December is indeed the most festive period of the year. For most, it is an opportunity to take a much-needed break from work and spend some quality time with loved ones to celebrate Christmas and New Year. However, for us accountants, this marks the start of the busy season as yearend approaches. And so, before taxpayers all go on hiatus this holiday season, here are a few important reminders to ponder in areas of tax and payroll compliance.
An annual Registration Fee must be paid by all businesses, including self-employed professionals, using BIR Form 0605 on or before Jan. 31.
Following RMC 82-2008, taxpayers who are maintaining manual books of account must register new books when the pages of the previously registered books have all been exhausted. In the case of computerized books of account, the deadline for registration and submission in CD-R or DVD-R format and other required documents for calendar year 2019, shall be Jan. 30. For loose-leaf bound books of account, the deadline is 15 days after the end of the calendar year, as stated in RMC 13-82.
The filing of the Annual Information Return of Income Payments Subjected to Final Withholding Tax (BIR Form 1604-F) and the corresponding Alphabetical List of Employees/Payees from Whom Taxes Were Withheld must be done on or before Feb. 28. The deadline was extended by the BIR from Jan. 31 to give way to the enhanced version of the module. Beginning calendar year 2019, the BIR requires filing of this tax return separate from the Annual Information Return for Income Taxes Withheld on Compensation (BIR Form 1604-C).
As for the Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax (BIR Form 1604-E), together with the Alphabetical List of Payees from Whom Taxes Were Withheld, the deadline for filing is on or before March 1.
The filing of withholding tax returns (BIR Form 1601-EQ for creditable withholding tax, Form 1602Q for final tax on interest on bank deposits, Form 1603Q for final tax withheld on fringe benefits, and 1601-FQ for all other final withholding taxes) and the remittance of taxes withheld at source must be done not later than the last day of the month following the close of the quarter during which the taxes were withheld. As such, for the quarter ending Dec. 31, the returns must be filed, and taxes withheld must be remitted on or before Jan. 31. The filing must be accompanied by the Quarterly Alphabetical List of Payees (QAP), reflecting the name of income payees, Taxpayer Identification Number (TIN), the income paid segregated per month with the total for the quarter (all income payments prescribed as subject to withholding tax under the regulations, whether actually subjected to withholding tax or not subjected due to exemption), and the total amount of taxes withheld, if any.
Effective Jan. 1, per RMC 136-2019, taxpayers who are classified as Top Withholding Agents (TWAs) under RR 7-2019 are to continue or commence deducting the 1% or 2% Creditable Withholding Tax (CWT) on their purchase of goods and services. Taxpayers who are eliminated from the updated list of TWAs will cease to deduct and remit the 1% or 2% CWT from their regular suppliers. Relative to this, the BIR also issued RMC 122-2019, stating that the submission of the Semestral List of Regular Suppliers (SRS) is no longer required.
Under Sec. 2.79.6 of the Consolidated Withholding Tax Regulations, employers are required to compute for income tax on the annualized gross compensation income or the sum of the taxable regular and supplementary compensation paid to each employee for the entire year. The payroll process called annualization takes place on or before the end of the calendar year, and before the payment of the compensation for the last payroll period. Any excess withholding tax shall be refunded to the affected employees on or before Jan. 25 of the succeeding year. Failure to refund makes the employer liable to a penalty equal to the amount which was not refunded to the employee.
The employers, through the Certificate of Compensation Payment/Tax Withheld (BIR Form 2316) submitted by their newly hired employees, are required to consolidate the income from the previous employment with the current earnings to accurately determine the tax due on the employee.
The issuance of BIR Form 2316 to all active employees, whether qualified for substituted filing or not, should be done on or before Jan. 31. In the case of terminated employees, the form must be issued by the employer not later than the payment of the employee’s final pay. It should be noted that the BIR issued a revised BIR Form 2316 following the amendments under the TRAIN Law deleting the requirement to disclose qualified dependents and tax exemption status. The new form also allows the use of any valid identification (ID) of the employee instead of the Community Tax Certificate (CTC) under the conforme section.
Similar to BIR Form 1604-F, the BIR also extended the submission of the Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604-C) and the Alphabetical List of Employees under RMC 124-2019. From Jan. 31, which previously coincided with the release of BIR Form 2316 to all active employees, the deadline has been moved to Feb. 28, for the taxable year 2019. Concerning the new Alphabetical List of Employees, the BIR has simplified the format into two schedules, which are “Alphalist of Employees” (Schedule 1) and “Alphalist of Minimum Wage Earners” (Schedule 2). The new format requires classification of the employee’s status as (1) Regular; (2) Casual; (3) Contractual/Project-Based; (4) Seasonal; (5) Probationary; or (6) Apprentices/Learners.
As to the filing and payment of the taxes withheld for December through BIR Form 1601-C, payment must be made on or before Jan. 15 for manual filers. For those using eFPS, electronic filing will be done based on the taxpayer’s industry classification following the schedule outlined in RR No. 26-2002. The remittance must be made on or before Jan. 20.
The BIR requires submission of the signed duplicate original copies of BIR Form 2316 for those employees covered by substituted filing on or before Feb. 28, with accompanying Certified List of Employees Qualified for Substituted Filing of Income Tax Return (ITR), reflecting the amount of income payment, tax due and tax withheld.
It is important to note that the list of year-end tax and payroll compliance requirements discussed above is not comprehensive. Other reportorial requirements include Submission of Annual Income Tax Returns, and Audited Financial Statements to the Bureau of Internal Revenue and Securities and Exchange Commission, among others.
And while most of us have already made vacation plans, we accountants need to plan in time for us to wrap up the year and end it right.
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.
Marvin L. Madrigalejo is a Senior Manager with the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.
+63 (2) 8845-2728