Tuesday, September 30, 2008 Tax notes: Implementing regulations of RA 9504
THE Bureau of Internal Revenue (BIR) has issued Revenue Regulations (RR) 10-2008 implementing the provisions of Republic Act (RA) 9504 relative to the income tax exemption of minimum wage earners (MWE) and increase in the amount of personal and additional exemptions of individual taxpayers.
RR 10-2008 does not provide for any retroactive effect, thus, the tax relief under RA 9504 shall be enjoyed starting only on July 6, 2008, which is the date of effectivity of the law.
1. Scope of income tax exemption of MWEs. The income tax exemption of minimum wage earners covers the statutory minimum wage, holiday pay, overtime pay, night shift differential pay and hazard pay. However, if a MWE earns additional compensation—such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income—he/she shall no longer enjoy the privilege of being a MWE.
Therefore, his/her entire earnings will be subject to income tax and consequently, to withholding tax.
MWEs receiving other income—such as income from the conduct of trade, business or practice of profession, except income subject to final tax, in addition to compensation income—are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the statutory minimum wage, holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from withholding tax.
2. Compliance requirements. The regulation imposes new and additional compliance requirements which should be complied with to ensure that the employees receive the full benefits of the law, as follows:
a. Submission of list of MWEs receiving hazard pay—This should be attached to BIR Form 1601-C for return periods March, June, September and December.
b. Submission of BIR Form 2305 for updating of exemption status—For taxable year 2008, employees with change in status and number of qualified dependent children should accomplish BIR Form 2305 and submit the same together with the required documents/evidence of exemption to their employers not later than Oct. 31, 2008. The original and duplicate copies of BIR Form 2305 together with the required attachments should be submitted to the BIR by the employer on or before Nov. 28, 2008.
For those with no change of status and number of qualified dependents, the employer should be responsible for reflecting the new exemption allowances of their employees in their records. (Source: Punongbayan & Araullo)
