Prescribing the Procedures in the Implementation of the Withholding Tax on Wages

February 5, 1982 REVENUE MEMORANDUM ORDER NO. 07-82 SUBJECT : Prescribing the Procedures in the Implementation of the Withholding Tax on Wages TO : All Internal Revenue Officers and Others Concerned To insure the effective implementation of the new requirements of the withholding tax on compensation income as well as to define the duties and responsibilities of each revenue office concerned, the following guidelines and procedures are hereby promulgated in processing withholding tax returns and certificates, and verification of withholding tax liabilities. A. New Orientations and Directions 1. Employee's Withholding Exemptions Certificate and Employer's Compensation Payment Certificate , Revised BIR Form W-4. This form contains both the employee's declaration of his status and exemptions and the employer's certification of compensation payment to the employee. The purpose is to establish the true and correct basis for withholding tax on wages, not only as to exemptions, but also with respect to the amount of wages subject to withholding. cdt (a) Employee - 1) Accomplish "Employee's Withholding Exemption Certificate" in quadruplicate. Every employee, as of January 1, 1982 is required to file the certificate not later than February 1 of the current year; new employee, within five (5) days from the date of commencement of employment; and an employee with an increase or decrease of exemptions in a taxable year, within ten (10) days after such change. The following shall be clearly indicated: (i) if the spouse is non-working (unemployed) or working (employed); (ii) entitled or not entitled to exemptions and (iii) names, dates of birth and relationships to dependents. The husband as head of the family is the proper claimant of exemption, and the employed wife is not entitled to any exemption (zero exemption). However, the employed wife may claim the exemptions if the husband is unemployed, and such fact is indicated on the certificate. 2) Sign and file the exemption certificate with his employer. An employee with multiple employers shall file the certificate with his main employer and a separate certificate with his 2nd or 3rd employers, etc. The employed husband and wife shall each file separate certificate with their employers, and the wife shall indicate that she is not entitled to exemptions in the certificate filed with her employer. The employee is liable to a fine of not more than P1,000 or imprisonment of not more than one (1) year or both, for willfully supplying false or fraudulent information or for willfully failing to supply information which would require an increase of tax to be withheld. (b) Employer - 1) Stamp date of receipt on employee's certificate. 2) Accomplish "Employer's Compensation Payment Certificate." It must state the basic salary, allowances, and other fringe benefits, whether paid in kind or in cash, per payroll period indicated. cd i 3) Transmit original and triplicate copies to the Revenue District Officer within thirty (30) days from February 1 or from date of receipt. 4) Retain duplicate copy as basis of the exemption of an employee. 5) Give 4th copy to the employee. The employer is liable to a fine of not more than P1,000 or an imprisonment of not more than one (1) year if it willfully accepts as a fact or true information the declaration given by the employee which would reduce the tax to be withheld. 6) Adjust the amount of tax to be withheld in the succeeding payroll period and collect the difference of the tax based on the preaudited certificate. (c) Revenue District Officer - 1) Stamp date of receipt on BIR Form W-4. 2) Preaudit the exemption certificate in accordance with existing rules and regulations and indicate on the upper left hand corner the total exemption units to which the employee is entitled. 3) Communicate immediately to the employer, copy furnished the employee, that the filer-employee is entitled to lesser exemption units based on the preaudited certificate than those originally claimed per certificate, see attached sample letter. 4) Number consecutively preaudited certificates beginning with the Revenue District No. 23-001 for Revenue District No. 23 on the upper right hand corner of the original and duplicate copies. 5) Transmit the original copy of the certificate to the Data Processing Center not later than thirty (30) days of receipt from the employer and retain the triplicate copy to file. (d) Data Processing Center - 1) Process the personal and additional exemptions taking into account the names, relationships and dates of births of dependents and compensation per payroll period of the employee. 2) Prepare a list of employees by employer. 3) Furnish the Withholding Tax Division and the Revenue Region each with a copy of such list. B. Application for Withholding Agent's Identification Number . - This is not a new requirement. Every employer who has at least one employee receiving one thousand eight hundred pesos a year (or P150.00 a month) is required to register as a withholding agent within ten (10) days from the date of acquiring the status of an employer, and before paying any wages. cdt The requirement is being expanded to cover also all withholding agents under Secs. 53 & 54 of the Tax Code as well as government offices required to withhold under RA 1051, since an employer is generally a withholding agent for the other withholding taxes. The revised from W-5 is attached. (a) Revenue District Officer - List all withholding agents within his jurisdiction. For this purpose, he is supplied a list of possible withholding agents, and shall - 1) Require all withholding agents in the private and public sector to register or renew registration as an employer. 2) Emphasize the checking of the appropriate boxes as to type of organization and type of taxes withheld or expected to be withheld. casia 3) Transmit the original copy to Withholding Tax Division within thirty (30) days from receipt of the application. 