Download RR 2-95.doc...
January 3, 1995 REVENUE REGULATIONS NO. 02-95 SUBJECT : Implementing Republic Act No. 7833, An Act to Exclude the Benefits Mandated Pursuant to Republic Act No. 6686 and Presidential Decree No. 851, as Amended, and other Benefits from the Computation of Gross Compensation Income for the Purposes of Determining Taxable Compensation Income, Amending for the Purpose Section 28 (b) (8) of the National Internal Revenue Code, as Amended TO
All Internal Revenue Officers and Others Concerned
SECTION 1. Scope. — Pursuant to Section 245 and 72 of the National Internal Revenue Code (NIRC), as amended, in relation to Section 3 of Republic Act No. 7833, these Regulations are hereby promulgated to implement the provisions of Section 28 (b) (9) (6) of the NIRC, as amended, excluding from the computation of gross compensation income, for purposes of determining taxable compensation income, the 13th month pay and other benefits. SECTION 2. Definition of Terms. — For purposes of these Regulations, the following definitions of words and phrases are hereby adopted: a)
"Act" — refers to Republic Act No. 7933.
b) "Exclusions" — shall mean the total benefits which are not included in the computation of gross compensation income for purposes of determining taxable compensation income and are, therefore, exempt from the withholding tax on wages. c) "Gross compensation income" — means all remunerations for services performed by an employee for his employer, whether paid in cash or in kind, unless specifically excluded under Secs. 27 and 28 of the NIRC, as amended. d)
"Immediately succeeding payroll period" — refers to the payroll period beginning January, 1995.
e) "Other benefits" — refer to all benefits other than the 13th month pay, such as, the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits received by an official or employee for one calendar year in an amount not exceeding Twelve Thousand Pesos (P12,000.00) as maximum limit. f) "Taxable compensation income" — means gross compensation income less personal and additional exemptions provided for under Sec. 29 (l) of the NIRC, as amended. g) "13th month pay" — refers to the mandatory one month basic salary of an official or employee of the National Government, Local Government Units, agencies and instrumentalities, including government-owned and -controlled corporations, and of private offices received after the 12th month pay. h) "Total benefits" — refer to the sum of all the benefits received by an official or employee for one calendar year in accordance with the provisions of the "Act." i)
"Which shall be integrated in" — shall mean "which shall be added to".
SECTION 3. Benefits Exempted from Income Tax. — For purposes of determining the taxable compensation income, the following benefits shall be excluded from the gross compensation income, viz: a) 13th month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the Government (whether national or local), including government-owned and -controlled corporations, and of private offices received after the 12th month pay beginning CY 1994; and b) Other benefits, such as, Christmas bonus given by, private offices to their officials and employees, productivity incentives bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both Government and private offices in an amount not exceeding Twelve Thousand Pesos (12,000.00) for one (1) calendar year. The above-stated exclusions [(a) and (b)] shall cover benefits paid or accrued beginning January 1, 1994 but shall be limited only to an amount not exceeding Twelve Thousand Pesos (P12,000.00) in the case of the "other benefits" contemplated under paragraph (b) above, provided, however, that when added to the 13th month pay, the total amount of tax exempt benefits shall not exceed Thirty Thousand Pesos (P30,000.00). ILLUSTRATIONS: CASE NO. 1. During CY 1994, Mr. "A", and official of a private corporation, received the following 13th month pay and other benefits from his employer, such as:
13th month pay
Other benefits: Christmas bonus P15,000.00 14th month pay 30,000.00
Mid-year productivity bonus
———— ———— TOTAL BENEFITS RECEIVED for CY 1994
In this illustration, Mr. "A" shall only be exempted on his 13th month pay of P30,000. His "other benefits" amounting to P55,000 are subject to the withholding tax on wages. CASE NO. 2. On the other hand, Mr. "B", a government employee, received the following 13th month pay and other benefits, such as:
13th month pay/Christmas bonus
Other benefits: Productivity incentives bonus
Cash gift1,000.0013,000.00 ———— ———— TOTAL BENEFITS RECEIVED for CY 1994
Mr. "B" shall only be exempt on a total of P20,000.00, representing 13th month pay of P8,000.00 plus "other benefits" of P12,000.00 only. SECTION 4. Computation of Refundable/Creditable Taxes Withheld on the Exempt 13th Month Pay and Other Benefits. — (a) In general. — The employer shall compute the refundable/creditable amount of taxes withheld on the exempt 13th month pay and other benefits of employees through the annualized computation prescribed in Section 71(8)(2)(b) of Revenue Regulations No. 6-82, as amended by RR No. 4-93, implementing R.A. No. 7497, otherwise known as the "Final Withholding Tax on Compensation Income." (b) Refund/Credit to Employees of Excess Taxes Withheld. — Any excess in the taxes withheld resulting from the annualized computation shall be credited/refunded to the employees. In return, the employer is entitled to deduct the amount refunded/credited from the remittable amount of taxes withheld from compensation income in the current month in which refund/credit was made, and in the succeeding months thereafter until the amount refunded/credited by the employer is fully repaid. ILLUSTRATIONS: 1.
