ACYTAXN: Withholding Taxes

Final Withholding Taxes and Creditable Withholding Taxes

These are the two (2) systems of withholding taxes.

Final Withholding Taxes

Under this system, the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income.

Creditable Withholding Taxes

Under this system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income.

Time of Withholding

The obligation of the payor to deduct and withhold the tax under Section 2.57 of Revenue Regulations No. 2-98 arises at the time an income has become payable.

Payable

Refers to the date the obligation becomes due, demandable, or legally enforceable.

Time of Withholding

The obligation of the payor to deduct and withhold the tax arises at the time an income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor's book, or at the issuance by the seller of the sales invoice or other adequate document to support such payable, whichever comes first.

True

(True or False) Income upon which any creditable tax is required to be withheld at source under Section 57 of the Tax Code, as amended, shall be included in the return of its recipient but the excess of the amount of tax so withheld over the tax due on his return shall be refunded subject to the provision of Section 204 of the Tax Code.

True

(True or False) All withholding agents shall, regardless of the number of employees and payees, whether the employees/payees are exempt or not, submit an alphabetical list of employees and list of payees on income payments subject to creditable and final withholding taxes which are required to be attached as integral part of the Annual Information Returns (BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601C, etc.).

Income Payments Subject to Final Withholding Tax

Include the following:

1. Income Payments to a Citizen or to a Resident Alien Individual

2. Income Payments to Non-resident Aliens Engaged in Trade or Business in the Philippines

3. Income Derived from All Sources Within the Philippines by a Non-resident Alien Individual Not Engaged in Trade or Business Within the Philippines

4. Income Payment to a Domestic Corporation

Income Payments Subject to Final Withholding Tax

Include the following:

5. Income Payment to a Resident Foreign Corporation

6. Income Derived from All Sources Within the Philippines by Non-Resident Foreign Corporation

7. Fringe Benefits Granted to the Employee (Except Rank and File Employee).

8. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and the Discovery and Seizure of Smuggled Goods

Income Payments Subject to Creditable Withholding Tax

Include the following:

1. Professional fees, talent fees, etc. for services rendered

2. Rentals

3. Income payments to certain contractors

4. Income distribution to the beneficiaries of estates and trusts

5. Income payments to partners of general professional partnerships

6. Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange, or transfer of real property classified as ordinary asset

7. Additional income payments to government personnel from importers, shipping and airline companies, or their agents

8. Certain income payments made by credit card companies

9. Income payment made by top withholding agents, either private corporations or individuals, to their local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax

10. Income Payments made by a government office, national or local, including barangays, or their attached agencies or bodies, and government-owned or controlled corporations to its local/resident supplier of goods/services, other than those covered by other rates of withholding tax

Income Payments Subject to Creditable Withholding Tax

Include the following:

11. Tolling fees paid to refineries

12. Payments made by pre-need companies to funeral parlors

13. Payments made to embalmers

14. Income payments made to suppliers of agricultural products

15. Income payments on purchases of minerals, mineral products and quarry resources as defined and discussed in Section 151 of the Tax Code

16. MERALCO Payments

17. Interest income on the refund paid either through direct payment or application against customers' billings by other electric Distribution Utilities (DUs) in accordance with the rules embodied in ERC Resolution No. 8, Series of 2008, dated June 4, 2008, governing the refund of meter deposits

18. Income payments made by political parties and candidates of local and national elections on all their purchase of goods and services related to campaign expenditures, and income payments made by individuals or juridical persons for their purchases of goods and services intended to be given as campaign contributions to political parties and candidates

19. Interest income derived from any other debt instruments not within the coverage of 'deposit substitutes' and Revenue Regulations 14-2012, unless otherwise provided by law or regulations

20. Income payments to Real Estate Investment Trust (REIT)

21. Income payments on sugar

True

(True or False) Every employer must withhold from compensation paid an amount computed in accordance with these Regulations, whether the employee is a citizen or an alien, except non-resident alien not engaged in trade or business. Provided, that no withholding of tax shall be required on the SMW, including holiday pay, overtime pay, night shift differential and hazard pay of MWEs in the private/public sectors as defined in these Regulations.

