What is a tax refund? How will you know if you’re eligible for a tax refund? Will the new tax rates affect the refund we’ll be getting this year? These are some of the searing questions that we will answer in this post.
What is a tax refund?
Tax refunds are excess payments that a person has remitted to the government. For your usual employees, the annual tax refund is the excess tax withheld from your annual gross income by your employer.
Although employed people may receive a tax refund, the eligibility for tax refund will largely depend on whether or not your employer withheld too much from your salary. Usually, there are two main reasons why there was a discrepancy between your supposed withholding tax and the actual tax withheld, and they are:
- You moved to a new company and your new employer taxed you a little too much.
- You changed your tax status, e.g. having a new dependent added under your name, in the middle of a calendar year.
How does one compute for annual income tax?
Usually, the employer acts as the withholding agent that collects the tax on behalf of the government. The taxes collected from the employees based on their salary are called withholding tax. The amount collected from each employer is based on the person’s taxable income, as prescribed by the National Internal Revenue Code.
To get your taxable income, you can use the following formula:
Taxable income = (monthly basic pay + overtime pay + holiday pay + night differential) – (SSS/PhilHealth/Pag-IBIG member contributions – tardiness – absences)
With the amendment of the tax code under the Tax Reform Acceleration and Inclusion Act (TRAIN), the exemptions for individuals such as people with dependents have been removed. Before the effectivity of TRAIN, everyone (whether you’re single or married) had an annual tax exemption of P50,000 with each dependent slashing off P25,000 from a person’s annual taxable income. However, for the tax refund that’s due to be returned this January, we still must use the pre-TRAIN formula.
Once the taxable income has been determined, the income tax will be determined using the following table. To find out if the government owes you some tax refund or you still have to pay a deficit to the BIR, you can compare your taxable income and the withholding tax using the previously used tax schedule.
If there is a discrepancy between your supposed withholding tax and the tax withheld by your employer, then you should find out whether or not you are due for a tax refund. If the tax withheld is higher than the supposed withholding tax for your income, then you’re set to have a tax refund. If not, then you still owe the government some tax.
If the government finds out that your employer deducted too much from your salary, then your tax return must be returned on or before January 25. If an employer refuses to refund the excess tax withheld from the employees, the said employer shall be penalized by the BIR. The amount of the penalty shall be equal to the amount failed to be returned to the employees.
Sources: Primer, Rappler, The Philippine Star, Business Tips.ph