TAXATION – EMPLOYED/

SALARIED INDIVIDUALS

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

General Principles:

1. As a general rule, employed or salaried individuals are

subject to tax on their gross compensation income.

2. The tax on the compensation is deducted and withheld by the

employer.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Who is considered an employee

The term "employee" is an individual performing

services under an employer-employee relationship.

The term covers all employees, including officers

and employees, whether elected or appointed, of
the Government of the Philippines, or any political
subdivision thereof or any agency or
instrumentality.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Who is considered an employer.

The term employer means any person for whom an individual

performs or performed any service, of whatever nature, under an
employer-employee relationship.

The employer and employee relationship exists when the person for
whom services were performed has the right to control and direct the
individual who performs the services, not only as to the RESULT to be
accomplished by the work but also as to the DETAILS AND MEANS by
which the result is accomplished.

An employee is subject to the will and control of the employer not

only as to what shall be done, but how it shall be done.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

The term “employer” also includes the

following:

a. The person having control of the payment of

the compensation in cases where the services
are or were performed for a person who does
not exercise such control.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

b. Any person paying compensation on behalf of a

non-resident alien individual, foreign partnership,
or foreign corporation, who is not engaged in trade
or business within the Philippines.

The term "employer" as defined under a&b above

is intended to determine who is the withholding
agent.
TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

DEFINITION OF COMPENSATION: Rev Regs. No. 2-98

1. 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.

2. The name by which the remuneration for services is designated is

immaterial.

3. 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 the fringe benefits tax under Sec. 33 of the Code;
taxable pensions and retirement pay; and other income of a similar nature
constitute compensation income.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

4. 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 of piece-work, or a;

percentage of profits and may be paid hourly, daily, weekly,
monthly or annually.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Compensation may be paid in kind.

1. Compensation may be paid in money or in some

medium other than money, as for example, stocks,
bonds or other forms of property. If services are
paid for in a medium other than money, the fair
market value of the thing taken in payment is the
amount to be included as compensation subject to
withholding.
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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

2. If the services are rendered at a stipulated price,

in the absence of evidence to the contrary, such
price will be presumed to be the fair market value
of the remuneration received.

3. If a corporation transfers to its employees its

own stock as remuneration for services rendered
by the employee, the amount of such
remuneration is the fair market value of the stock
at the time the services were rendered.
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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

RULES on the FOLLOWING:

1. LIVING QUARTERS AND MEALS- convenience

of the employer rule

2. FACILITIES AND PRIVIELEGES OF RELATIVELY

SMALL VALUE

3. TIPS AND GRATUITIES

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

4. PENSIONS, RETIREMENT AND SEPARATION PAY.

5. FIXED OR VARIABLE TRANSPORTATION,

REPRESENTATION AND OTHER ALLOWANCES-
- for ordinary and necessary travelling and
representation or entertainment expenses
- Liquidation /substantiation
- Advances
- Reasonabvle amounts-precomputed on adaiiy
basis

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

• 5. VACATION AND SICK LEAVE ALLOWANCES

- Commutation of VL credits
- Can SL credits be commuted to cash?

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

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 withheld tax 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.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Exemptions from withholding tax on compensation. —

1. Those classified as exclusions from gross income.

2. Remuneration paid for agricultural labor .

Remuneration for services which constitute agricultural labor
and paid entirely in products of the farm where the labor is
performed is not subject to withholding.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

The term, "agricultural labor" does not include services

performed in connection with forestry, lumbering or
landscaping.

All payments made in cash or other forms other than

products of the farm where labor is performed, for
services constituting agricultural labor as explained
above, are not within the exception.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

3. Remuneration for domestic services.

Remuneration paid for services of a household

nature performed by an employee in or about
the private home of the person by whom he is
employed is not subject to withholding.

A private home is the fixed place of abode of an

individual or family.
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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

If the home is utilized primarily for the purpose of

supplying board or lodging to the public as a business
enterprise, it ceases to be a private home and
remuneration paid for services performed therein is not
exempted.

