Three years ago, we discussed the basic information about BIR Form 2316 and what it means if you are issued this form. We also put up an FAQ for you last year. This year, we are putting this updated guide for employees based on the most common inquiries we have received.
If you are an employer seeking assistance on how to fill out Form 2316, jump over to this article. Otherwise, if you are an employee with questions about 2316, check the FAQs below.
What is BIR Form 2316 and why is this important?
This form contains your income and the corresponding taxes that your employer withheld from you during the year. The form serves as a proof that (1) you have earned an income; (2) taxes are withheld from the said income during the year.
In the absence of other documents showing your financial capacity, this certificate can be used as a financial document you can give to third parties to establish your financial credibility.
How often should I receive this form?
You will receive one 2316 per employer. If you switched jobs during the year, you will have a 2316 from each employer. It is important that you always secure the 2316 from your previous employer(s) as your current employer will require this document to be able to file your income tax return on your behalf.
What is substituted filing and when am I qualified for it?
A substituted filing is an arrangement where your current employer will file your tax return on your behalf. If you are qualified for this, you do not need to do anything with your 2018 taxes as your employer will sort it out for you. You are qualified for substituted filing if you are under either of the following circumstances:
- If your current employer is your only employer during the year;
- If you have provided your current employer with the 2316 from your previous employers in 2018.
What will happen if I did not or cannot submit (for whatever reason) Form 2316 from my previous employer in 2018?
Every employer treats this situation differently. The most common route a current employer would take is to calculate your taxes as if it is your only employer on record. As a consequence, you will not be qualified under substituted filing and will have to file your own income tax return on or before April 15, 2019.
I do not qualify for substituted filing. What will happen if I decided not to file my income tax return since my employer(s) already withheld taxes from my income anyway?
Withholding of taxes is not equivalent to tax filing. The law requires all registered taxpayers (that includes you as an employee) to file their taxes on or before April 15th of the year following the close of the previous calendar year. You may run into problems later on if you fail to file your own taxes. The risk of this happening though is small but the risk exists regardless.
I am a minimum wage earner and my income is not subject to income taxes. Do I still get BIR Form 2316?
Yes, you will still get the certificate as it is a document that shows your compensation regardless of whether or not it is subject to income taxes as required by law.
Why do I get a tax refund if I resign from my job during the year?
While you are employed, your withholding tax is based on the assumption that you are going to be earning the same amount of money for the whole year. But when you resign before the end of the year, your previous employer will compute your last pay as if that is your only income for the entire year. This often results in a tax liability that is lower than the total amount of taxes already withheld from you and will result in a tax refund added to your last pay.
Why is it that I get a tax refund from my previous employer only to be informed by my current employer I have a tax payable?
The tax payable arises from two facts: (1) that the income tax is based on a graduated rate and (2) the fact that your previous employer gave you a tax refund under an assumption that you will not be earning any other income for the remainder of the year.
Graduated rate means that as your income goes up, your tax rate increases (see table below).
And because your previous employer cannot see the future, it will always calculate your tax due as if you will not receive any additional income during the year (yes, even if you resigned in February).
So when the opposite happens, your new employer will take into consideration your income from previous employment and your tax liability will be based on your total income for the year.
There you go. These are the answers to your most common questions. If you have other concerns not discussed here, send us a note and we will have one of our tax accountants take care of you.