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Annualized Withholding Tax (Year-End- Adjustment ) 1

Annualized

Withholding Tax

(Year-End-

Adjustment)

Annualized Withholding Tax (Year-End-Adjustment)
Annualized Withholding Tax
(Year-End-Adjustment)
PURPOSE:
PURPOSE:

TAX DUE = TAX WITHHELD

WHEN:
WHEN:

On or before the end of the calendar year but prior to the payment of compensation for

the last payroll period.

If terminated, on the day on which the last payment of compensation is made.

Annualized Withholding Tax or the
Annualized Withholding Tax or the
Year-End-Adjustment
Year-End-Adjustment
Annualized Withholding Tax or the Year-End-Adjustment Section 79(H), Tax Code, Section 2.79(B)(5)(b), RR 2-98, as amended

Section 79(H), Tax Code, Section 2.79(B)(5)(b), RR 2-98, as amended by RR 10-2008

STEP 1 - Determine the taxable regular and supplementary compensation paid to the employee for the entire calendar year;

STEP 2 - If the employee has previous employment/s within the year, add the amount of taxable regular and supplementary compensation paid to the employee by the previous employer;

Annualized Withholding Tax (Year-End-Adjustment)
Annualized Withholding Tax
(Year-End-Adjustment)

STEP 3 - Deduct from the aggregate amount of

compensation

computed in Step 2 the amount of the total personal and additional exemptions of the employee;

Personal Exemptions:

-

Additional Exemption:

P50,000.00

P 25,000 for each qualified dependent child

not exceeding four (4)

Annualized Withholding Tax (Year-End-Adjustment)
Annualized Withholding Tax
(Year-End-Adjustment)

STEP 4 -

Deduct the amount of premium payments on Health and or Hospitalization Insurance of employees who have presented evidence that

they paid the same during the taxable year.

NOTE:

The deductible amount shall not exceed P 2,400/ annum or P 200/month whichever is lower and the total family gross income does not exceed P 250,000 for the calendar year. The employee is required to furnish employer with copies of policy contract and proof of payments before the employer does the year-end adjustment.

Annualized Withholding Tax (Year-End-Adjustment)
Annualized Withholding Tax
(Year-End-Adjustment)

STEP 5 -

Compute the amount of tax on the difference arrived

at in Step 4.

Not over P10,000 over P10,000 but not over P30,000 over P30,000 but not over P70,000 over P70,000 but not over P140,000 over P140,000 but not over P250,000 over P250,000 but not over P500,000 over P500,000

5%

P500 + 10% of the excess over P10,000 P2,500 + 15% of the excess over P30,000 P8,500 + 20% of the excess over P70,000 P22,500 + 25% of the excess over P140,000 P50,000 + 30% of the excess over P250,000 P125,000 + 32% of the excess over P500,000

Annualized Withholding Tax (Year-End-Adjustment)
Annualized Withholding Tax
(Year-End-Adjustment)

STEP

6 -

Determine the deficiency or excess, if any, of the tax computed in Step 5 over the

cumulative tax already deducted and

withheld since the beginning of the current calendar year.

Year-End Adjustment - Formula
Year-End Adjustment - Formula

GROSS COMPENSATION INCOME (previous + present employer)

 

P x x x

LESS:

Non-Taxable Items

  • a. 13th month pay, Christmas bonus

loyalty Award, gift in cash/kind and other benefits [Sec. 2.78.1 (b)(11), RR 2-98]

P 30,000.00

 
  • b. SSS, GSIS, Medicare, Pag-ibig and union dues of individual employees

x x x x x

  • c. 10 days monetized vacation leave

x x x x x

  • d. Other non-taxable compensation income

x x x x x

x x x x

GROSS TAXABLE COMPENSATION INCOME

 

P x x x

Less: Total Exemptions

P

x x x

Premium paid on Health or Hospitalization Insurance (Maximum of P2,400.00)

x x x

x x x

Taxable Compensation Income

 

P x x x

Tax Due: Refer to Annualized Tax Table, Section 24(A), Tax Code Less: Tax Withheld (Jan. to November, from previous & present employer)

P x x x x x x

Amount to be withheld in December

/refunded on Jan. 25 ff year

 

P x x x

Annualized Withholding Tax or the Year-end Adjustment
Annualized Withholding Tax
or the Year-end Adjustment
Annualized Withholding Tax or the Year-end Adjustment RESULTS OF THE YEAR-END ADJUSTMENT: COLLECTIBLE: Tax Due >

RESULTS OF THE YEAR-END ADJUSTMENT:

COLLECTIBLE:

Tax Due > Tax Withheld ----collect before payment of last wage/compensation

REFUNDABLE:

Tax Due < Tax Withheld ----- refund on or before Jan. 25th of the ff. year/last payment of wages