4) Retain duplicate copy for your file. 5) Inform withholding agent of his new number upon receipt of the list of processed applications. (b) Employer and withholding agent for other taxes - 1) Accomplish Form W-5 properly by filling up the spaces for every required information. 2) File application within ten (10) days from date of becoming an employer and/or withholding agent for other taxes in duplicate with Withholding Tax Division if place of business or principal office is located within Metro Manila; with the Revenue District Offices of the cities or municipalities in places outside Metro Manila. If the employer has already been registered as withholding agent, he shall nevertheless renew his registration for the new listing without being subject to sanctions for late application for identification number. (c) Withholding Tax Division - 1) Transmit the applications received and those received from Revenue District Offices to the Data Processing Center for processing. 2) Gather potential unregistered withholding agents from public and private sources. 3. Furnish Revenue District Offices within Metro Manila duplicate copies of the applications. (d) Data Processing Center - 1) Process applications for identification number by revenue district offices. 2) Assign a consecutive number to each application which shall represent the revenue district office number, regional office number, type and kind of business and the fact that the employer is also a withholding agent for other types of taxes. 3) Prepare an overall master list of withholding agents in the entire country for the Withholding Tax Division, regional master list for each region and master list for each revenue district office. The master list for the latter office shall be prepared in such way as to provide appropriate spaces on which can be entered the official receipts, amounts and dates of remittances by withholding agents for control purposes. C. Verification and Monitoring of Performance of Withholding Agents . - In order to insure correct withholding and compel prompt remittance of taxes withheld, every Revenue District Officer shall conduct current verification of the withholding tax liability of a withholding agent. The verification shall be absolutely confined to the withholding agent's tax liability, never to extend to his/its tax liability as a taxpayer. The proper letter of authority to verify certain withholding agents must at all times be issued to cover the verification. (a) The Revenue District Officer - 1) Program the verification of withholding agents so that after a certain period, all if not majority of them have been checked. 2) Check amounts subject to withholding and dates of remittances. The verification may be made by random sampling as when it will be focused on a top executive, middle manager and employee belonging to the rank and file; or exhaustive, as when there is evidence showing fraudulent non-withholding and non-remittance. In any case the remittances made shall be checked and reported as to confirmation receipts numbers (official receipts) dates and amounts paid. aisa dc 3) Assess and report findings to the Regional Director, copy furnished the Withholding Tax Division for the Commissioner. 4) Install a card data bank for withholding agent. A card (pls. see attached sample) shall be provided for each withholding agent on which the amount remitted, dates and confirmation receipt number and date of payment shall be recorded quarterly. 5) Report collections quarterly within ten (10) days of the 2nd month of the succeeding quarter (for the first quarter, not later than 10th of May) to the Withholding Tax Division for the Commissioner and the Regional Director. Include collection from other withholding taxes. Please see attached sample. cd D. Returns . - The returns covered in this Order are the following: 1. Quarterly Return BIR Form W-1 On or before 25th day of the month following the close of the calendar quarter. 2. Annual Return BIR Form W-3 On or before January 31 of the following year. 1. Receipt and transmittal of returns (a) Collection Agent . - The withholding tax returns on wages shall be filed with and received by the Revenue Collection Agent in the city or municipality where the place of business or office of the withholding agent is located. The following steps shall be observed in order to insure the completeness and transmittal of returns on time. 1) Quarterly Returns (BIR Form W-1) a) Check if the blanks are properly filled up paying particular attention to: i. Name, address, and taxpayer account number of employer; ii. Identification number of employer; iii. Quarter ending for which the return is filed; iv. Total amount paid for the quarter and the corresponding confirmation receipt, or revenue official receipt number, data and amount paid, and if the return shows monthly remittances, the Confirmation Receipt Number, date of payment and amount paid for each month; and v. That the return is signed by or for the employer. b) Stamp clearly the date of receipt in the proper space on both original and duplicate copies of the return, and initial the date of receipt. c) Annotate legibly in the proper space the number, date and amount of the Confirmation Receipt issued by the authorized agent bank for the 1st and 2nd months of the quarter, and Revenue Tax Receipt (RTR) for the 3rd month or for the entire quarter, as the case may be. In places where payment through banks is not required, the Revenue Official Receipt Number, data and amount paid for each month of the quarter or for the entire quarter. d) Write or print legibly your name, position and station town/city in the space provided in the return before affixing your signature. cdt e) Retain original and give the duplicate to the employer or his representative. f) Transmit all original returns received (perfect and imperfect) to the Revenue District Officer which has jurisdiction over your office not later than five (5) working days after the last day of filing (25th day of the month following the close of the quarter). 