In general, services of a household nature in or about a

private home include services rendered by cooks, maids,
butlers, valets, laundresses, gardeners, chauffeurs of
automobiles for family use.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

The remuneration paid for the services above

enumerated which are performed in or about
rooming or lodging houses, boarding houses,
clubs, hotels, hospitals or commercial offices or
establishments is considered as compensation

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Remuneration paid for services performed as a

private secretary, even if they are performed in
the employer's home is considered as
compensation.

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IV. TAXATION OF EMPLOYED INDIVIDUALS, cont’d

4. Remuneration for casual labor not in the course

of an employer's trade or business.

The term "casual labor" includes labor which is

occasional, incidental or regular. The expression
"not in the course of the employer's trade or
business" includes labor that does not promote or
advance the trade or business of the employer.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Thus, any remuneration paid for labor which is

occasional, incidental or irregular, and does not
promote or advance the employer's trade or
business, is not considered as compensation.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Withholding of the Tax.

Every employer must withhold from

compensations paid, an amount of tax computed in
accordance with the regulations.

No withholding of tax shall be required where the

total compensation income of an individual does
not exceed the statutory minimum wage (SMW),
including holiday pay, overtime pay, night shift
differential and hazard pay
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IV. TAXATION OF EMPLOYED INDIVIDUALS, cont’d

Allowance of Personal Exemption for Individual

Taxpayer. –

In General. - For purposes of determining the tax

provided in Section 24(A) of this title, there shall be
allowed a basic personal exemption amounting to Fifty
thousand pesos (P50,000) for each individual
taxpayer.

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IV. TAXATION OF EMPLOYED INDIVIDUALS, cont’d

In the case of married individual where only

one of the spouses is deriving gross income,
only such spouse shall be allowed the personal
exemption.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

• Additional Exemption for Dependents. –

There shall be allowed an additional exemption

of Twenty-five thousand pesos (25,000) for
each dependent not exceeding four (4).

• The additional exemption for dependents shall

be claimed by only one of the spouses in the
case of married individuals.
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IV. TAXATION OF EMPLOYED INDIVIDUALS, cont’d

In the case of legally separated spouses,

additional exemptions may be claimed only by
the spouse who has custody of the child or
children.

The total amount of additional exemptions that

may be claimed by both shall not exceed the
maximum additional exemptions herein
allowed.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Dependents:

A "dependent" means-

a. a legitimate, illegitimate or legally adopted child

b. chiefly dependent upon and living with the taxpayer if such

dependent is not more than twenty-one (21) years of age,

c. unmarried and not gainfully employed or

d. if such dependent, regardless of age, is incapable of self-support

because of mental or physical defect.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

The husband shall be the proper claimant of the

of the additional exemption for qualified
dependent children unless he explicitly waives
in favor of his wife in the application for
registration or in the Certificate of Update of
Exemption of Employer’s and employee’s
Information.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Where the spouse of the employee is unemployed or is a non-resident citizen

deriving income from foreign sources, the employed spouse within the
Philippines shall be automatically entitled to claim the exemptions for
children.

Every employer should ascertain whether or not a child being claimed is a

qualified dependent under the provisions of the regulations.

If the employee should have additional dependents, during the taxable year
he may claim the corresponding additional exemption as the case may be in
full for such year.

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

Application for registration of the employee.-

The application for the registration of the

employees shall be accomplished by both
employer and employee stating the following
information:

1. Name/TIN, address of the employee, and

other information required under BIR Form 1902
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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

2. Status of the employee- whether single, legally

separated, widow or widower with no dependent
child.

3. Status of the spouse of the employee-If the

employee is legally married the name/TIN, if any, of
the spouse and whether the spouse is employed
unemployed, employed abroad or is engaged in
trade or business should be indicated in the
application.
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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

4. Qualified dependents- Name and date of

birth of qualified dependent children.

5. Claimant of exemption for children- the

husband is the proper claimant of the
additional exemption for dependent children.
However, the wife shall claim the additional
exemption for dependent children in the
following instances:

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TAXATION OF EMPLOYED /SALARIED INDIVIDUALS, CONT’D

a. The husband is unemployed;

b. The husband is a non-resident citizen
deriving income from foreign sources;
c. The husband waives the right to claim the
exemptions of children in a sworn statement
to be attached in the application for
registration.

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