Law Summary
Distinction Between Substituted Filing and Non-Filing
- Substituted Filing obligates employees to file income tax returns, but the employer’s filed return substitutes for the employee.
- Non-Filing applies to taxpayers legally exempt from filing, e.g., employees earning pure compensation income not exceeding P60,000 with correct withholding tax and one employer.
Qualifications for Substituted Filing
- Employee must have purely compensation income from only one employer during the taxable year.
- Tax due equals the tax withheld by the employer.
- The spouse, if married, must also meet these conditions.
- Employer must file BIR Form 1604CF and issue BIR Form 2316 to the employee.
Disqualifications for Substituted Filing
- Employees with compensation from multiple employers in the year.
- Employees with incorrect tax withholding, resulting in collectible or refundable tax.
- Employees earning monthly gross compensation less than P5,000 or the statutory minimum wage opting for non-withholding.
- Employees with other non-business, non-professional income besides compensation not subject to final tax.
- Employees whose spouse does not qualify for substituted filing.
- Non-resident aliens engaged in trade or business in the Philippines.
Issuance and Use of BIR Form 2316
- BIR Form 2316 is a certificate issued by the employer, signed by both employer and employee.
- It replaces the need to file BIR Form 1700 for qualified employees.
- Issued on or before January 31 of the year following the taxable year or upon termination of employment.
Contents of BIR Form 2316
- Part I: Employee Information.
- Part II: Present Employer Information.
- Part III: Previous Employer Information (if applicable).
- Part IV: Details of Compensation Income and Tax Withheld.
- Two signature boxes: one for employer certification, the other for substituted filing certification by both employer and employee.
Certifications in the Substituted Filing Signature Box
- Employer certifies the accuracy and consistency of information with filed returns and that BIR Form 1604CF has been filed.
- Employee certifies qualification for substituted filing and that BIR Form 1604CF filed by employer constitutes their income tax return.
Proof of Income for Government and Private Agencies
- BIR Form 2316 suffices as proof of income earnings, replacing BIR Form 1700 for qualified individuals.
Valid Uses of BIR Form 2316
- Proof of financial capacity for loans or credit applications.
- Proof of tax payment or tax credit.
- Securing travel permits and exemptions.
- Other official and private purposes requiring proof of income.
Implementation and Mandatory Compliance
- Substituted filing was voluntary for taxable year 2001.
- Became mandatory from taxable year 2002 onward for qualified employees.
Handling of BIR Form 2316 by Employees
- Employees with prior employment in the taxable year must submit previous BIR Form 2316 to the current employer for consolidation.
- Qualified employees sign the substituted filing section; copies retained by both employer and employee.
- Unqualified employees must file their own Income Tax Returns (BIR Form 1700 or 1701) attaching BIR Form 2316.
Notarization and Filing Restrictions
- No notarization required for BIR Form 2316 under substituted filing.
- Employees qualified for substituted filing cannot voluntarily file BIR Form 1700 from taxable year 2002 onwards.