December comes around again: homes are filled with good cheer, the collared masses grow eager to spend their hard-earned bonus, and at all hours of the night city streets buzz with merrymaking. Before we know it, the calendar prepares to turn over a new leaf.
For many of us the end comes sooner than we think. Not so for the accountant, who must learn to keep carols alongside vigils. At this time of year, one of the challenges to face is the annualization of employees' compensation. For employees qualified under substituted filing, this means employers are required to file BIR Form 1604-C annually in order to report these details, as well as BIR Form 2316 which serves as proof that the employee has already paid taxes through the employer's monthly withholding. Note that BIR Form 1604-C, which is the Annual Information Return of Income Taxes Withheld on Compensation, should not be confused with BIR Form 1601-C, which refers to Monthly Remittance Return of Income Taxes Withheld on Compensation.
Form 1604-C stands in place of the Income Tax Return of an employee earning purely compensation income, and as long as income tax has been properly withheld from the employee's salary and remitted by the employer, then the employee no longer has any obligation to satisfy with his or her taxes.
Of course, when an employee derives income from mixed sources, then the employee must file his or her own returns with the BIR. This also applies when the employee has two or more concurrent employers within a single taxable year. On the other hand, when an employee has had a previous employer and transfers to another in the same taxable year, the employer preparing annualization should consider the amounts withheld by the previous employer/s. Special attention must be observed when the employer pays income to a non-resident alien not engaged in trade or business (NRANETB) in which case 1604-F is used.
Form 1604-C must be filed on or before January 31 of the following year, accompanied by the Alphalist of Employees and a separate Alphalist of Minimum Wage Earners, all supported by BIR Form 2316.
As of 2023, calculations should follow the new graduated tax table as follows:
Income Tax Due
250,000 and below
250,000 - 400,000
15% of amounts above 250,000
400,000 - 800,000
22,500 + 20% of amounts above 400,000
800,000 - 2,000,000
102,500 + 25% of amounts above 800,000
2,000,000 - 8,000,000
402,500 + 30% of amounts above 2,000,000
8,000,000 and above
2,202,500 + 35% of amounts above 8,000,000
When calculating, mandatory deductions and de minimis benefits are to be considered non-taxable. For 13th month pay and other benefits, the threshold is now Php 90,000.00 in total before being considered taxable. Employers may take advantage of these rules to augment the income of their employees without subjecting them to further taxes. Finally, it should also be remembered that any calculation of income for withholding should be based on amounts which are accrued, regardless of whether or not the accrued salaries and wages are already paid. (ING Bank vs. CIR, G.R. No. 167679)
(Marc Patric M. Diokno is a junior associate from the Tax Division of AAA and Co., CPAs, a Philippine-member of Alliott Global Alliance. For comments and inquiries, please email firstname.lastname@example.org.)