Expanded Withholding Tax on PHIC Medical Payments

The Circular clarifies the application of expanded withholding tax (EWT) under Revenue Regulations (RR) No. 2-98, as amended.
It specifically relies on Section 2.57.2(A) of RR No. 2-98 for professional fees, including services of medical practitioners.
It specifically relies on Section 2.57.2(N) of RR No. 2-98 for facility fees paid to hospitals or clinics.
It applies the “control over payment” rule under Section 2.57.3 of RR No. 2-98, which ties the applicable withholding tax rate to the person having control over the payment who claims the expense.

The Circular resolves disputes over whether PHIC medical benefit payments made to medical providers are subject to EWT, especially where PHIC regional or field offices treat such payments as mere reimbursements.
The Circular clarifies how to apply EWT rates when PHIC pays amounts consisting of facility fees and professional fees directly to the hospital, which then pays the medical practitioners.
The Circular establishes that PHIC payments for services connected to PHIC members’ medical benefits are governed by the EWT framework for income payments requiring withholding.

The Circular covers payments made by the Philippine Health Insurance Corporation (PHIC) in relation to PHIC members’ medical benefits.
It includes payments to medical practitioners for professional fees for medical services rendered to PHIC members.
It includes payments to hospitals and/or clinics for facility fees that cover medical services such as medical procedures, room and board, and pharmacy.
It applies even though PHIC is a Government-Owned and Controlled Corporation exempt from income tax, because PHIC remains responsible as a withholding agent.

PHIC is required to withhold correct taxes on its income payments as a withholding agent of the BIR, including withholding under the expanded withholding tax system.
Payments of PHIC in favor of medical practitioners that relate to medical services to PHIC members are subject to EWT.
Payments of PHIC in favor of hospitals or clinics that represent facility fees for medical services to PHIC members are subject to EWT.
The applicable rate is determined for each component payment—professional fees versus facility fees—consistent with how PHIC identifies and separates those amounts for a per-case medical benefit.

Professional fees (including professional services rendered by medical practitioners) are subject to EWT of 10% or 15% under Section 2.57.2(A) of RR No. 2-98, as amended.
The 10% EWT rate applies when the medical practitioner’s gross income does not exceed P720.000 in a year.
The 15% EWT rate applies when the medical practitioner’s gross income exceeds P720.000 in a year.
Facility fees paid to hospitals or clinics are subject to EWT of 2% under Section 2.57.2(N) of RR No. 2-98.

Where PHIC pays the total amount consisting of facility fees and professional fees directly to the hospital, EWT still applies to the corresponding components.
PHIC must apply the EWT rates under Section 2.57.2(A) for the professional fees portion attributable to the medical practitioner.
PHIC must apply the EWT rate of 2% under Section 2.57.2(N) for the facility fees portion paid to the hospital or clinic.
PHIC’s obligation to withhold follows the “control over payment” rule under Section 2.57.3 of RR No. 2-98, because PHIC has control over the payment and claims the expense.

Hospitals must issue an Official Receipt (OR) only for the portion pertaining to the facility fee.
Medical practitioners must issue an Official Receipt (OR) for the professional fee portion.
PHIC must issue BIR Form 2307 showing the facility fee income paid and the tax withheld in the hospital’s name.
PHIC must also issue a separate BIR Form 2307 in the medical practitioner’s name showing the professional fee income and the corresponding tax withheld.

The illustration assumes professional fees of P4,000 and facility fees of P10,000, totaling P14,000.
Withholding on professional fees uses 15% (under Section 2.57.2(A) where gross income exceeds P720.000 in a year), resulting in P600.00 tax on P4,000.
Withholding on facility fees uses 2% (under Section 2.57.2(N)), resulting in P200.00 tax on P10,000.
The illustration computes total tax withheld as P800.00, so the hospital receives P13,200.00 net of withholding (i.e., P14,000.00 - P800.00).
The illustration states that the hospital’s OR reflects only the P10,000.00 facility fee, while the medical practitioner’s OR reflects the P4,000.00 professional fees.
The illustration states that PHIC’s BIR Form 2307 for the hospital reflects P10,000.00 income and P200.00 tax withheld, and PHIC issues another BIR Form 2307 for the medical practitioner reflecting P4,000.00 income and P600.00 tax withheld.

All internal revenue officers and employees and other concerned are enjoined to be guided accordingly.
The Circular requires that it be given as wide a publicity as possible to ensure proper compliance with EWT withholding on PHIC-related medical payments.