Exemption from Withholding Tax on Compensation

The following income payments are exempted from the requirement of withholding tax on compensation but may be subject to income tax depending on the nature/sources of income earned by the individual recipient.

1. Thirteenth month pay and other benefits (P90,000)

2. GSIS, SSS, Medicare and other contributions

Exemption from Withholding Tax on Compensation

The following income payments are exempted from the requirement of withholding tax on compensation but may be subject to income tax depending on the nature/sources of income earned by the individual recipient.

3. Compensation income of Minimum Wage Earners (MWEs) who work in the private sector and being paid the Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity Board (RTWPB)/National Wages and Productivity Commission (NWPC), applicable to the place where he/she is assigned, as well as the compensation of employees in the public sector who are paid not more than the SMW applicable to non-agricultural sector, as fixed by RTWPB/NWPC, applicable to the place where he/she is assigned.

4. Compensation during the year not exceeding Two hundred fifty thousand pesos (₱250,000).

Quarterly Returns and Payment of Taxes

Taxes deducted and withheld under Section 57 by withholding agents shall be covered by a return and paid to, either electronically or manually, except in cases where the Commissioner otherwise permits, any authorized agent bank, Revenue District Office through Revenue Collection Officer, or authorized agent bank.

Within Twenty-Five (25) Days from the Close of Each Calendar Year

The number of days within which a withholding agent shall file and pay, either electronically or manually, quarterly taxes deducted and withheld.

Not Later than the Last Day of the Month Following the Close of the Quarter During Which the Withholding was Made

The deadline for the filing of withholding tax returns and payment of taxes withheld at source. (The filing of the withholding tax returns (BIR Form No. 1601EQ) for creditable withholding tax and Form Nos. 1602 for final tax on interest on bank deposits, 1603 for final tax withheld on fringe benefits, and 1601FQ for all other final withholding taxes) and payment of the taxes withheld at source)

True

(True or False) For purposes of withholding tax remittance, the quarter shall follow the calendar quarter, e.g., for taxes withheld during the quarter ending March 31, the same shall be remitted by the withholding agent on or before April 30. The return filed shall be accompanied by the Quarterly Alphabetical List of Payees (QAP), reflecting the name of income payees, Taxpayer Identification Number (TIN), the amount of income paid segregated per month with total for the quarter (all income payments prescribed as subject to withholding tax under these regulations, whether actually subjected to withholding tax or not subjected due to exemption), and the total amount of taxes withheld, if any.

Every Tenth (10th) Day of the Following Month When the Withholding was Made

The period of a withholding agent to file BIR Monthly Remittance Form (BIR Form No. 0619E and/or 0619F), regardless of the amount involved.

True

(True or False) For withholding agents using EFPS facility, the due date is on the fifteenth (15th) day of the following month. (Instead of 10th day following the month when withholding was made).

True

(True or False) Withholding agents with zero remittance are still required to use and file the same form.

Within Thirty (30) Days After the Sale or Disposition

The period of remitting the payment of tax due thereon from sale of shares of stocks not trade through a local stock exchange (BIR Form No. 1707), and sale of real property considered as capital asset(BIR Form No. 1706).

Within Ten (10) Days Following the Month of Transaction

The period of remitting the payment of tax due thereon from the sale sale of real property considered as ordinary asset (BIR Form No. 1606).

Within Twenty (20) Days from the Close of the Quarter

The deadline for every payor to furnish each payee, a withholding tax statement, in triplicate.

True

(True or False) The prescribed form (BIR Form No, 2307) for creditable withholding tax and BIR Form 2306 for final withholding tax) shall be used, showing the monthly income payments made, the quarterly total, and the amount of taxes withheld.

Provided, however, that upon request of the payee, the payor must furnish such statement, simultaneously with the income payment.

Annual Information Return and Annual Alphabetical List of Payees for Income Tax Withheld at Source

The withholding agent is required to file with the concerned office of the LTS/RR/RDO where the withholding agent is registered, the following:

a. Annual Information Return of Creditable Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax (BIR Form No. 1604E) including the corresponding Annual Alphabetical List of Payees - on or before March 1 of the following year in which the income has become payable; and

b. Annual Information Return on Final Income Taxes Withheld (BIR Form 1604F) including the corresponding Annual Alphabetical List of Payees - On or before January 31 of the following year in which payments were made."