The year-end adjustment computation resulted to a REFUND.
Employee with Only One Employee During the Year.
ABC COMPANY Employee "A" (single) ————————— Salaries
13th month pay
Gross Compensation Income Less:
Benefits: 13th month pay P12,000 Other benefits
10,000 22,000.00 ———
————— Taxable Compensation Tax Due Less:
P7,785.00 Tax Withheld
AMOUNT TO BE REFUNDED by ABC CO. to Employee "A"
on or before JANUARY 25, 1995 OR TO BE CREDITED against Taxes Withheld due from the Employee for Succeeding Month/s Beginning following Sample Computation No. 1 (cc). (bb)
Employee with Successive Employment Within the Year.
Employee "B" (single) ————————— ABC Co. DEF. Co. (Previous Employer) Jan.-June, 1994
13th Month Pay
13th month pay 8,000.00
Less: Personal Exemption
ADD: Income From 9,000.00Previous Employer
LESS: Net Taxable
13th Month Pay TAX DUEP11,965.00
ABC Co. P12,000
P11,965.00 DEF Co. 8,000
*Other Benefits ABC Co. P10,000 DEF Co. 3,000 ——— P13,000 10,000 30,000.00 ———
LESS: Personal Exemption
Taxable Compensation Income
TAX WITHHELD ABC Co. P11,965.00 DEF Co. 3,279.66
AMOUNT TO BE REFUNDED BY DEF Co. to EMPLOYEE "B" on or before JANUARY 25, 1995
OR TO BE CREDITED against Taxes Withheld due from Employee for Succeeding Month/s beginning January 1995. (Please see Sample Computation No. 1 (cc).
Crediting of Refundable Amounts Against Taxes Withheld Due From Employees For The Succeeding Month/s.
Amount of refund to be credited against taxes withheld due from Employee "B" [Based on Sample Computation No. 1 (bb) above) beginning January, 1995 — P 3,089.66 —————————————————————————————— Computation of Taxes Withheld for the month of January, 1995
Salaries/Allowances Taxable: P10,000.00 ——————————————————————————————
Tax Required to be Withheld for the month of January, 1995 (Use Line 2 Col. 8 of the Withholding Tax Table):
Less: Refund for CY 1994 due to Non-Taxability of Bonus and Other Benefits beginning Jan. 1995
———— Balance to be credited in succeeding month/s (P1,730.00)
February. 1995 Tax Required to be Withheld for the Month of February
Amount to be credited for February
———— Balance of Amount to be Credited for the Month of March (P370.34)
March. 1995 Tax Required to be Withheld for the Month of March P1,359.66 Amount to be Credited for March
———— Amount to be Remitted for March on or before April 10, 1995
The year-end adjustment resulted to a COLLECTIBLE AMOUNT (instead of a refund).
During CY 1994, an employee (single) of a private corporation, received the following compensation, month pay and other benefits:
P5,000/mo. x 12 mos.
13th Month pay
Gift in kind
Total Gross Compensation Income P85,000.00
Less: 13th Month Pay Other Benefits ———
12,000 17,000.00 ————
Gross Compensation Income After Deducting Exclusions Under RA 7333 Less: Personal Exemption
———— Taxable Compensation Income Tax Due
Tax Withhold Jan.-Nov., 1994
P393.80/mo. x 11 mos.
