WITHHOLDING

OF TAXES
 The withholding tax system
The withholding of tax is a system used to collect
tax in advance. The system is used to equal or at
least approximate or collect in full the tax due
from the payee on certain income payments. The
taxes deducted and withheld by the withholding
agent shall be held as a special trust fund in
trust for the government until paid or remitted
by the withholding agent to collection
officers/banks [Section 58(A), Tax Code].
Importance of the withholding tax system
BIR experiences proved that the withholding tax system is an
effective tool in the collection of taxes. It is important for the
following reasons:
► It encourages voluntary compliance;
► It reduces cost of production effort;
► It prevents delinquencies and revenue loss; and
► It prevents dry spells in the fiscal condition of the
government by providing revenues throughout the taxable
year.
Types of withholding taxes
1. Creditable Withholding Tax
► Withholding Tax on Compensation;
► Withholding Tax at Source or Expanded Withholding Tax;
► Withholding Tax on Government Money Payment
- to NON-VAT registered payees subject to percentage tax
- to VAT-registered payees
2. Non- Creditable/ Final Withholding Tax
► Final Withholding Tax or simply known as Final Tax;
 PERSONS REQUIRED TO WITHHOLD
WITHHOLDING TAXES

► 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)
 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.
 Duties & Obligations of a Withholding
Agent
► To register
► To deduct and withhold
► To remit the tax withheld
► To file withholding tax returns
► To issue withholding tax
certificate
WITHHOLDING
TAX
COMPENSATION
 GROSS COMPENSATION
INCOME
► Allremuneration for services performed
by an employee for his employer,
including the cash value of all
remuneration paid in any medium other
than cash. [Section 78(A), Tax Code]
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, such as commission, overtime pay taxable
retirement, taxable bonus and other taxable fringe benefits with
or without regard to payroll period.
 EXCLUSIONS FROM GROSS INCOME

► 13TH Month pay and other BENEFITS up to P 90,000

for the TAXABLE YEAR. [see RA 10963 and RR
11-2018]
► GSIS, SSS, MEDICARE, PAG-IBIG Contributions and
Union Dues of individuals [Section32(B)(7)(f), Tax
Code]
► Compensation Income of Minimum Wage Earners
► Compensation during the year not exceeding
₱250,000.00
De Minimis Benefits
► Monetized unused vacation leave credits of private employees not exceeding
ten (10) days during the year
► Monetized value of vacation and sick leave credits paid to govt officials and
employees
► Medical Cash Allowance to dependents, not exceeding P1,500.00 per employee
per semester or P 250 per month
► Rice Subsidy of P 2,000 or one sack of 50 kg rice per month amounting to not
more than P 2,000.00
► Uniform and Clothing allowance not exceeding P 6,000.00 per annum
► Actual medical assistance, e.g. medical allowance to cover medical and
healthcare needs, annual medical/executive check-up, maternity assistance and
routing consultations, not exceeding P10,000.00 per year
► Laundry allowance- not exceeding P300.00/month
► Employees achievement awards – for length of service or safety
achievement which must be in the form of a personal tangible property
other cash or gift certificate with an annual monetary value not
exceeding P10,000.00 received by the employee under an established
written plan which does not indiscriminate in favor of highly paid
employees;
► Gifts given during Christmas & anniversary celebrations - not
exceeding P5,000.00 per employee per annum
► (Flowers, fruits, books or similar items given to employees under
special circumstances – revoked)
► Daily meal allowance for overtime work and night/grave- yard shift
not exceeding 25% of the basic minimum wage on a per region
basis.
ALL OTHER BENEFITS GIVEN BY
EMPLOYERS WHICH ARE NOT
INCLUDED IN THE ABOVE
ENUMERATION SHALL NOT BE
CONSIDERED AS “DE MINIMIS”
BENEFITS, AND HENCE, SHALL
BE SUBJECT TO INCOME TAX
AS WELL AS WITHHOLDING TAX
ON COMPENSATION INCOME.
REVENUE REGULATIONS NO.11-2018

► Amends certain provisions of Revenue Regulations No.2-98, as amended, to

implement further amendments introduced by Republic Act 10963 relative to
withholding of Income Tax
REQUISITES FOR INDIVIDUALS
QUALIFIED FOR SUBSTITUTED
FILING OF BIR FORM NO. 1700
► Receives purely compensation income regardless of amount;
► Compensation from only one employer in the Philippines for the
calendar year;
► Income tax has been withheld correctly by the employer (tax due
equals tax withheld);
► the employee's spouse also complies with all the three
conditions stated above;
► Employer files the BIR Form No. 1604-C; and
► The employer issues each employee BIR Form No. 2316 (latest
version)
REQUISITES FOR INDIVIDUALS
NOT QUALIFIED FOR
SUBSTITUTED FILING OF BIR
FORM NO. 1700
► Individuals with two or more employers concurrently and/or
successively at anytime during the taxable year.
► Employees whose income tax have not been withheld correctly
resulting to collectible or refundable return.
► Individuals deriving other non-business, non-profession-related income
in addition to compensation income not otherwise subject to final tax.
► Individuals receiving purely compensation income from a single
employer whose income tax has been correctly withheld but whose
spouse does not qualify for substituted filing.
► Non-resident aliens engaged in trade or business in the Philippines
deriving purely compensation income or compensation income and
other non-related business, non-profession-related income.
Gross Compensation Income (present + previous employer) xxx

