Tax Annualization

What is Tax Annualization?

Taxes are withheld from employees on a monthly basis using a tax computation table. The same concept happens during annualization, except that the process is done on a bigger scale.

What happens is that all the monthly taxes withheld from the employee are added together to come up with the total tax amount withheld for the year. In the meantime, the total tax due of the employee for the year is determined based on the bonuses and allowances given to him.

There are now two amounts (the total monthly taxes withheld and the total tax due), which are then compared. Ideally, the two amounts should match and be equal. However, in most cases they don’t.

In some instances, the total tax withheld is less than the required from the employee. If this is the case, then the employee will be charged an additional tax due.

In other instances, the total tax withheld is more than the employee’s tax due for the year. In this case, the employee will receive the excess tax paid in the form of a refund.

Annualization involves a lot of computation and looking into the employee’s records in order to do the process correctly. Efficient record-keeping, as well as computing accuracy and speed, are needed in order to do the job well and on time. Each employee's case of tax annualization is different so it won't help to compare notes with your co-workers (if you know what we're talking about!) Your payslips, as well as your BIR 2316 (to be distributed in January of the following year) shall bear all the details you need to know about how your taxes were computed for the year.

What is the BIR Form 2316?

Also known as the Certificate of Compensation Payment or Income Tax Withheld, this form reflects the tax withheld from an employee by his employer during a given calendar year. This form will show the total income received by the employee for a certain year, and the total amount of tax withheld from the employee.

The Form 2316 looks like this:

What is it for and who needs to file it?

This form is a certificate that must be accomplished and issued yearly by the Employer to each employee whose income is subjected to final tax declaration. The employer must indicate the total amount that was paid to the employee and the corresponding taxes withheld during the calendar year.

Should you have no other income from other employers, there will be no need for you to file an income tax return. The BIR Form 2316 is enough proof that your income has already been subjected to income tax. This is called substituted filing, wherein the employer files the income tax returns for the employee.

Who is qualified under substituted filing?

Substituted filing applies only to individuals who meet all the following conditions:
The employee receives purely compensation income (regardless of amount) during the taxable year.
The employee receives the income only from ONE EMPLOYER during the taxable year
The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer.
The employee’s spouse also complies with all three (3) conditions stated above.
The employer issues BIR Form 2316 to each employee

Who is NOT qualified for substituted filing?

Individuals deriving compensation income from TWO or MORE employers concurrently or successively at any time during the taxable year and submitted 2316 from previous employer to CURRENT employer.
Employees deriving compensation income, regardless of amount whether from a single or several employers during the calendar year, the income tax of which has not been correctly withheld (i.e., the tax due is not equal to the tax withheld) resulting to a collectible or refundable return.
Individuals deriving other non-business, non-profession-related income in addition to compensation income and otherwise not subject to final tax.
Individuals deriving purely compensation income from a single employer although the income tax of which has been correctly subjected to withholding tax, but whose spouse is not entitled to the substituted filing.
Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income and other business or profession-related income.

FAQs: BIR 2316

Slack Announcement last Feb 28, 2023

Hey Xers! @here

We would like to inform you that the digital copy of your 2022 BIR Form 2316 (Certificate of Compensation Payment or Income Tax) is now available for viewing and downloading in your Dorado Online Account.

Please note we are still following the RMC No. 18-2021, stating that Form No. 2316 without the signature of the concerned employee shall be accepted by the BIR, provided that the certificates are duly signed by the authorized representative of the taxpayer-employer. Hence, employees are NOT required to send back a signed BIR Form 2316 to us.

Please see below FAQs to know more about BIR 2316.

For any queries, feel free to slack dm @Gian Guardiana or Sir @John Rey.

2022 FAQs Submission of BIR 2316.pdf

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