RR No. 10-2008: Implements certain provisions of RA No. 9504 entitled “An Act Amending Sections 22, 24, 34, 35, 51 and 79 of RA No. 8424, as Amended, Otherwise Known as the National Internal Revenue Code” relative to the withholding of Income Tax on compensation and other concerns

Key points

1. De minimis benefits. Section 2.78.1 of RR No. 2-98 is amended to list de minimis benefits not subject to income tax or withholding, such as monetized unused vacation leave credits not exceeding ten (10) days, rice subsidy of P 1,500.00 a month, uniform allowance not exceeding P 4,000.00 per annum, and Christmas and anniversary gifts not exceeding P 5,000.00 per annum. Excess over the ceilings counts toward the P 30,000.00 ceiling on ‘other benefits’ under Section 32(b)(7)(e).
2. Minimum Wage Earners exempt. Compensation of private sector MWEs paid the Statutory Minimum Wage, and of public sector employees earning not more than the SMW in the non-agricultural sector, is exempt from withholding tax and income tax. Holiday pay, overtime pay, night shift differential and hazard pay are also covered. An employee who also earns commissions, honoraria, fringe benefits, benefits above P 30,000.00 or other taxable income loses MWE status, and all earnings become taxable.
3. Computing the minimum wage. New Sec. 2.78.5 bases minimum wage on eight (8) hours a day and gives monthly SMW factors of 261, 313, 365 and 392.5 days, divided by twelve. Using a P 382.00 daily wage in Metro Manila, the monthly SMW is P 8,308.00, P 9,964.00, P 11,619.00 and P 12,495.00 respectively.
4. Withholding tables. Employers withhold using the Revised Withholding Tax Tables (monthly, semi-monthly, weekly, daily) from January 1, 2009. For July 6 to December 31, 2008, a transitory table applies, with a prorated personal exemption of P 25,000 and P 12,500 per qualified dependent child. Taxable fringe benefits of employees other than rank and file are subject to Fringe Benefits Tax instead.
5. Exemptions and registration. For pay on or after July 6, 2008, individuals are entitled to a P 50,000 personal exemption and P 25,000 for each qualified dependent child, up to four (4) dependents. The husband claims the children’s exemptions unless he waives in favor of his wife, or the wife may claim if he is unemployed or a non-resident citizen earning foreign income. Employees file BIR Form No. 1902 within ten (10) days of employment and BIR Form No. 2305 within ten (10) days of a change.
6. 2008 transition and effectivity. For 2008, exemptions for January 1 to July 5 are P 10,000 (single), P 12,500 (head of the family), P 16,000 (married) and P 4,000 per qualified dependent child. Year-end adjustments are made with BIR Form No. 1604-CF due January 31, 2009, and MWEs not withheld on for January 1 to July 5, 2008 but still taxable file an income tax return by April 15, 2009. The Regulations take effect beginning July 6, 2008.

Who is affected

• Employers and withholding agents
• Employees receiving compensation income
• Minimum Wage Earners in the private and public sectors

Deadlines and effectivity

• Effective beginning July 6, 2008
• Transitory withholding table: July 6 to December 31, 2008
• Revised Withholding Tax Tables used starting January 1, 2009
• BIR Form No. 1604-CF due January 31, 2009
• MWE income tax return for January 1 to July 5, 2008 due April 15, 2009