Income Tax Refund

Income Tax Refund

Income tax refund refers to the return of the excess withholding tax that the employer withheld from the employee. The employer is also authorized to withhold any shortfall income tax from the employee’s salary in December in the current year to be remitted to BIR.

At the end of the calendar year but prior to the payment of the compensation for the last payroll period, the employer shall perform a reconciliation process also known as annualization to determine each employee’s income tax based on the employee’s actual annual compensation.

The employer shall then withhold the shortfall or refund the excess through the employee’s salary in December of the current calendar year, not later than January 25 of the succeeding year. Separated employees shall have the shortfall withheld or excess refund to them in their final pay.

Notes: To finish this task, you may start annualization earlier than December to make sure that there is no big differences between withheld/remitted amount and actual income tax. On December's payroll, you should make it zero difference. Means, exact income tax is with held. 

Non-Taxable Income

According to Republic Act No. 10653, 13th-month pay, productivity incentives, Christmas bonus and other benefits shall not be included in gross income and shall be exempt from taxation. The total exclusion shall not exceed P82,000.

Notes: Effective 2018, this amount is increased to P90,000 per annum.

Notes: I believe it doesn't include regular monthly allowances. So, you may create an incentive system witch might fall under this cap. (90k - 13 month = maximum yearly incentive) 

Personal Exemption and Additional Exemption

An employee is entitled to P50,000 personal exemption to be deducted from the taxable gross income. The employee can also claim an additional of P25,000 tax exemption for each qualified dependent, up to a maximum of 4 qualified dependents.

Notes: Effective 2018, all personal exemptions are removed so there is no more personal exemptions.