Less: Non-Taxable/Exempt Compensation Income

1.) 13th month pay and other benefits xxx

2.) SSS, GSIS, PHIC, HDMF and union dues (employee share) xxx

3.) Other Non-Taxable salaries (P250,000) xxx

Taxable Compensation Income xxx

Tax Due xxx

Less: Tax Withheld (January to November/termination date) xxx

Tax to be withheld for December/last payroll period xxx

 REVENUE MEMORANDUM
CIRCULAR NO. 21-2010
Section 80(A) of the National Internal Revenue Code(Tax
Code), as amended, provides that the employer shall be liable
for the withholding and remittance of the correct amount of
tax required to be deducted and withheld. Further, it is also
required under Section 79(H) that “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).
Violations of the employer/withholding agent:
1. Non-withholding of tax – when employer fails to withhold the tax on the
taxable income of the employee.
2. Under withholding – when employer fails to correctly withhold the tax which
should be equal to the tax due of the employee for the taxable year.
3. Non remittance - when employer fails to remit total amount withheld.
4. Under remittance – when employer fails to correctly remit total amount
withheld or when the total amount of remittance is lesser than the total amount
withheld.
5. Late remittance – when employer remits the correct amount withheld beyond
the prescribed due date.
6. Failure to refund excess taxes withheld – when employer fails/refuses to refund
excess taxes withheld to its employees
Additions to the tax:
Sec. 248– a penalty equivalent to twenty-five percent
(25%) of the amount due for failure to file any return
and pay the tax due thereon as required on the date
prescribed; in case of willful neglect to file the return
within the period prescribed, or in case a false or
fraudulent return is willfully made, the penalty shall be
fifty percent (50%) of the tax or of the deficiency tax, in
case, any payment has been made on the basis of such
return before the discovery of the falsity or fraud.
Sec. 249 – interest at the rate of twelve percent (12%)
per annum on any unpaid amount of tax, from the date
prescribed for payment until the amount is fully paid.
Sec. 251– for failure of any person required to withhold,
account for, and remit any tax imposed or who willfully
fails to withhold such tax, or account for and remit such
tax, or aids or abets in any manner to evade any such tax
or the payment thereof, shall, in addition to other
penalties, be liable upon conviction to a penalty equal to
the total amount of the tax not withheld, or not
accounted for and remitted
Sec. 252– for failure or refusal of any
employer/withholding agent to refund excess
withholding tax shall, in addition to the penalties,
be liable to a penalty equal to the total amount of
refunds which was not refunded to the employee
resulting from any excess of the amount withheld
over the tax actually due on their return
Criminal Liabilities
Sec. 255– for failure of any person required to pay any tax, make
a return, keep any record, or supply correct the accurate
information, who willfully fails to pay such tax, make such
return, keep such record, or supply correct and accurate
information, or withhold or remit taxes withheld, or refund
excess taxes withheld on compensation, at the time or times
required by law or rules and regulations shall, in addition to
other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1)
year but not more than ten (10) years.
Sec. 256– in the case of corporations, the penal
liabilities of any corporation, association or general
co-partnership liable for any of the acts or omissions
penalized under the Tax Code, in addition to the
penalties imposed upon the responsible corporate
officers, partners, or employees shall, upon
conviction for each act or omission, be punished by a
fine of not less than Fifty thousand pesos
(P50,000) but not more than One hundred
thousand pesos (P100,000)
Sec. 272 – in case of public officers, the penalties imposed on every
officer or employee of the Government of the Republic of the
Philippines or any of its agencies and instrumentalities, its political
subdivisions, as well as government-owned or controlled
corporations, including the Bangko Sentral ng Pilipinas (BSP), who
is charged with the duty to deduct and withhold any internal
revenue tax and to remit the same is guilty of failing or causing the
failure to deduct, withhold, remit, file withholding tax return or
statement within the time prescribed, shall, upon conviction for
each act or omission be punished by a fine of not less than Five
thousand pesos (P5,000) but not more than Fifty thousand pesos
(P50,000) or suffer imprisonment of not less than six (6) months
and one (1) day but not more than two (2) years, or both.
Sec. 275 - provides that any person who violates
any provision of the Code or any rule or regulation
promulgated by the Department of Finance, “for
which no specific penalty is provided by law,
shall, upon conviction for each act or omission, be
punished by a fine of not more than One
thousand pesos (P1,000) or suffer
imprisonment of not more than six (6) months,
or both.”
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