Computation of Withholding Tax on Retirement Pay

February 27, 1958 BIR RULING NO. 136-58 Messrs Sycip, Gorres, Velayo & Co. Certified Public Accountants 490 San Luis, Manila Gentlemen : Reference is made to your letter of February 18, 1958, requesting our opinion on how the withholding tax on retirement pay is to be computed, under the following conditions, viz: cdta "Specifically, assuming that the company pays to its retiring employee a monthly salary of P200 during the months of January and February and that the payroll period of the company is semi-monthly so that this employee would, in effect, receive P100 in the middle and end of January and February. Assuming further that a retirement pay of P2,000 will be paid to the retiring employee on February 28, 1958, we would like to know which of the following methods would represent the correct computation of the withholding tax due:" In reply thereto, please be informed that we are in accord with the method numbered 2 in your aforesaid letter. For ready reference the same is restated, viz: a) Total wages Received (including retirement pay) = AVERAGE WAGES Number of Payroll Periods to end of Taxable year b) Compute the withholding tax on such average wages. c) (Withholding tax per Number of Payroll Periods) (Payroll period x in the taxable year) Tax Withheld on Wages Amount of tax to be withheld Previously Paid = from retirement pay. It will be noted from the foregoing that the amount of retirement pay and the salaries earned during the year (prior to retirement) may be averaged over a period covering one calendar year, although such retirement pay was paid in lump sum to the employee during the early part of such calendar year. cdti Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue