The Bureau of Internal Revenue, in its mission of providing an efficient and convenient service to its taxpayers, is implementing a "hassle-free" method of filing Income Tax Return for Individuals Earning Compensation Income (BIR Form No. 1700). This method of filing recognizes under certain conditions, the employer’s Annual Information Return (BIR Form no. 1604-CF) as the "substitute" income tax return filed by an employee since it contains the same information as that found in the income tax return ordinarily filed.
|What is "Substituted Filing"?|
|How is "Substituted Filing " different from "Non-filing"?|
|Who are qualified and under what conditions will substituted filing of BIR Form No. 1700 apply?|
|Who are not qualified for substituted filing of BIR Form No. 1700?|
|What will be presented in case an ITR is required?|
|What is contained in BIR Form 2316 Certificate (July 2008 ENCS)?|
|What is the use of the BIR Form No. 2316?|
|When does substituted filing take effect?|
|Can an employee file an ITR (BIR Form No. 1700) even if he is qualified for substituted filing?|
|What is the certificate to be furnished to employees having compensation income?|
|What is the Certificate of Compensation Payment/Tax Withheld – Substituted Filing (BIR Form No. 2316)?|
|Is the Community Tax Certificate # still required under Substituted Filing?|
Substituted Filing is when the employer’s annual information return (BIR Form No. 1604-CF) may be considered as the "substitute" Income Tax Return (ITR) of the employee inasmuch as the information provided in his income tax return (BIR Form No. 1700) would exactly be the same information contained in the employer’s annual information return (BIR Form No. 1604-CF)
Under "substituted filing", an individual taxpayer although required under the law to file his income tax return, will no longer have to personally file his income tax return but instead the employer’s annual information return filed will be considered as the "substitute" income tax return of the employee in as much as the information in the employer’s return is exactly the same information contained in the employee’s return.
"Non-filing" is applicable to certain types of individual taxpayers who are not required under the law to file an income tax return. Example of such are Minimum Wage Earners.
Substituted filing applies only if all the following circumstances are present:
a. The employee receives purely compensation income (regardless of amount) during the taxable year
b. The employee receives the income only from one employer in the Philippines during the taxable year
c. The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer
d. The employee’s spouse also complies with all the three (3) conditions stated above.
e. The employer files the annual information return (BIR Form No. 1604-CF)
f. The employer issues BIR Form No. 2316 (July 2008 ENCS) version to each employee
The following individuals are not qualified for substituted filing:
a. Individuals deriving compensation income from two or more employers, concurrently or successively at anytime during the taxable year.
b. Employees deriving compensation income, regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e., tax due is not equal to the tax withheld) resulting to collectible or refundable return
c. Individuals deriving other non-business, non-profession-related income in addition to compensation income not otherwise subject to a final tax.
d. Individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing
e. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income and other business or profession related income.
BIR Form 2316 (July 2008 ENCS version) is a sworn statement signed by both the employee and employer and serves the same purpose as if BIR No. 1700 had been filed. This, however, is not to be submitted/filed with the BIR.
Basically, the certification contains the following:
· The employee’s consent that BIR Form No. 1604-CF may be considered his substitute return and in lieu of BIR Form No. 1700, which the employee no longer files
· The employer’s certification that he has reported the employee’s income and remitted its corresponding income tax with the BIR as indicated in BIR Form No. 1604-CF
The BIR Form 2316 (July 2008 ENCS version) can be used for the following purposes:
· As proof of financial capacity for purposes of loan, credit card, or other applications;
· As proof of payment of tax or for availing tax credit in the employee’s home country;
· In securing travel permits and travel tax exemptions when necessary; and
· For other purposes to meet the requirements of various government/private agencies.
It already took effect for taxable year 2001 and is made mandatory under Revenue Regulations 3-2002 for income/compensation earned starting taxable year 2002. Thus employees who qualify for substituted filing for taxable year 2002 and beyond will no longer file BIR Form 1700 on or before every 15th of April.
For taxable year 2002 and beyond, substituted filing is already mandatory for qualified employees. Filing of ITR is no longer needed. However, BIR Form No. 2316 (July 2008 ENCS) must be duly signed under penalty or perjury by the employer and employee as proof for filing income tax return.
Employer’s Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316 July 2008 ENCS) is the certificate to be issued to employees having compensation income.
The certificate of Compensation Payment/Tax Withheld – Substituted Filing (BIR Form No. 2316 July 2008 ENCS) shall include a certification to the effect that the employer’s filing of BIR Form No. 1604-CF shall be considered a substituted filing of the employee’s income tax return to the extent that the amount of compensation and tax withheld appearing in BIR Form No. 1604-CF as filed with BIR is consistent with the corresponding amounts indicated therein. It shall be signed under penalty of perjury by both the employee and employer attesting to the fact that the information stated therein has been verified and is true and correct to the best of their knowledge.
The new Employer’s Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316 July 2008 ENCS) contains the information found in the old BIR form 2316 and BIR Form 1700. Thus the detail of the employee’s Community Tax Certificate for the current year is still required.