————— Tax Collectible to be Withheld from P1,593.20 December salary
Note: NO REFUND OF WITHHOLDING TAX FOR BONUS AND OTHER BENEFITS WOULD RESULT DUE TO UNDER WITHHOLDING IN PREVIOUS MONTHS OF THE YEAR. SECTION 5. Refund/Credit of Taxes Withheld from employees Separated from Employment. — a) An employee separate from the service of his previous employer but is presently employed by another employer shall be refunded/credited the taxes withheld on his exempt 13th month pay and other benefits by his present employer. The present employer shall compute the aforesaid excess withholding tax using the annualized computation set forth in Section 7I (B) (2) (b) of RR No., 6-82, as amended by RR No. 4-93. (b) An employee who has been separated from a previous employer but has no present employment shall claim his refund of excess tax withheld on his 13th month pay and other benefits by filing with the BIR a refundable income tax return for CY 1994, provided that the refundable ITR for 1994 reflects the taxes withheld on his 13th month pay and other benefits. SECTION 6. Concurrent Multiple Employments. — An employee is employed by two or more employers at the same time during the taxable year shall be refunded/credited the taxes withheld on his 13th month pay and "other benefits" by his main employer, e.g., the employer paying the highest wage/salary. The said main employer shall determine the maximum allowable 13th month pay and "other benefits" received from both main and secondary employer/s in annualizing the taxable compensation income at year-end adjustment. For this purpose, the secondary employer/s shall furnish the main employer a certification as to the amount of the 13th month pay and other benefits received by the employee. SECTION 7. The Employee's Withholding Statement (W-2). — The employer shall furnish each employee with the original and duplicate copies of BIR Form W-2 showing the name and address of the employer, employer's TIN, name and address of the employee, taxpayer/employee's TIN, amount of exemptions claimed, the sum of compensation paid (excluding the total nontaxable benefits), the amount of tax due and the amount of tax withheld during the calendar year. The statement must be signed by both the employer or other authorized officer and the employee and shall contain a written declaration that it is made under the penalties of perjury. If the employer is the Government of the Philippines, its political subdivision, agency or instrumentality or government-owned or controlled corporation, the statement shall be signed by the duly designated officer or employee. SECTION 8. Annual Return of Income Tax Withheld on Compensation. — Every employer or other person required to deduct and withhold the tax shall, on or before January 31st of the succeeding year, file with either the Collection Agent or authorized Municipal Treasurer or Revenue District Officer or Commissioner of Internal Revenue the Annual Return of Income Tax Withheld on Compensation [BIR 1743-1R (Annex "A")] to be submitted with an alphabetical list of employees both in duplicate copies. The Annual Return of Income Tax Withheld on Compensation must show the following: a)
Withholding agent's registered name, address and taxpayer's identification number (TIN);
Amount and date of remittance for the 12 months of one calendar year; and
Name of Bank, Bank Code/ROR (if any).
The alphabetical list of employees must show the following: a)
Name and TIN of employees/taxpayers;
b) Gross compensation paid by all present and previous employers for the calendar year segregating the taxable from the non-taxable compensation income; c)
Amount of exemptions;
Tax required to be withheld computed in accordance with Section 21(a) of the Tax code;
Tax withheld by all present and previous employers for the calendar year; and
Adjustment, if any.
The alphabetical list of employees shall be prepared indicating separate listings of the following: a.
Employees as of December 31 of the taxable year;
b. Employees terminated prior to the year-end adjustment computation showing the month of termination/month of last payment of compensation during the year of termination; c.
Employees (non-resident citizen) whose services are rendered abroad; and
Alien employees subject to final withholding tax.
SECTION 9. Transitory Provision. — Employers who have already given the 13th month pay and "other benefits" to their employees and had withheld and remitted the tax due thereon prior to the approval of R.A. No. 7833 on December 8, 1994 shall, in annualizing and computing the annual income and the tax due from their employees, exclude the 13th month pay and "other benefits", which shall be limited only to an amount not exceeding Twelve Thousand Pesos (P12,000.00) in the case of the "other benefits" contemplated under Sec. 3, par, (b) of these Regulations and provided, further, that when the amount of these said "other benefits" is added to the "13th month pay" contemplated under Sec. 3, par. (a) also of these Regulations, the total amount of tax exempt benefits shall not exceed Thirty Thousand Pesos (P30,000.00). SECTION 10. Repealing Clause. — All laws, decrees, orders, rules, and regulations and other issuances inconsistent with the "Act" and these Regulations are hereby amended, modified or repealed accordingly. SECTION 11. Effectivity. — These Regulations shall take effect fifteen (15) days after its publication in a newspaper of general circulation. ROBERTO F. DE OCAMPO Secretary of Finance Recommending Approval: LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue
Footnotes * The maximum allowable deduction for "Other Benefits" is P12,000.00. However, since the total 13th month pay and 'other benefits' should not exceed P 30,000, only P10,000.00 'other benefits" can be added to P 20,000, representing Mr. "B's" total 13th month pay from his previous and present employers.