gain

understanding and appreciation of

withholding tax on wages
Gain basic information needed to
compute withholding tax on wages

Nature of WTW
Method

of collecting the income tax on

wages at source upon RECEIPT of income
(not when earned).

Employer

is constituted as the withholding

agent of the tax due on the taxable
compensation of the employee.

General Rules
Taxation of Resident Citizen
Taxability:
Income Within
Income Without

Yes
Yes

Basic Personal Exemption

Php50,000

Additional Personal Exemption

Php25,000
Max of 4 or Php100,000

Tax Rates

5% - 32%

Compensation Income

Compensation Income
All

remuneration for services

Performed under employer-employee
relationship
Not specifically excluded in tax code
May be paid by piece of work,
percentage of profit, hourly, weekly,
monthly or annually (basis is immaterial)
Kims Mindset: All are taxable unless exempted.

TAXABLE INCOME

NON-TAXABLE INCOME

Salaries and wages

Honorariums
Fixed allowances
Commissions
Fees
Taxable bonuses
Taxable pension and
retirement pay
OT Pays
COLA (cost of living
allowance)
Compensation paid IN
KIND

Minimum Wage Earner

De Minimis Benefits
SSS, Philhealth and HDMF
contributions
Insurance premiums
under group insurance
plans
Separation pay (direct
result of any cause
beyond the control of the
employee)
Retirement benefits under
the law

INCOME means ALL WEALTH which flows to the taxpayer.

De Minimis Benefits
De Minimis Benefits

Limit

1. Monetized vacation leave

10 days per year

2. Monetized vacation and sick leave

for government employees

No limit

3. Medical cash allowance to

dependents of employees

Php750 per
employee per
semester or
Php125 per month

4. Rice subsidy

Php1,500 per
month or 1 sacj of
50kg rice

De Minimis Benefits

Limit

5. Uniforms and clothing allowance

Not exceeding
Php5,000 per
annum

6. Gifts given during Christmas and

major anniversary

Php5,000 per
employee per
annum

7. Laundry Allowance

Php300 per month

8. Actual medical assistance

*Requires substantiation

Php10,000 per
annum

9. Employee achievement awards

(must be tangible personal property)

Php10,000 per
annum

De Minimis Benefits

Limit

10. Daily meal allowance for OT work

and night/graveyard shift

25% of basic
minimum wage

11. Benefits under CBA

Php10,000 per
annum

12. Other bonuses

Php82,000

Note: MWEs receiving other benefits exceeding Php82,000

limit shall be taxable on the excess benefits, as well as on his
salaries and allowances.

TIPS AND GRATUITIES?

Those paid directly to the employee
by a customer which are not accounted
for by the employee to the employer
Are considered TAXABLE INCOME
not subject to withholding
but subject to INCOME TAX.

Computation of Taxes

Basic Computation
Total Compensation Income

Php500,000

Less: Tax Exempt Income

Non taxable benefits
Php82,000 tax exempt
SSS and other contributions
Insurance premiums*

10,000
82,000
18,000
2,400

Total tax exempt income

109,400

Taxable Income before exemptions

390,600

Less: Personal Exemptions

Additional Exemptions

50,000
100,000

Taxable Income
*For health or hospitalization.
Family income must not exceed PhP250,00 annually

Php240,600

Withholding Exemptions
Personal

Exemption:
Php50,000 regardless of status
Additional Exemption:
Php25,000 per dependent child max of 4

Whether married or single

Rightfully claimed by husband unless with
waiver (BIR FORM 1902 or 2305, only once)
or if spouse is unemployed or non-resident
earning from foreign sources

Additional Exemptions
Dependent

Child:

Legitimate, illegitimate, legally adopted or

qualified foster child
Chiefly dependent on taxpayer
Not more than 21 years of age, unmarried
and not gainfully employed
Regardless of age, if incapable of selfsupport due to mental or physical defect

Computation of Income Tax

Computation Basis
Monthly

Tax Table
Semi-monthly Tax Table
Weekly Tax Table
Daily Tax Table
Annual Graduated Income Tax Table

Monthly
Step1: Determine total compensation
income and segregate gross benefits
Gross Income

Php12,000

Gross Benefits

5,000

Step 2: Segregate Taxable from Nontaxable

Monthly
Step 3: Segregate Taxable Income to
Regular and Supplementary
Regular Taxable

Supplementary

- Basic salary
- Fixed allowances
- Other allowances

Commissions
Overtime Pay
Taxable retirement
Taxable Bonus
Other Taxable benefits

Step 4: Use appropriate tax tables (Monthly)

Assumption: Single with no dependent

Regular Compensation
Less: Compensation level per table

Php12,000
10,000

Excess

2,000

Add: Supplementary

5,000

Total Excess

7,000

Tax on Php10,000
Tax on Excess (7,000 x 20%)
Withholding Tax

Php708.33
1,400.00
Php2,108.33

Step 4: Use appropriate tax tables (Semi)

