WITHHOLDING TAX COMPUTATION UNDER TRAIN LAW USING VERSION 2 TABLE

Withholding tax is not a tax. It is a method of collection of tax that’s supposed to be paid to the government. Under the TRAIN law the compensation range that is not subject to tax has been increased to P20,833.00 for monthly paid employees.

How should employers withhold the tax in this case?

The BIR issued Revenue Memorandum Circular (RMC) pursuant to the amendment to the National Internal Revenue Code introduce under the Republic Act No. 10963, which took effect January 1, 2018. The objectives for this RMC are:

• To supplement RMC 105-2017 dated December 28, 2017 by providing the steps on how to use the revised withholding Tax Table on Compensation; and
• To advise on the change in the creditable Withholding Tax and rate on Income  Payment to Self- employed Individuals or Professionals.

Related topic: De Minimis Benefits Remain Exempt from Tax Under the TRAIN Law

De Minimis Benefits (Certain Items) Increased under RR 11-2018

Steps in the Use of Tax Table                                

In general, every employer paying compensation to its employee/s shall deduct and withhold from such compensation a tax determined in accordance with the prescribe Revised Withholding Tax Tables, version 2.

Step 1. Determine the total amount of monetary and non-monetary compensation paid to an employee for the payroll period: monthly semi-monthly, weekly or daily, as the case may be, segregating non-taxable benefits and mandatory contribution.

Step 2. Use the appropriate table for the applicable payroll period.

Step 3. Determine the compensation range the employee and apply the applicable tax rates prescribed thereon.

Step 4. Compute the withholding tax due by adding the tax predetermined in the compensation range indicate the column used and the tax in the excess of the total compensation over the minimum of the compensation range.

SAMPLE COMPUTATION

X is receiving monthly compensation in the amount of P25,000 with supplemental compensation in the amount of P5,000.00, net of mandatory contributions.

By using the monthly withholding tax table, the withholding tax beginning January 2018 is computed by referring to compensation range under column 2 which shows a predetermined tax of 0.00 on P20,833 plus 20% of the excess of Compensation Range (Minimum) amounting to P9,167 (P25,000 + P5,000 – 20,833) which is P1,833.40.

As such, the withholding tax to be withheld by the employer shall be P1,833.40.

To plot the numbers involved: