Primer on the Minimum Wage Tax Exemption

It’s that time of the year when we are again required to pay taxes and file our income tax returns. Some, however, are exempt from paying income tax. Minimum wage earners are not required to pay income taxes. Here’s a primer of the new law.

What is Republic Act No. 9504?

This law, which was approved on 17 June 2008 (full text), exempts minimum wage earners from paying income tax. It amends certain provisions of the the National Internal Revenue Code Of 1997.

Who are covered by the exemption?

Employees in the public and private sectors who are receive minimum salary/wage are covered by the exemption.

Who are considered as statutory minimum wage earners?

The term statutory minimum wage earner shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned.

What is the minimum wage in the National Capital Region (NCR)?

The new daily minimum wage of covered workers in the private sector in the National Capital Region (NCR), per Wage Order No. 14, is:

P382 – Non-Agriculture
P345 – Agriculture (Plantation and Non Plantation)
P345 – Private Hospitals with bed capacity of 100 or less
P345 – Retail/Service establishments employing 15 workers or less
P345 – Manufacturing establishments regularly employing less than 10 workers

The minimum wage for other areas are covered by the pertinent wage orders of the Regional Tripartite Wage and Productivity Board (RTWPB).

What are the allowed personal exemptions for individual taxpayer?

Regardless of status (i.e., whether single or married), a taxpayer shall be entitled to the following exemptions:

P50,000 – basic personal exemption for each individual taxpayer
P25,000 – additional exemption for each dependent, not exceeding 4

A dependent means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than 21 years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.

In other words, the maximum total exemption for a family of 6 (2 working spouses and 4 dependent children) is P200,000.

Are companies or employers required to withhold taxes from salaries/wages of covered employees?

No. Employers of minimum wage earners are not required to deduct and withhold taxes for wages/salaries of persons covered by the exemption.

Minimum wage earners are exempt from the payment of income tax on their taxable income. They are not covered by the rules regarding the withholding of taxes. They are also exempt from filing an income tax return.

Holiday pay, overtime pay, night shift differential pay and hazard pay received by minimum wage earners shall also be exempt from income tax.

3 thoughts on “Primer on the Minimum Wage Tax Exemption

  1. Adidoy

    If I work for 5 months for year 2009 and the total income is less than 50K, yet tax are deducted during those months. Can I still ask for a refund? since my income was within the 50K limit for exemption?

    Reply
  2. Alberto Briones

    Sir,

    My understanding, correct me if I’m wrong, is that the 50 k income cited above is annual income. Meaning, if you had worked for only 5 months in 2009, your annual pay should exceed the 50 k threshold, hence you are not covered by the tax exemption.

    VTY

    Reply
  3. Juni

    Sir, my employer erroneously deducted withholding tax for my 2014 basic salary w/c is of minimum wage. I have learned this late when I compared payslips with my co-workers who were minimum wage earners too. They had no tax deduction while mine has despite us having the same monthly salary and deductions like sss, pag-ibig, philhealth. Our employer said even though we are minimum wage earners, we are required to pay income tax in April. Is this true? We were thinking what was the use of a law exempting MWE (Minimum Wage Earners) from withholding tax and then pay income tax by year end. I was demanding a refund for the whole 2014 w/taxes they have withheld from me. Can my employer refund it from the BIR? My understanding is MWE are no longer subject to income tax computation at the end of the year. But our employer is persistent that even though MWE we are subject to computation for the whole year. Hope you can enlighten us on this issue. Thanks in advance.

    Reply

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