notes from class

1. Classification of withholding taxes:

  1. Creditable    • Compensation - is the tax withheld from income payments to individuals arising from employer-employee relationship.    • Expanded - is a kind of withholding tax which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned.    • Withholding Tax on GMP-Value Added Taxes (GVAT)- is the tax withheld by National Government Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations (GOCCs) and local government units (LGUS), before making any payments to VAT registered taxpayers/suppliers/payees on account of their purchases of goods and services.    • Withholding Tax on Government Money Payments (GMP) - Percentage Taxes-is the tax withheld by National Government Agencies (NGAs) and instrumentalities, includes thing government-owned and controlled corporations (GOCCS) and local government units (LGUS), before making any payments to non-VAT registered taxpayers/suppliers/payees- assignment (is the government owned business still pay taxes?)

  2. Final withholding Tax    is a kind of withholding tax which is prescribed on certain income payments and is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the particular income subjected to final withholding tax.

  3. Importance of withholding tax system    • It encourages voluntary compliance;    • It reduces cost of collection effort,    • It prevents delinquencies and revenue loss, and    • It prevents dry spell in the fiscal conditions of the government by providing revenues throughout the taxable year.

  4. Person required to withhold withholding tax    • Individuals engaged in business or practiced of profession    • Non-individuals (corporations, associations, partnership, cooperatives) whether engaged in business or not.    • Government agencies and its instrumentalities (National Government Agencies (NGAs). Government-owned or Controlled Corporations (GOCCS), Local Government Units including Barangays (LGUS    A WITHHOLDING AGENT - is any person or entity who is in control of the payment subject to withholding tax and therefore is required to deduct and remit taxes withheld to the government.

  5. Withholding tax on compensation

is based on graduated withholding tax rates ranging from 0% to 35% and will be based on or dependents on net taxable compensation of a particular employee Compensation or Wages- refers to all remuneration for services performed by an employee for his employer under an employee-employer relationships unless exempted by the NIRC and pertinent laws.

KINDS OF COMPENSATION Regular a. Basic Salary b. Fixed allowances

Supplementary a Commission b. Overtime pay. c. Fees, including directors’ fees. d. Profit sharing e. Monetized vacation leave in excess of ten (10) days f. Sick leave g. Fringe benefits received by rank-and-file employees. h. Hazard pay. I. Taxable 13th month pay and other benefits. j. other remuneration received from an employee-employer.

  1. Exemption and inclusion on gross income     Exemption    a. Remuneration received as an incident of employment (RA 7641; those with approved reasonable private retirement plan, Social Security Act of 1954, as amended; GSIS Act of 1937,    as amended, and etc.    b. Remuneration paid for agricultural labor;    c. Remuneration for domestic services;    d. Remuneration for casual labor not in the course of an employer's trade or business,    e. Compensation for services by a citizen or a resident of the Philippines for a foreign government or international organization    f. Damages (Actual, moral, exemplary and nominal); g. Life insurance,    h. Amounts received by the insured as a return of premium;    i. Compensation for injuries or sickness; Income exempt under treaty    k. 13th Month pay and other benefits    l. GSIS, SSS, Medicare and other contributions (employee's share only)    m. Compensation income of minimum wage earners (MWES) who work in the private sector and being paid the Statutory Minimum Wage (SMW), as fixed by the Regional Tripartite Wage and Productivity Board (RTWPB)/National Wages Productivity Commission (NWPC), applicable to the place where he/she is assigned; relationships    n. Compensation income of employees in the public sector with compensation income of not more the SMW in the non-agricultural sector as fixed by the RTWPB/NWPC applicable to the place where he/she is assigned.    o. De Minimis benefits    p. Fringe benefits given to employees other than rank and file and subjected to Fringe Benefit Tax (FBT)    q. Personnel Economic Relief Allowance (PERA) given to government employees; and Representation and transportation allowance (RATA granted to public officers and employees under the General Appropriations Act    INCLUSIONS - They are part of the gross income and are hence taxable: Under section 32, except when otherwise provided in this title, gross income means all income derived from whatever source, including, but not limited to the following items:    a. Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions and similar items;    b. Gross income derived from the conduct of trade or business or the exercise of a profession;    c. Gain derived from dealings in property:    d. Interests;    e. Rents;    f. Royalties; g. Dividends    h. Annuities,    i. Prizes and winnings; 1. Pensions; and    k. Partner's distributive share from the net income of the general professional partnership.
  2. Minimum wage earners    No withholding tax shall be required on the Statutory Minimum Wage (SMW) of the Minimum Wage earner in the private/public sectors as defined in RR 2-98, as amended by RR 11-2018, including:    Holiday pay    Overtime pay.    Night shift differential    Hazard pay.

of Minimum Wage earners in the private/public sectors as defined by these Regulations.

Employees with monthly basic salary of P12,546.08 under 313 denominator is statutory minimum wage.