Withholding taxes

What is withholding tax?

Withholding tax is income tax withheld from employees'

wages and paid directly to the government by the employer, and the
amount withheld is a credit against the income taxes the employee
must pay during the year. It also is a tax levied on income (interest
and dividends) from securities owned by a nonresident as well as
other income paid to nonresidents of a country.
Types of withholding taxes
Types Expense Type BIR Form Deadline
A. Withholding tax on Compensation 1601-C On or before the 10th
compensation expense day of the month
B. Final Withholding Certain passive 1601-F following the month
tax income and fringe in which withholding
benefits was made (except
for December
C. Expanded Other income 1601-E withholding, before
Withholding tax payments which are January 15, next
subject to regular year)
tax to the recipient
 TYPES OF WITHHOLDING TAXES
A. Withholding Tax on Compensation
Is the tax withheld from income payments to individuals arising from
an employer-employee relationship.
B. Final Withholding Tax
Is a kind of withholding tax which is prescribed on certain income
payments and is not creditable against the income tax due of the payee on other
income subject to regular rates of tax for the taxable year. Income Tax withheld
constitutes the full and final payment of the Income Tax due from the payee on
the particular income subjected to final withholding tax.
C. Expanded Withholding Tax
Is a kind of withholding tax which is prescribed on certain income
payments and is creditable against the income tax due of the payee for the
taxable quarter/year in which the particular income was earned.
 Income payments subject to final and
creditable withholding tax and tax rates
Final withholding tax
• Interest income from peso bank deposits, trust funds, prizes or winnings of greater
thank 10,000 (20%)
• Royalties on literary or musical works (10%)
• Cash property dividend from domestic corporations (10%)
• Profits from sale of property (6%)
• Informer's Reward (15%)
• Compensation Income (15%)
Income payments subject to final and
creditable withholding tax and tax rates
Creditable withholding tax
• Personal properties (5%)
• Income payments to a certain contractors (2%)
• Income payments to certain brokers and agents (10%)
• Professional fees paid to medical practitioners (10%)
• Gross selling price
• Income payments made by the top 10,000 private corporations to their supplier
(1% or 2%)
• Income payments made by the government (2%)
Income payments subject to final and
creditable withholding tax and tax rates

• Commissions (10%)
• Income payments made to supplier of agricultural products (1%)
• Income payments on purchases of mineral products and quary
resources (1%)
• Professional fees, talent fees, etc. for services rendered by
individuals (20% or 10%)
• Professional fees, talent fees, etc. for services of taxable juridical
persons (10%)
Persons required to deduct and withhold
creditable tax on income payments

• All employed individuals whether citizens or aliens,

deriving income from compensation for services
rendered in the Philippines. The employer is constituted
as the withholding agent.
Timing of withholding

Per RR12-2001, the obligation of the payor to deduct and

withhold tax from the income payment arises upon the occurrence
of any of the following, whichever comes first:
A. Payment
B. When the income payment becomes due or payable
C. Recording of the income payment as expense or asset in the
books
 Exemption from withholding on compensation

• Retirement Benefits under R.A. 7641 and those received by officials

and employees of private firms under a reasonable private benefit
plan;
• Benefits received due to death, sickness or physical disability
orretrenchment or cessation of business
• Social security benefits, retirement gratuities, pensions and other
similar benefits
• Benefits due to residents under the law of United States administered
by the United States Veterans Administration;
Exemption from withholding on compensation

• SSS and GSIS benefits

• Remuneration for agricultural labor paid in products of the
farm •Remuneration for domestic services;
• Remuneration for casual labor;
• Compensation for services by a citizen or resident of the
Philippines for foreign govern ment or an international
organization;
• Actual, moral, exemplary and nominal damages •Proceeds of
life insurance;
• Amount received as return of premium;
 Exemption from withholding on compensation
• Compensation for injuries or sickness thru accident or health insurance;
• Income exempt under treaty;
• 13th month pay and other benefits such as Christmas bonus, productivity
incentive bonus, loyalty awards, gifts in cash or in kind including ACA for
government employees the aggregate of which shall not exceed P30,000;
• RATA and PERA granted to public officers and employees GSIS, SSS, Medicare and
other contribution and union dues;
• Compensation income of Minimum Wage Earners (MWEs) and Compensation
income of employees in the public sector with compensation income of not more
than the SMW in the non- agricultural sector(Sec. 2.78.1. (B) of RR 2-98 as
amended)
• “De minimis” benefits(Sec.2.78.1. (A)(3) of RR 298 as amended)