Year-End Adjustment Requirement
- On or before the end of the calendar year but before paying the last payroll, employers must determine the total tax due for each employee based on the taxable compensation for the entire year.
- The difference between the total tax due and the amount already withheld must be either withheld from the final salary payment or refunded to the employee by January 25 of the following year.
- Section 2.79(B)(5)(b) of Revenue Regulations (RR) No. 2-98 (as amended) provides an illustrative example on the year-end adjustment.
Violations Related to Withholding Tax on Compensation
- Non-withholding: Failure to withhold any withholding tax from an employee’s taxable income.
- Underwithholding: Withholding an amount less than the correct tax due for the taxable year.
- Non-remittance: Failure to remit the total amount withheld.
- Underremittance: Remitting an amount less than what was actually withheld.
- Late remittance: Remitting the correct amount after the prescribed deadline.
- Failure to refund excess withholding tax: Not refunding the amount withheld in excess to employees.
Penalties for Noncompliance with Withholding Tax Obligations
Additions to the Tax (Tax Code, Title X, Chapter 1)
- Section 248: 25% penalty for failure to file return and pay tax on time; increased to 50% for willful neglect or fraudulent return.
- Section 249: 20% per annum interest on unpaid taxes from due date until full payment.
- Section 251: Penalty equal to the total amount of tax not withheld, not accounted for, or not remitted for willful failure.
- Section 252: Penalty equal to the total amount of excess taxes not refunded to employees.
Criminal Liabilities (Tax Code, Title X, Chapters II, III & IV)
- Section 255: Fine of at least ₱10,000 and imprisonment from 1 to 10 years for willful failure to pay, file return, keep records, provide accurate information, or remit/ refund taxes.
- Section 256: Corporations face fines from ₱50,000 to ₱100,000 for each penalized act or omission; responsible officers, partners, or employees are also penalized.
- Section 272: Public officers accountable for withholding and remittance failures face fines of ₱5,000 to ₱50,000, imprisonment of 6 months to 2 years, or both.
- Section 275: For violations without specific penalties, fines up to ₱1,000 or imprisonment up to 6 months, or both, may be imposed.
Compromise Penalties
- Pursuant to Revenue Memorandum Order No. 19-2007, in certain cases, compromise penalties may be imposed instead of criminal prosecution.