Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 27-11)
It revokes BIR Ruling Nos. 002-99, DA-184-04, DA-569-04, and DA-087-06 which previously excluded from gross income and income tax voluntary contributions to Pag-IBIG 2, GSIS optional insurances, and other similar excess contributions beyond mandatory monthly contributions.
Only the mandatory or compulsory contributions of employees to SSS, GSIS, PHIC, and HDMF (Pag-IBIG) are excludible from gross income and exempt from income and withholding tax.
No, voluntary contributions in excess of the mandatory contributions are not exempt from income tax and withholding tax and must be included in the gross income of the taxpayer.
Contribution refers strictly to the amount payable or paid by the member and the employer in accordance with their respective laws and only mandatory contributions are covered by the exemption from income tax.
For GSIS, Section 2(j) and Section 5 of RA No. 8291 define contributions as the mandatory amount payable by the member and employer. For SSS, Section 8(i) and Section 18 of RA No. 8282 define contributions as the amount paid by and on behalf of the member according to the salary-based schedule.
The BIR observed that the exemption was being abused as employees and employers used voluntary contributions as untaxed investments which complicated tax withholding compliance and deprived the government of rightful tax revenues.
Employees earning not more than PHP 1,500/month contribute 1%, those earning more than PHP 1,500/month contribute 2%, and employers contribute 2% of the monthly compensation with a maximum monthly compensation of PHP 5,000 used as the base for computation.
Any claim for exemption on voluntary contributions shall be disallowed and the corresponding deficiency assessments may be made by the BIR.
No, only mandatory or compulsory contributions remain exempt from withholding tax. Voluntary or excess contributions are not exempt and are subject to withholding tax.
Revenue officers must consider this Circular in audits and investigations, disallow exemptions claimed on voluntary contributions, issue deficiency assessments as appropriate, and give the Circular the widest publicity.