2) Annual Returns (BIR Form W-3 and alphabetical list) a) Check the completeness of the return paying particular attention to: acd i. Name, address and taxpayer account number of the employer; ii. Identification number of the employer; iii. The year for which the return is filed; iv. The signature of the employer or authorized representative; and v. That lines 3, 6 and 7 are filled up and reconciled. b) Stamp clearly the date of receipt in the proper space on both original, duplicate and triplicate copies of BIR Form W-3 and alphabetical list. aisa dc c) Retain original and duplicate copies of BIR Form W-3 and alphabetical list and return the triplicate copies to the employer or his representative. d) Transmit BIR Form W-3 and alphabetical list (perfect and imperfect) to the Revenue District Officer not later than five (5) working days after the last day of filing (January 31). The transmittal shall be covered by an alphabetical list of the employers who filed the returns, prepared in quadruplicate copies to the Revenue District Officer, the triplicate to the Revenue Regional Director, and the 4th copy to the Revenue Collection Agent. (b) Revenue District Officer . - As the direct supervisor of the Collection Agents and Cash Clerks in his district, the Revenue District Officer shall keep a close watch on the receipt and transmission of the returns. For this purpose, he is hereby required to: acd (1) Install separate record books for each of the quarterly returns (BIR Form W-1) and annual returns (BIR Form W-3) for registering receipt and transmittal of returns. These books shall be made available to performance officers. (2) Establish a system of call-up for the Collection Agents and Cash Clerks in his district specifically to develop transmittal of returns on time. (3) Supervise closely the processing of returns by his personnel as follows: (1) Quarterly Returns (BIR Form W-1) a) Audit the quarterly returns. b) Sort and segregate the returns into perfect and imperfect categories. Imperfect returns are those which lack any of the information referred to in items i, ii, iii, iv and v of 1(a)(1)(a) hereof. aisa dc c) Post in the corresponding withholding agent's card the following data based on audited perfect quarterly returns: i. Amount remitted during the quarter. ii. Amount assessed, if any. d) Take appropriate action imperfect quarterly returns by informing and requesting the employer concerned to supply the necessary information or adjustment. e) Transmit both perfect and imperfect quarterly returns which have been duly cured of defects or omissions to the Chief, Withholding Tax Division not later than the 30th day of the month following the last filing date of the returns (25th day of the month following the close of the quarter). casia 2) Annual Returns (BIR Form W-3) a) Audit the annual returns. b) Sort and segregate the returns into perfect and imperfect categories. Imperfect returns are those which lack any of the information referred to in items i, ii, iii, iv and v of 1(2) (a) hereof, or where the total line of 3 does not tally with the total of line 6 of the return. c) Post in the corresponding withholding agent's card the total amount of taxes withheld and remitted based on audited perfect annual returns. d) Transmit the original and duplicate copies of posted perfect annual returns to the Chief, Withholding Tax Division within five (5) working days after receipt from the Revenue Collection Agent. acd The transmittal shall be covered by an alphabetical list of the withholding agents who filed the returns prepared in duplicate. e) Take appropriate action on the imperfect returns by informing and requesting the employer concerned to supply the necessary information or to adjust or correct discrepancies found in audit of the return. f) Transmit posted annual returns which have been duly cured of the omissions or discrepancies to the Chief, Withholding Tax Division covered by an alphabetical list of the withholding agents not later than the last day of March. (c) Regional Director . In general, the Regional Director shall see to it that the instructions in this Revenue Memorandum Order are properly carried out by his Revenue District Officers, Collection Agents and Cash Clerks. The value of the withholding tax system as a collection method and the effective enforcement of Section 30 of the Tax Code, as amended, will greatly depend upon the timeliness in bringing in the returns for processing. He should establish a monitoring system to unable him to know if perfect quarterly and annual returns are transmitted on time to the National Office, whether or not the prescribed action is being taken on imperfect returns, and the extent of backlog of returns, if any. (d) Withholding Tax Division - (1) The Withholding Tax Division shall process the returns as follows: a) Audit and post the quarterly and annual returns; b) Take appropriate action on imperfect returns; and c) Transmit to the Revenue Service Chief (Data Processing Center) the original copy of the post audited perfect annual returns for processing. (e) Data Processing Center - (1) The Data Processing Center shall: a) Match the payments with the official receipt. b) Prepare the following master lists: (1) Master list by Revenue District Office in two (2) copies showing the following information: a) Name, address and taxpayer account number of employee; b) Identification number, name and address of employer; and c) Tax Withheld for year covered. This master list shall be completed and transmitted to the Withholding Tax Division not later than July 31 of each taxable year. (2) Master list of taxes withheld credited and remitted which shall show the following: a) Name and address of employer; b) Remittances by quarter based on receipts; c) Total taxes withheld/credited per alphabetical list; and d) Discrepancy between (b) and (c). E. Effectivity . - This Order shall take effect immediately. aisa dc RUBEN B. ANCHETA Acting Commissioner