With the close of the calendar year weeks away comes the period of annualization, when employers calculate the annual income tax of their employees and prepare related year-end compliance filings.
Noteworthy items during this period are as follows:
DE MINIMIS BENEFITS
The latest maximum thresholds of de minimis benefits (benefits of relatively small value) are in Revenue Regulations (RR) No. 11-2018. Any amounts in excess of the thresholds are generally subject to withholding tax or fringe benefit tax depending on the position of the recipient-employee, unless they can form part of the P90,000 nontaxable bonus covering 13th month pay and other benefits.
Under RR No. 15-2011, all other benefits given by employers that are not included in the exclusive list will not be considered as tax-exempt de-minimis benefits and will, therefore, be taxable.
Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage on a per region basis are considered de minimis benefits. Companies should, therefore, consider the recent minimum wage increases in their calculations.
Equity-based income granted to employees as a performance incentive, regardless of position, is considered compensation and shall be subject to withholding tax on compensation once exercised or availed of by the employee-grantee. (RR No. 13-2022)
SOCIAL SECURITY SYSTEM (SSS) MATERNITY BENEFITS AND SALARY DIFFERENTIAL
The most common error is including the SSS reimbursable amount of maternity benefit in the gross compensation. However, only the salary differential (i.e., the net amount of benefit after deducting the SSS reimbursable amount from the total maternity benefit due to the employee) should be included as nontaxable income. Salary differentials are also accounted for as part of actual basic salary in the calculation of 13th month pay.
UPDATED WITHHOLDING TAX RATE AND MANDATORY CONTRIBUTIONS
Employers should see to it that the latest annual withholding tax table effective for 2023 and the latest schedules of mandatory contributions are used. Only the total actual mandatory contributions can be deducted from the gross compensation to arrive at net taxable income.
ON-LEAVE OR RESIGNED EMPLOYEES AND THOSE WITH PREVIOUS EMPLOYERS
For employees who resigned before the end of the year whose final pay was not yet calculated and for employees on leave (i.e., Absence Without Official Leave, maternity, medical, study or sabbatical leaves), employers should take note that their earnings for the year should also be annualized using the actual compensation information.
Employees with previous employers during the year should submit the Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) from their previous employer to their current employer. The current employer is required to consolidate the earnings from the previous and current employers for proper annualization of total earnings and taxes due for the calendar year. The withholding tax certificate will also serve as reference in determining any unutilized amount of the P90,000 nontaxable threshold.
RETURNS AND ALPHALISTS
Filing of 1601-C for Electronic Filing and Payment System (eFPS) filers follows the monthly schedule for groups A to E (list of taxpayers based on industry classification), which is from Jan. 11 to 15 and the payment is due on or before Jan. 20. As for manual filers, the due date of filing and payment is Jan. 15.
The annual information form 1604-C contains a summary of the monthly 1601-C filings. Together with the e-submission of the related alphalist, it is due on or before Jan. 31 of the following year. The form was updated in the eBIRForms in 2021. Recently, Revenue Memorandum Circular (RMC) No. 62-2023 announced that the updated form is now also available in the eFPS. To update the forms in eFPS, however, the taxpayer-employer must still submit a letter to the BIR requesting the latter to update the forms in the taxpayer’s eFPS account, along with a screenshot of the list of available tax forms in the taxpayer’s eFPS account and a copy of the BIR Certificate of Registration (CoR).
RMC No. 16-2022, on the other hand, announced the availability of the revised format for the alphalist of employees that is attached to BIR Form 1604-C. Employers should validate the alphalist using the latest version of validator before submitting to firstname.lastname@example.org. If the validation e-mail returns an invalid note, one will need to check the error and resubmit the revised alphalist.
Companies should have identified those employees qualified for substituted filing because there’s a requirement to indicate in the alphalist whether or not an employee is a qualified substituted filer. Those who are not qualified will be required to file personal income tax returns (BIR No. Form 1700 or 1701, whichever is applicable) by April 15 of the following year.
BIR FORM NO. 2316
The withholding tax certificates (BIR Form No. 2316), duly signed by the employer’s authorized signatory (typically the company officer overseeing payroll), should be issued to employees on or before Jan. 31 using the new version.
Qualified substituted filers must return a signed copy of their 2316 to their employers, who in turn submits the same to the BIR on or before Feb. 28. Under RMC No. 18-2021, the BIR accepted the submission of the copies of the 2316 forms for the taxable year 2020 without the employee’s signature, provided they were signed by the employer. The reprieve was due to the pandemic, and no similar concession has since been granted post-2020.
Under RR No. 16-2021, only scanned copies of the 2316 forms saved in a DVD-R will be accepted by the BIR. The file format, naming conventions, and other documentary requirements should be complete and comply with the rules of the BIR.
Every year, employers, together with their accountants and tax providers, put in extra effort to properly calculate employees’ taxes and comply with year-end requirements. Compliance with these rules is important, to say the least. But if you think compliance is expensive and tedious, try non-compliance.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Bernadette R. Fama-Absolor is a manager at the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.