Assumption: Married with three dependents

Regular Compensation
Less: Compensation level per table
Excess

Php12,000
11,042
958

Add: Supplementary

5,000

Total Excess

5,958

Tax on Php10,000
Tax on Excess (5,958 x 25%)
Withholding Tax

Php937.50
1,489.50
Php2,427.00

Step 4: Use appropriate tax tables (Annual)

Annualized: Married with two QDC

Compensation:
Basic Monthly Salary
Overtime pay for November

Php45,000
5,000

Thirteen Month Pay

45,000

Other Benefits

12,000

Withholding Tax (Jan-Nov)

98,082.27

Annualized: Married with two QDC

Total
Basic (45,000x12mons)
Overtime November

NonTaxable

Php540,000

Php540,000

5,000

5,000

13th Month Pay

45,000

45,000

Other Benefits

12,000

12,000

602,000

57,000*

TOTAL

Taxable

*If in excess of Php82,000 = taxable

545,000

Annual Tax Rates on

Compensation
Over

But Not
OVER

Amount

Rate

Of Excess
Over

Not Over

10,000

5%

10,000

30,000

500

+10%

10,000

30,000

70,000

2,500

+15%

30,000

70,000

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

Non-Taxable
Total Gross Compensation
Less: Personal Exemption
Additional Exemption
(Php25,000 x 2)

Taxable
Php545,000

Php50,000
50,000

Net Taxable Compensation

100,000
445,000

Tax Due
First 250,000
In excess of 250,000 x 30%
Total Tax Due

50,000
(195,000 x 30%)

58,500
108,500

Less: Tax Withheld (Jan-Nov)

98,082.27

Tax Due to be paid

10,417.73

TEST
Married with two QDC

Compensation:
Basic Monthly Salary

Php12,000

Thirteen Month Pay

12,000

Other Benefits

80,000

Withholding Tax (Jan-Nov)

9,327

Annual Tax Rates on

Compensation
Over

But Not
OVER

Amount

Rate

Of Excess
Over

Not Over

10,000

5%

10,000

30,000

500

+10%

10,000

30,000

70,000

2,500

+15%

30,000

70,000

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

Annualized: Married with two QDC

Total
Basic (12,000x12mons)

NonTaxable

Php144,000

Taxable
Php144,000

13th Month Pay

12,000

12,000

Other Benefits

80,000

70,000

10,000

Php236,000

82,000*

154,000

TOTAL

*If in excess of Php82,000 = taxable

Non-Taxable
Total Gross Compensation
Less: Personal Exemption
Additional Exemption
(Php25,000 x 2)

Taxable
Php154,000

Php50,000
50,000

Net Taxable Compensation

100,000
54,000

Tax Due
First 30,000
In excess of 30,000 x 15%

2,500
(24,000 x 15%)

3,600

Total Tax Due

6,100

Less: Tax Withheld (Jan-Nov)

9,327

Tax Refund

3,227

Excess of Withholding Tax

Excess

tax shall be refunded to employee

not later than January 25 of the following
year and in case of termination, at the
last payment
Employees can only claim refund from
their EMPLOYER and not from BIR, except
when employer already ceased
operations

Administrative Guidelines

BIR FORMS
Forms

Purpose

Deadline

BIR FORM 1902

Application for
registration of
employee

10 or 30 days from
date of
employment

BIR FORM 2305

Certificate of
Update of
Exemption and of
Employers and
Employees
Information

10 or 30 days after
the change

Note without these documents EXEMPTIONS are disallowed.

Forms

Purpose

Deadline

BIR FORM 1601-C

Withholding Tax
on Wages

10 days from end

of the month

BIR FORM 1604-CF

and Alphalist

Annual WTW

January 31

BIR FORM 2316

Proof of
withholding tax
payment

On or before
January 31.
February 28 to BIR

BIR FORM 1701 or

1700

Annual Income
Tax Return

April 15

Substituted Filing
Form

2316 signed by both employee and

employer in lieu of 1701 Annual Income
Tax Return
Mandatory effective 2002
If not qualified, employee is required to
file ITR 1701 or 1700 (1700 for individuals earning
purely compensation income)

Substituted Filing

Qualified:
a.
b.

c.
d.
e.
f.

Employee received PURELY compensation

income
Employee received income only from ONE
EMPLOYER in the Philippines during the taxable
year
Employees spouse also complies stated above
Tax was withheld and paid correctly by employer
Employer files annual return on WTW (1604-CF
and alphalist)
Employer issues BIR FORM 2316

Timing of Withholding
Section

79 (A) of Tax Code as amended

Whichever comes first:
1.
2.
3.

Compensation is paid
Compensation is payable
Compensation is accrued (recorded)

General Rule: Not withheld = cannot be

claimed as expense in the FS

Thank you and God bless!

Bulano Accounting and Audit Firm
Email: bulano_accounting_audit_firm@yahoo.com.ph
Contact No.: 300-4756/305-7805