When it’s year-end period, most employees start anticipating their tax refund (if any) as a welcome tiny sum to boost their budget a bit. So this time of year, they refresh their taxation skills with a Philippine tax refund guide. And foreign nationals working here may also want to take a peek inside an expats’ guide to tax refund in the Philippines, see what’s in it for them.
So, first things first—what’s a tax refund? It is excess amount from the tax you paid based on your annual gross income. As simple as that. But much as we want, not all people receive tax refunds. It depends on certain factors, as follows:
- You’ve been hired less than a year in the company you work for and chances are you’ve been taxed a bit too much.
- Then you decided to have a “dependent” within the calendar year and you filed for a tax status change.
If these two things happened to you, you may be up for a refund. It’s always worth the time to consult a Philippine tax refund guide.
Why the Excess Tax?
For some reasons, your company charged you too much for taxes without meaning to. Sometimes it’s due to human error, especially if there are too many employees that your accounting department has to handle. No matter how careful and thorough accountants are, sometimes it happens. Accountants are only human.
Or, you did the computation yourself (if you’re self-employed) and came up with the wrong figures. One common mistake is using the wrong or an obsolete BIR tax table. To have fewer worries, it pays to have a Philippine tax refund guide handy around.
But don’t worry, the Bureau of Internal Revenue (BIR) will take care of the miscalculations for you. If you did pay too much tax they’ll issue you a refund notice later. But tax refunds are a bit rare. So don’t count much on it.
How Do We Get Tax Refunds?
You don’t need to go to the BIR to follow up on this. If you are entitled to a refund, BIR sends a notice either to your company or directly to your home address if you are self-employed (in which case you can hire a certified accountant just for this purpose and let him or her do it for you).
If you are employed, your employer pays you back the excess tax on or before January 25. So, you can set aside your worries about excess tax and refunds and focus on your work.
But if it really bothers you lots and even causes sleep loss, here’s a basic tax refund formula you can follow:
Salary + OT + 13th month + tax benefits – contributions = Total Taxable Compensation
It’s not much but you can use it to get an idea how much you should pay. To understand it better, OT stands for Overtime pay and “contributions” are your SSS, Philhealth and Pagibig contributions plus nontaxable allowances (if any) all summed up together.
Then, from the Total Taxable Compensation, subtract your exemptions (if any), like if you are:
- Single and without legitimate dependents (minus P50K)
- Head of the family (minus P50K)
- Married (minus P50K) claimed by either (not both) husband or wife.
- Added exemptions (minus P50K) for each of 4 qualified dependents:
- Claimed by either (not both) the husband or wife.
- If single and considered head of the family with legitimate dependents.
- Spouse in whose custody is/are a child/children not exceeding 4 kids.
Once the Taxable Compensation has been netted out, refer to the table below for how much you ought to have been taxed according to BIR computations:
Tax table above based on BIR 2018 data.
See where your Taxable Compensation falls under. Just follow the headings of the columns. You will easily see if you were taxed too much or just right, if you can expect a refund or not.
If you’re single without dependents and you have the following annual pay:
- Basic monthly pay: P15K (X 12 months) = P180K annual pay
- SSS/Pagibig/Philhealth monthly contributions: P800 (X 12 months) = P9,600
- 13th month salary: P15K
- Withholding tax (for months January to December of previous year):
- P1,500 (X 12 months) = P18K
Get the Total Taxable Compensation:
- P180K – P9,600 = P170,400
- P170,400 – P50K (being single) = P120,400
From the BIR Tax Table, your Total Taxable Compensation or income (P120,400) falls under the “P250K and below” bracket. You should pay zero percent or none. So, if you paid some amount when you should’ve paid nothing, whatever amount you paid will be your tax refund.
Sometimes taxation may change by legislation and may include new taxes. When government needs added funds to run its operations or finance certain budgets, they add other tax burdens. It may affect how taxable compensation is computed. So be updated with taxation with a reliable Philippine tax refund guide, especially expats’ guide to tax refund in the Philippines for foreign nationals.