Every business owner who have employees are required to deduct and withhold the tax from their employees.
The employer is required to file taxes even if there is zero tax withheld.
But not all business owners are aware that they need to withhold taxes from their employees. As a result they get penalized for not knowing.
The reason why I wrote this article is for you to understand the importance Withholding Tax from your employees so that you will avoid paying unnecessary penalties.
After reading this guide, you’ll learn about:
1. What will happen if the Employer fails to Withhold taxes from his/her employees?
2. What are the BIR Forms every Employer who have at least one (1) Employee needs to file?
3. When to File and Pay Income Tax Withheld on Compensation?
4. Where to File and Pay Income Tax Withheld on Compensation?
5. What are the Attachments required in filing BIR Form No. 1604CF?
6. Who are the employees NOT Qualified for Substituted Filing Income Tax?
7. What are the Attachments required in filing BIR Form No. 2316?
This is a must read if you’re a business owner, professional, bookkeeper, accountant or a student who wants to learn about the Withholding Tax on Compensation under TRAIN Law.
1. What will happen if the Employer fails to Withhold taxes from his/her employees?
If the Employer fails to withhold expanded withholding tax, he/she will need to pay penalties amounting to:
a. 25%-50% surcharge based on tax unpaid
b. 12% annual interest based on tax unpaid
c. Compromise Penalty P1,000 – 25,000 every time you fail to withhold
2. What are the BIR Forms every Employer who have at least one (1) Employee needs to file?
a. The 1st BIR Form to be used is Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form No. 1601C).
b. The 2nd BIR Form is the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604CF)
c. The 3rd BIR Form is the Certificate of Compensation Payment and Tax Withheld (BIR Form No. 2316)
All return shall be filed in triplicate by every employer required to deduct and withhold taxes on compensation paid to employees.
3. When to File and Pay Income Tax Withheld on Compensation?
a. The BIR Form No. 1601C shall be filed and the tax paid/remitted on or before the tenth (10th) day of the month following the month in which withholding was made.
b. The BIR Form No. 1604CF shall be filed on or before January 31 of the year following the calendar year in which the compensation payment and other income payments subjected to final withholding taxes were paid or accrued.
c. The BIR Form No. 2316 shall be distributed to the employees for signing on or before January 31 of the following year and submit to the BIR on or before February 28 of the following year.
4. Where to File and Pay Income Tax Withheld on Compensation?
The return shall be filed and the tax paid/remitted with the Authorized Agent Bank (AAB) of the Revenue District Office (RDO) having jurisdiction over the withholding agent’s place of business/office.
A taxpayer may file a separate return for the head office and for each branch or place of business/office or a consolidated return for the head office and all the branches/offices.
In the case of large taxpayers only one consolidated return is required.
5. What are the Attachments required in filing BIR Form No. 1604CF?
a. Alphalist of Employees as of December 31 with No Previous Employer within the Year. (Schedule 7.3)
b. Alphalist of Employees as of December 31 with Previous Employer/s within the Year. (Schedule 7.4)
c. Alphalist of Employees Terminated before December 31. (Schedule 7.1)
d. Alphalist of Employees whose Compensation Income Are Exempt from Withholding Tax but Subject to Income Tax.
e. Alphalist of Employees other than Rank & File Who Were Given Fringe Benefits During the year. (Schedule 6)
f. Alphalist of Payees Subjected to Final Withholding Tax. (Schedule 5)
g. Alphalist of Minimum Wage Earners. (Schedule 7.5)
The employer inputs his/her employees in the Alphalist Data Entry and validated using Alphalist Validation. You can download this to the BIR website, www.bir.gov.ph.
After Validation, the employer need to email it to esubmission@bir.gov.ph
After that, you will received email confirmation from the BIR that the report you submit is correct.
Print the email confirmation as proof that you filed on time.
6. Who are the employees NOT Qualified for Substituted Filing Income Tax?
If the individual taxpayer is qualified for substituted filing of Income Tax,
This means that the employer is the one who will file income tax in behalf of his/her employees using Certificate of Compensation Payment and Tax Withheld (BIR Form No. 2316).
The following individuals are NOT qualified for substituted filing of income tax and therefore, still required to file Income Tax Return:
a. Individuals deriving compensation from two or more employers concurrently or successively at any time during the taxable year.
Concurrent Multiple Employment means an employee is employed by two or more employers within the same period of time during the taxable year.
Successive Multiple Employment means an employee who transferred to another employer during the taxable year.
b. Employees whose income tax has not been withheld correctly.
c. Individuals deriving other non-business and/or non-professional related income in addition to compensation income not otherwise subject to a final tax.
d. Individuals who spouse has 2 or more employers, income tax and final tax has not been withheld correctly.
e. Non-resident aliens engaged in trade or business in the Philippines deriving compensation income and/or other non-business, non-professional related income.
Employees receiving purely compensation income that is NOT qualified for Substituted Filing shall file BIR Form No. 1700.
7. What are the Attachments required in filing BIR Form No. 2316?
After the employees sign the BIR Form No. 2316,
This shall be return to the employer so that the employer can submit this to the BIR together with Certified List of Employees Qualified for Substituted Filing of ITR (Annex “F”) on or before February 28 of the following year.
The list shall be stamped “Received” by the concerned BIR office.
In the event the employee will need his/her BIR Form No. 2316 stamped “Received”,
He/She shall request the concerned BIR office to have the certificate stamped “Received”
Accompanied with the submission of the employer’s certification that he/she was included in the list submitted by such employer to the BIR.
References:
a. Republic Act 10963 (Train Law)
b. Amendments Introduced by TRAIN Law Relative to Withholding of Income Tax (RR 11-2018)
c. Implementing Republic Act No. 8424 (RR 2-1998)
What’s Next?
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