Question & AnswerQ&A (BIR MEMORANDUM CIRCULAR NO. 01-2003)
Substituted Filing is when the employer's Annual Information Return (BIR Form 1604CF) is considered as the "substitute" Income Tax Return (BIR Form 1700) of an employee because it contains the same information as the employee's income tax return.
Qualified individuals are those who receive purely compensation income from one employer only in the Philippines, have taxes withheld that equal the tax due, and whose spouse also meets these conditions, with the employer duly filing BIR Form 1604-CF and issuing BIR Form 2316 to the employee.
Individuals with compensation income from multiple employers, incorrect tax withholding, those with monthly gross compensation below P5,000 who opted for non-withholding, those with non-business/non-professional income besides compensation, and non-resident aliens are disqualified from substituted filing.
Substituted Filing requires the employer's annual return to substitute the employee's income tax return, while Non-Filing applies to individuals legally exempted from filing income tax returns, such as employees earning under P60,000 with correct withholding and only one employer.
BIR Form 2316 is a Certificate of Compensation Payment/Tax Withheld issued by the employer that acts as proof of income and tax withheld. For qualified substituted filing taxpayers, it serves the same purpose as if the employee had filed BIR Form 1700.
The employer certifies that the information in BIR Form 2316 matches BIR Form 1604CF, including employee and employer details and tax withheld, and that the annual return was filed. The employee certifies they qualify for substituted filing, have the required income and tax withheld conditions, and that the form substitutes for the income tax return.
No, notarization of BIR Form 2316 is not necessary for employees qualified for substituted filing.
No, for taxable year 2002 and onwards, substituted filing is mandatory for qualified employees, and filing BIR Form 1700 is no longer allowed.
Substituted filing provides a hassle-free way for employees to fulfill their tax filing obligations without personally filing a tax return, as the employer’s return substitutes for it. It reduces paperwork and expedites tax compliance for qualified employees.