Tuesday, July 08, 2008 Tax notes: Tax exemption of minimum wage earners
THE President signed into law on June 17, 2008 Republic Act (RA) 9504, granting additional tax relief to individuals as follows:
1. Exemption of minimum wage earners
The new law exempts minimum wage earners in the private and public sector from payment of income tax. The exemption will cover not only the basic pay but also holiday pay, overtime pay, night shift differential and hazard pay received by said minimum wage earners.
Prior to the enactment of RA 9504, individual employees whose compensation income does not exceed the statutory minimum wage or P5,000 per month were exempted from withholding tax under Revenue Regulations 1-2006. The law grants minimum wage earners full tax exemption by exempting them from payment of income tax.
2. Increase in personal and additional exemptions
RA 9504 increases the level of personal exemption allowance of each individual taxpayer to a uniform amount of P50,000, regardless of the status of the taxpayer, and additional exemption allowance for each qualified dependent from P8,000 to P25,000.
It was previously at P20,000 for single workers, P25,000 for head of family, and P32,000 for married individuals.
The maximum number of qualified dependents remained at four.
The law took effect yesterday, 15 days after its publication in two newspapers of general circulation last June 22, 2008. The new law will be effective starting taxable year 2008.
A revenue regulation will be issued by the Bureau of Internal Revenue (BIR) to implement the adjustment in the withholding taxes.
The BIR has already exposed for public hearing the draft revenue regulations to implement the withholding of income on compensation following the amendments in the law. (Source: Punongbayan & Araullo)
