RR No. 1-2006: Amends Revenue Regulations No. 2-98, as amended, relative to the withholding of Income Tax on compensation income received by minimum wage earners

Summary

RR No. 1-2006 amends Sections 2.78.1(B), 2.79(A) and (F), 2.83.4(C) and 2.83.5 of Revenue Regulations No. 2-98, as amended, on withholding of income tax on compensation of minimum wage earners.

Key points

1. Exempt from withholding. Compensation income not exceeding the statutory minimum wage or P5,000.00 per month (P60,000.00 a year), whichever is higher, is exempt from withholding tax on compensation. The same applies to government employees with Salary Grades (SGs) 1 to 3.
2. Income tax still due. These individuals remain liable for income tax and file their annual return, paying any tax due not later than April 15 of the following year. They do not qualify for substituted filing and still file BIR Form No. 1700.
3. Employer deduction. Compensation on which no income tax was withheld is deductible from the employer’s gross income once BIR Form No. 2316 has been issued to the employees. The alphabetical list of these employees goes under schedule 7.2 of BIR Form No. 1604-CF.
4. Registration as withholding agent. A person who pays or expects to pay any single employee compensation above the statutory minimum wage or P60,000.00 a year (P5,000.00 monthly), whichever is higher, registers with the RDO of the city or municipality of legal residence or place of business. Registration is made in duplicate, not later than 10 days after becoming an employer.

Who is affected

• Minimum wage earners
• Government employees with Salary Grades 1 to 3
• Employers paying compensation above the statutory minimum wage or P60,000.00 a year

Deadlines and effectivity

• Effective January 1, 2006
• Annual return and payment not later than April 15 of the following year
• Employer registration not later than 10 days after becoming an employer

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.