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Annualized Withholding Tax

(Year-End-

Adjustment)

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

PURPOSEPURPOSE:

TAX DUE = TAX WITHHELD

WHENWHEN::

• 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.

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Annualized Withholding Tax or the Annualized Withholding Tax or the Year-End-AdjustmentYear-End-Adjustment

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

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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: - P50,000.00

Additional Exemption:

P 25,000 for each qualified dependent child not exceeding four (4)

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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.

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STEP 5 - Compute the amount of tax on the difference arrived

at in Step 4.

Not over P10,000 5%

over P10,000 but not over P30,000 P500 + 10% of the excess over P10,000

over P30,000 but not over P70,000 P2,500 + 15% of the excess over P30,000




over P500,000 P125,000 + 32% of the excess over P500,000

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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.

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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 P x x x

Less: Tax Withheld (Jan. to November, from previous & present employer) x x x

Amount to be withheld in December /refunded on Jan. 25 ff year P x x x

Year-End Adjustment - FormulaYear-End Adjustment - Formula

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Annualized Withholding Tax Annualized Withholding Tax or the Year-end Adjustmentor the Year-end Adjustment

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

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Sample Problem 1Sample 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

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Sample Problem 1Sample Problem 1

Computation:Total compensation received from January 1 to May 31, 2010 P 125,000.00Add: Compensation to be received on June 25,000.00Gross Compensation Jan. – June, 2010 P150,000.00Less: Personal Exemption 50,000.00Taxable Compensation P 100,000.00

Tax Due * P 14,500.00Less: Tax Withheld from Jan. to May 15,000.00Excess tax withheld to be refunded by employer P 500.00on or before June 30, 2010

* Tax Due on P70,000.00 P 8,500.00 Tax on excess (P30,000 x 20%) 6,000.00 Total tax due P 14,500.00

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Sample Problem 2Sample Problem 2Ms. 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.) P 275,000.00Add: Compensation to be received in Dec. 25,000.00Gross Compensation Income P 300,000.00Less: Personal Exemption - Married P 50,000 Additional Exemptions - 2 x P25,000 50,000 P100,000.00Taxable Compensation Income P200,000.00

Tax Due* P 37,500.00Less Tax Withheld from Jan. to Nov. 35,000.00To be withheld from employee’s December salary P

2,500.00 Tax on P140,000.00 P22,500.00 Tax on excess (P60,000.00 x 25%) 15,000.00 *TAX DUE P37,500.00

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Employers are required to submit the Employers are required to submit the

ANNUAL INFORMATION RETURN OF INCOME ANNUAL INFORMATION RETURN OF INCOME TAXES WITHHELD ON COMPENSATION AND TAXES WITHHELD ON COMPENSATION AND

FINAL WITHHOLDING TAXES (BIR Form No. 1604-FINAL WITHHOLDING TAXES (BIR Form No. 1604-CF) and the ALPHABETICAL LIST OF EMPLOYEESCF) and the ALPHABETICAL LIST OF EMPLOYEES

• WHEN : On or before January 31of the following year

- WHERE: RDO, LTDO, LTS

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Substituted Filing of Substituted Filing of Income Tax Return Income Tax Return

(BIR Form No. 1700)(BIR Form No. 1700)A scheme where the employee shall no longer A scheme where the employee shall no longer be required to file ITR and in lieu thereof, the be required to file ITR and in lieu thereof, the employer’s filing of the Annual Information employer’s filing of the Annual Information Return and issuance of BIR Form No. 2316 Return and issuance of BIR Form No. 2316

shall be sufficient shall be sufficient provided thatprovided that conditions set conditions set forth in applicable Revenue Regulations and forth in applicable Revenue Regulations and other issuances on the matter are complied other issuances on the matter are complied with by both the employer and employee.with by both the employer and employee.

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Individuals Qualified for Substituted Filing and are not Individuals Qualified for Substituted Filing and are not required to file BIR Form No. 1700required to file BIR Form No. 1700

(RRs 3-2002, 19-2002, 10-2008, RMC 1-2003)(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).

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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.

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

Who shall issue: Employer

When to issue : a) on or before January 31 of the following calendar year; or

b) on the day of last payment of compensation if terminated

Number of copies: Three (3) copies

Signed by: : Both employer and employee(under the penalty of perjury)

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Certificate of Income and Withheld on Certificate of Income and Withheld on Compensation (BIR Form 2316)Compensation (BIR Form 2316)

In case of successive employment: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.

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THANK YOUFOR YOUR TIME.

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