BREAK-EVEN:

Tax Due = Tax Withheld ----- do not withhold from December salary

Sample Problem 1
Sample Problem 1

Mr. Dexter, single receives P 25 ,000 (net of SSS, Philhealth, HDMF and other non-

taxable items of gross income) as monthly regular compensation starting January 1, 2010, he filed his resignation effective June 30, 2010. The tax withheld from January to May was

P15,000.00

Sample Problem 1
Sample Problem 1

Computation:

Total compensation received from January 1 to May 31, 2010

P 125,000.00

Add: Compensation to be received on June

25,000.00

Gross Compensation Jan. June, 2010

P150,000.00

Less: Personal Exemption

50,000.00

Taxable Compensation

P 100,000.00

Tax Due *

* Tax Due on P70,000.00

P 14,500.00

Less: Tax Withheld from Jan. to May

15,000.00

Excess tax withheld to be refunded by employer

P

500.00

on or before June 30, 2010

P

8,500.00

Tax on excess (P30,000 x 20%)

6,000.00

Total tax due

P 14,500.00

Sample Problem 2
Sample Problem 2

Ms. Allister, married with 2 qualified dependent children (with husband’s

waiver) receives P25,000 monthly compensation (net of SSS, Philhealth, HDMF

contributions) in 2010 while tax withheld was P35,000.00.

Total Compensation Jan. - Nov. (P25,000 x 11 mos.) Add: Compensation to be received in Dec. Gross Compensation Income

P 275,000.00

25,000.00

P 300,000.00

Less: Personal Exemption

- Married

P 50,000

Additional Exemptions - 2 x P25,000

50,000

P100,000.00

Taxable Compensation Income

 

P200,000.00

Tax Due*

P

37,500.00

Less Tax Withheld from Jan. to Nov.

 

35,000.00

To be withheld from employee’s December salary

 

P

2,500.00

Tax on P140,000.00 Tax on excess (P60,000.00 x 25%)

*TAX DUE

P22,500.00

15,000.00

P37,500.00

12

Employers are required to submit the ANNUAL INFORMATION RETURN OF INCOME TAXES WITHHELD ON COMPENSATION AND
Employers are required to submit the
ANNUAL INFORMATION RETURN OF INCOME
TAXES WITHHELD ON COMPENSATION AND
FINAL WITHHOLDING TAXES (BIR Form No. 1604-
CF) and the ALPHABETICAL LIST OF EMPLOYEES

WHEN :

- WHERE:

On or before January 31of the following year

RDO, LTDO, LTS

Substituted Filing of

Income Tax Return (BIR Form No. 1700) A scheme where the employee shall no longer be
Income Tax Return
(BIR Form No. 1700)
A scheme where the employee shall no longer
be required to file ITR and in lieu thereof, the
employer’s filing of the Annual Information
Return and issuance of BIR Form No. 2316
shall be sufficient provided that conditions set
forth in applicable Revenue Regulations and
other issuances on the matter are complied
with by both the employer and employee.
Substituted Filing of Income Tax Return (BIR Form No. 1700) A scheme where the employee shall
Substituted Filing of Income Tax Return (BIR Form No. 1700) A scheme where the employee shall
Individuals Qualified for Substituted Filing and are not required to file BIR Form No. 1700 (RRs
Individuals Qualified for Substituted Filing and are not
required to file BIR Form No. 1700
(RRs 3-2002, 19-2002, 10-2008, RMC 1-2003)
  • 1. Receiving purely compensation income regardless of amount;

  • 2. Working for one employer in the Philippines for the calendar year;

  • 3. Income tax has been withheld correctly by the employer (TAX DUE = TAX WITHHELD)

  • 4. The employee’s spouse also complies with all the three

conditions stated above, and

  • 5. Employer file the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form 1604-CF).

NOTE: All of the above requisites must be present. The Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form 1604-CF) filed by their respective employers duly stamped “Received”, shall tantamount to the substituted filing of income tax returns by said employees.

Certificate of Income and Tax Withheld on Compensation (BIR Form No. 2316)
Certificate of Income and Tax Withheld on
Compensation (BIR Form No. 2316)

Who shall issue:

When to issue :

Number of copies:

Signed by:

:

Employer

a) on or before January 31 of the following calendar year; or

b) on the day of last payment

of compensation if terminated

Three (3) copies

Both employer and employee (under the penalty of perjury)

Certificate of Income and Withheld on Compensation (BIR Form 2316) In case of successive employment:
Certificate of Income and Withheld on
Compensation (BIR Form 2316)
In case of successive employment:

The employee is required to furnish his new employer with his duly certified copy of the

Certificate issued by the previous employer,

both within the taxable year.

THANK YOU FOR YOUR TIME.