Year-end tips on compensation and withholding taxes
By Marivic C. Espano
As the end of the year approaches, companies start planning for year-end activities related to the various compliance requirements of the Bureau of Internal Revenue (BIR).
One of these requirements is the annualization of withholding taxes of employees for the compensation they received in 2008.
Here are a few reminders in this regard.
1. December withholding tax return (BIR Form 1601C)
This is due on January 12-15 next year for filers under the Electronic Filing and Payment System (EFPS), depending on their industry grouping, and on January 15 for manual filers.
This is the last withholding return for the year, hence, in addition to the December withholding taxes, this should also cover any adjustments on taxes previously withheld.
For this year, the company must also consider the guidelines set by the BIR in Revenue Regulations (RR) 010-08 implementing the transition rules for the increases in the personal exemptions that apply for calendar year 2008, as follows:
* P35,000 for single taxpayers
* P37,500 for heads of family
* P41,000 for each married individual
* P16,500 for each qualified dependent child, not exceeding four children.
If the company has a large number of employees, it is advisable to start the annualization early to ensure that the company will be able to complete the process and file the December withholding return on time.
Otherwise, the 25% surcharge and 20% interest per annum will be imposed for late filing.
If the company runs out of time, it may consider filing based on the tentative amounts calculated and file an amended return later, subject to payment of interest on any additional withholding taxes payable.
2. Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604-CF)
This is due on February 2, 2009 (January 31 is a Saturday).
In this return, the company must provide information on the amount of withholding taxes on compensation that had been remitted to the BIR from January to December 2008. Thus, it is important for the return preparer to ensure that the information reported in BIR Form 1604-CF tallies with the amounts indicated in the monthly withholding tax returns (BIR Form 1601C) filed in 2008.
One of the required attachments to this Form is the Alphabetical List (alphalist) of Employees, a schedule showing the compensation paid to each employee during the year and the respective taxes withheld thereon.
Again, for 2008, the company should consider the revised format of the alphalist under RR 010-08. If the company is enrolled in the EFPS, this alphalist should be submitted as an attachment through the EFPS pursuant to Revenue Memorandum Circular 71-2004.
3. Information on Hazard Pay
The employer is required to attach to the December return (BIR Form1601C) a copy of the list submitted to the nearest Department of Labor and Employment (DoLE) Regional/Provincial Offices-Operations Unit showing the names of minimum wage earners (MWEs) who received the hazard pay, their period of employment, amount of hazard pay per month; and justification for the hazard pay as certified by DoLE/allied agency.
4. Employees’ Withholding Statements (BIR Form 2316)
The company is required to provide its employees with the Certificate of Compensation Payment/Tax Withheld (BIR Form 2316) on or before January 31, 2009.
Failure shall be grounds for the mandatory audit of the payor’s income tax liabilities (including withholding tax) upon verified complaint of the payee.
Companies are also required to issue this form to MWEs whose income are exempt from income tax and, consequently, from withholding tax, under RA 9504.
The form shall show the sum of non-taxable statutory minimum wage (SMW), including the non-taxable benefits such as holiday, overtime, night shift differential and hazar d pay earned during the calendar year.
BIR Form 2316 also contains a certification to the effect that the employer’s filing of BIR Form 1604-CF shall be considered a substituted filing of the employee’s income tax return to the extent that the amount of compensation and tax withheld appearing in BIR Form 1604-CF is consistent with the amounts indicated in BIR Form 2316.
If the employee is qualified, this portion must be signed by both the employee and employer, attesting that the information has been verified and is true and correct to the best of their knowledge.
The employer should not sign this portion under any of the following circumstances:
* The employee had more than one employer during the year.
* The employee received taxable compensation that was not subjected to withholding tax.
* The amount of tax withheld from his compensation is not the same as the income tax due.
* The employee had other sources of income in addition to his compensation.
* In the case of expatriates, the employee is not considered a resident alien for tax purposes.
The December withholding return and the alphalist are important documents.
These are, in general, used by the BIR in evaluating a company’s compliance with its obligations as a withholding agent.
Due diligence, therefore, must be exercised in preparing them.
(The author is a tax partner at Punongbayan & Araullo, a member firm within Grant Thornton International Ltd. Readers may send comments and inquiries via e-mail to
Marivic.Espano@pna.ph, or call 886-5511.)
Punongbayan & Araullo - Year-end tips on compensation and withholding tax
Originally Posted by maiagabrielle
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