What you need to know abo
—The employer is constituted as the withholding agent.—Every person who is required to withhold the tax from the compensation of an employee is liable for the payment of such tax to the BIR.
Such liability stays even if the employee subsequently pays the tax. The payment of the tax by the employee does not relieve the employer from the liability for penalties and/or additions to the tax for failure to deduct and withhold within the time prescribed by law or regulations. The employer will not be relieved of his liability for payment of the tax required to be withheld unless he can show that the tax has been paid by the employee. The amount of any tax withheld/collected by the employer is a special fund in trust for the government of the Philippines.
—(A) Compensation Income Defined – In general, the term “compensation” means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code.
--The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g. transportation, representation, entertainment and the like); fees including director’s fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except those which are subject to FBT under Section 33 of the Code; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income.
--The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Thus it may be paid on the basis if piece-work; or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually.
—Remunerations for services constitute compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them.
—(1) Compensation paid in kind – Compensation may be paid in money or in some medium other than money.
—(2) Living quarters or meals – If furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income.
—(3) Facilities and privileges of a relatively small value – Generally not considered as compensation subject to withholding if offered or furnished merely as a means of promoting health, goodwill, contentment, or efficiency of employees. (Also discussed under de minimis benefits)
—(4) Tips and gratuities – Tips or gratuities paid directly to an employee by a customer of the employer which are not accounted for by the employee to the employer are considered as taxable income but not subject to withholding.
—(5) Pensions, retirement and separation pay – Such constitute compensation subject to withholding (exception discussed later).
—(6) Fixed or variable transportation, representation and other allowances –
—In general, fixed or variable transportation, representation and other allowances which are received by a public officer or employee of a private entity, in addition to the regular compensation fixed for his position or office, is compensation subject to withholding. Provided, whoever that representation and travel allowance (RATA) granted to public officers and employees under the General Appropriations Act (GAA) and the personal economic relief program (PERA) which essentially constitute reimbursement for expenses incurred in the performance of government personnel’s official duties shall not be subject to income tax and consequently to withholding tax, Provided further, that pursuant to EO 219, additional compensation allowance (ACA) given to gov’t personnel shall not be subject to withholding tax pending its formal integration into the basic pay. Consequently, ACA shall be classified as part of “other benefits” under Section 32 (B)(7)(e) of the Tax Code which are excluded from gross compensation income provided the amount of such benefits does not exceed Php 30,000.00
—Any amount paid specifically, either as advances or reimbursements for traveling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding if:
— it is ordinary and necessary and in the pursuit of trade, business or profession
—Must be liquidated in accordance with the specific requirements of substantiation (Sec. 34 of the NIRC). The excess advances over actual expenses shall constitute taxable income if not returned to the employer.
—If pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty – not subject to substantiation requirement and withholding.
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(7) Vacation and sick leave allowance – Though the employee is absent, such constitute compensation. However, the monetized value of unutilized vacation leave credits of ten days or less which were paid to the employee during the year are not subject to income tax and to the withholding tax.
§(8) Deductions made by employer from compensation of employee – Any amount which is required by law to be deducted by the employer from the compensation of an employee including the tax withheld is considered as part of the employee’s compensation and is deemed to be paid to the employee as compensation at the time the deduction is made.
—(9) Compensation for services performed outside the Philippines –
—If made by a resident citizen for a corporation/partnership or for a non-resident individual not engaged in trade or business in the Philippines shall be treated as compensation subject to tax.
—For non-resident citizen, the same is taxable only on income derived from sources within the Philippines.
—In general, the situs of the income whether within or out of the Philippines, is determined by the place where the service is rendered.