Tax Guide: Withholding Tax Rules for Senior Citizens
Taxation for Senior Citizens: Are They Exempt from Withholding Tax in Sprout Payroll?
The short answer is No, you cannot exclude a regular senior citizen employee from tax computation simply because of their age.
While senior citizens enjoy many privileges in the Philippines (like VAT exemptions and 20% discounts on medicine), compensation income is still taxable under the same rules that apply to any other employee.
1. The General Rule
Under the TRAIN Law, age does not grant a blanket exemption from income tax. A senior citizen’s salary is treated like any other employee's:
- P250,000 and Below: If their annual taxable income is P250,000 or less, they are exempt from income tax (this is where Line 23 of the 1601-C comes in).
- Above P250,000: Any amount exceeding this threshold is subject to the graduated income tax rates (15% to 35% ).
2. When are they Exempt?
A senior citizen is only exempt from withholding tax on their salary in two specific scenarios:
- Minimum Wage Earner (MWE): If the senior citizen is officially classified as a Minimum Wage Earner, they are exempt from income tax on their basic wage, OT, holiday pay, and night differential.
- Low Income: If their total annual compensation (including the taxable portion of the 13th-month pay) does not exceed P250,000.
If the Senior Citizen employee is classified as MWE, you may refer to this article for the setup: Setting the Minimum Wage Earner tagging for Fully Synced Accounts