True

(True or False) Income upon which any creditable tax is required to be withheld at the source under Section 57 (Withholding of Tax at Source) shall be included in the return of its recipient but the excess of the amount of tax so withheld over the tax due on his return shall be refunded to him subject to the provisions of Section 204 (Authority of the Commissioner to Compromise, Abate and Refund); if the income tax collected at source is less than the tax due on his return, the difference shall be paid in accordance with the provisions of Section 56 (Payment and Assessment of Income Tax for Individuals and Corporations).

True

(True or False) Claims for tax credit of any creditable income tax deducted and withheld in a previous period can still be creditable in the subsequent calendar of fiscal year: Provided, That the same had been declared in the tax return where the corresponding income is reported.

Return and Payment in Case of Government Employees

If the employer is the Government of the Philippines or any political subdivision, agency or instrumentality thereof, the return of the amount deducted and withheld upon any wage shall be made by the officer or employee having control of the payment of such wage, or by any officer or employee duly designated for the purpose.

True

(True or False) On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year in accordance with Section 24(A).

The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to November shall either be withheld from his salary in December of the current calendar year or refunded to the employee not later than January 25 of the succeeding year.

Employer

Shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld under this Chapter. If the employer fails to withhold and remit the correct amount of tax as required to be withheld under the provision of this Chapter, such tax shall be collected from the employer together with the penalties or additions to the tax otherwise applicable in respect to such failure to withhold and remit.

Employee

When the same fails or refuses to file the withholding exemption certificate or willfully supplies false or inaccurate information thereunder, the tax otherwise required to be withheld by the employer shall be collected from him including penalties or additions to the tax from the due date of remittance until the date of payment. On the other hand, excess taxes withheld made by the same due to:

(1) Failure or refusal to file the withholding exemption certificate; or (2) False and inaccurate information shall not be refunded to the employee but shall be forfeited in favor of the Government.

True

(True or False) The Department of Finance shall review, at least once every three (3) years, regulations and processes for the withholding of creditable tax, and direct the Bureau of Internal Revenue to amend the rules and regulations for the same, should it be found during the review that the existing rules, regulations, an processes for the withholding of creditable tax adversely and materially impact the taxpayer: Provided, That micro taxpayer (gross sales less than P3,000,000) shall not be required to withhold taxes under Subsection (B) of Section 57, NIRC as amended.

BIR Form No. 1601C

Title: Monthly Remittance Return of Income Taxes Withheld on Compensation

Due Date: January to November-10th day after the end of each month (15th day if under EFPS)

December - Not later than 15th day of the following year (January 20 if under EFPS)

BIR Form No. 1601 EQ

Title: Quarterly Remittance Return of Creditable Income Taxes Withheld (Expanded)

Due Date: Not later than the last day of the month following the close of the quarter during which the withholding was made.

BIR Form No. 1601 FQ

Title: Quarterly Remittance Return of Final Income Taxes Withheld

Due Date: Not later than the last day of the month following the close of the quarter during which the withholding was made.

BIR Form No. 1602Q

Title: Quarterly Remittance Return of Final Taxes Withheld on Interest Paid on Deposits and Deposit Substitute or Trusts/ETC

Due Date: Not later than the last day of the month following the close of the quarter during which the withholding was made.

BIR Form No. 1603Q

Title: Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File

Due Date: Not later than the last day of the month following the close of the quarter during which the withholding was made.

BIR Form No. 1604 CF

Title: Annual Information Return of Income Taxes and Withheld on Compensation and Final Withholding Taxes

Due Date: On or before January 31 of the year following the calendar year in which the compensation payment and other income payments subjected to final withholding taxes were paid or accrued

BIR Form No. 1606

Title: Withholding Tax Remittance Return

Due Date: January to November-10th day after the end of each month (15th day if under EFPS)

December - Not later than 15th day of the following year (January 20 if under EFPS)

Large Taxpayers - on or before 25th day of the following month