TAX LIABILITIES on TAXABLE Compensation Income
EMPLOYEE EMPLOYER
ITR
Withholding taxes Returns:
1700, Annual Income Tax Return for 1601 C, Creditable W/tax on taxable compensation
Compensation income income
Quarterly
1603, Final tax on the payments of Fringe benefits
of Managerial Employee
2306, Final Tax w/held, Shall be issued to payee on or before January 31 of the year following
the year in which income payment was made. However upon request of the payee the payor
must furnish such statement to the payee simultaneously with the income payment.
TAXABLE COMPENSATION INCOME
Section 80. Liability for Tax
(A)Employer. - The 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.
Year-end Adjustment. - 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.
Creditable Withholding Tax on Compensation Income is based on graduated withholding tax
rates ranging from 0% to 35% and will be based on net taxable compensation of a particular employee. The BIR
has developed and issued a Withholding Tax table which is available on the BIR website.
BIR Form No. 1601-C Monthly Remittance Return of Income Taxes Withheld on Compensation
On or before the tenth (10th) day of the following month in which withholding was made
BIR Form No. 1604-C Annual Information Return of Income Taxes Withheld
on Compensation , shall be filed On or before January 31 of the year following the calendar year in
which the compensation payment and other income payments were paid or accrued
2316 Certificate of Compensation Payment / Tax Withheld For Compensation
Payment With or Without Tax Withheld
To be issued to payee on or before January 31 of the succeeding year in which the compensation was paid,
or in cases where there is termination of employment, it is issued on the same day the last payment of
wages is made.
CREDITABLE WITHHOLDING TAX ON TAXABLE COMPENSATION INCOME
Classification of Taxable Compensation Income for the CALCULATION of the estimated CREDITABLE Withholding Tax
Regular compensation includes basic salary, fixed allowances for representation, transportation and other
allowances paid to an employee per payroll period.
Supplementary compensation includes payments to an employee in addition to the regular compensation;
Commission
Overtime pay
Fees, including directors fees
Profit sharing
Monetized vacation leave in excess of ten (10) days
Sick leave
Fringe benefits received by rank and file employees
Hazard pay
Taxable 13th month pay and other benefits
Other remuneration received from an employee-employer relationships
CREDITABLE Withholding tax on Compensation
Use of Withholding Tax Tables. – In general, every employer making payment of compensation shall deduct and
withhold from such compensation a tax determined in accordance with the prescribed withholding tax table;
In using the withholding tax table, only the taxable Regular Compensation should be considered in locating the
applicable tax bracket in the table. The supplementary taxable compensation shall be added to the excess of the
taxable regular compensation over the nearest amount in the tax table bracket.
SEMI-MONTHLY 1 2 3 4 5 6
Compensation P10,417 and P10,417 - P16,667 - P33,333 - P83,333 - P333,333 and
Range below P16,666 P33,332 P83,332 P333,332 above
P100,416.67
Prescribed 0.00 +15% over P1,250.00 +20% P5,416.67 +25% P20,416.67 +30%
0.00 +35% over
Withholding Tax P10,417 over P16,667 over P33,333 over P83,333
P333,333
MONTHLY 1 2 3 4 5 6
Compensation P20,833 and P20,833 - P33,333 - P66,667 - P166,667 - P666,667 and
Range below P33,332 P66,666 P166,666 P666,666 above
P200,833.33
Prescribed 0.00 +15% over P2,500.00 +20% P10,833.33 +25% P40,833.33 +30%
0.00 +35% over
Withholding Tax P20,833 over 33,333 over P66,667 over P166,667
P666,667
Fringe benefits
‘Fringe benefits’ are defined as any goods, services, or other benefits furnished or granted in cash or in kind by an
employer to an individual employee, except rank and file employees, such as, but not limited to, the following:
Housing.
Expense account.
Vehicles of any kind.
Household personnel (e.g. maid, driver).
Interest on a loan at less than the market rate (currently set at 12%) to the extent of the difference between the market
rate and the actual rate granted.
Membership fees, dues, and other expenses borne by the employer for the employee in social and athletic clubs and
similar organizations.
Expenses for foreign travel.
Holiday and vacation expenses.
Educational assistance to the employee and dependents.
Premiums for life insurance, health and other non-life insurance, and similar amounts in excess of what the law allows.
The following fringe benefits are not taxable:
Fringe benefits required by the nature of or necessary to the trade, business, or profession or for the
convenience or advantage of the employer.
Benefits authorized by and exempted from tax under special laws.
Employer contributions for the benefit of the employee to retirement, insurance, and hospitalization benefit
plans.
Benefits given to rank and file employees, whether or not granted under a collective bargaining agreement.
However, these are subject to withholding tax (WHT) on compensation, unless otherwise tax exempt.
De minimis (small value) benefits as defined and enumerated in the rules and regulations.
VALUATION
In general, if a fringe benefit
is granted in money or directly paid for by the employer, the value of the fringe benefit is the amount
granted or paid for.
If furnished in property and ownership thereof is transferred to the employee, the value of the fringe benefit
is the fair market value of the property as determined by the Commissioner of Internal Revenue, pursuant to
the Commissioner’s power to prescribe real property values.
If the fringe benefit is granted or furnished by the employer in the form of a property but ownership is not
transferred to the employee, the value of the fringe benefit is equal to the depreciation value of the property.
The monetary value of benefits in the form of housing and motor vehicles used for both
personal and business purposes is equal to 50% of the lease payment or the depreciation
value of the property, whichever is applicable.
For Convenience of employer
However, if the housing unit is situated in or adjacent (within 50 metres) to the business
premises, the benefit is not taxable. Likewise, a motor vehicle used normally for business
purposes is not taxable.
Fringe benefits tax (FBT)
Fringe benefits furnished to managerial and supervisory-level employees by the employer are
subject to a final FBT of 35%* (in general) on the grossed-up monetary value of the
benefits.
Cash allowance/65%
BIR Form No. 1603 - Quarterly Remittance Return of Final Income Taxes Withheld
( On Fringe Benefits Paid to Employees Other than Rank and File )
Deadline The return shall be filed and the tax paid on or before the twenty-fifth(25th) day
of the month following the quarter in which the fringe benefits were granted to the recipients.