Year-End Reporting and Tax Annualization with HRIS

Businesses in the Philippines face the critical task of completing year-end reports and employee tax annualization as the fiscal year concludes. These processes are essential for ensuring compliance with the Bureau of Internal Revenue (BIR) regulations and maintaining employee trust. However, the complexity of regulations and tight deadlines can make them challenging.

To navigate these demands effectively, leveraging technology to automate year-end reporting and tax computations is a practical and efficient solution. By creating year-end reports and tax annualization with HRIS, organizations can streamline these processes, reduce errors, and ensure compliance with BIR regulations.

Understanding Tax Annualization

Tax annualization is the process of summarizing an employee’s total taxable and non-taxable income for the year to determine their final income tax liability. It is commonly done in December, which aligns with the calendar year’s end. This timing allows businesses to accurately compute final tax liabilities for employees, prepare necessary adjustments for the final payroll period, and ensure timely submission of annual reports to the BIR and other government agencies.

Tax annualization identifies whether an employee has a tax refund or an additional tax payable. Through this, companies are able to avoid the inconvenience of issuing refunds or imposing significant end-of-year deductions on employees. Typically, it is conducted during the following key events like:

End of the Year: Conducted after the final payroll of the calendar year to capture all earnings and deductions up to December 31.
Separation from Employment: When an employee leaves the company before year-end, HR must perform tax annualization. This is done to calculate their total tax liability based on earnings during their employment.
Special Circumstances: Late-year payouts, such as bonuses or other significant compensation, should be included in the annualization process to prevent tax discrepancies.

Year-End HR Report Checklist

In addition to tax annualization, HR departments are tasked with preparing and submitting critical reports that document employee compensation and tax details. Key reports include:

1. BIR Form 2316

The Certificate of Compensation Payment or Tax Withheld is an official document issued to employees, providing a detailed summary of their annual compensation and taxes withheld. This document is essential for employees when filing their annual income tax returns, as it serves as proof of income and tax payments. Furthermore, BIR Form 2316 ensures transparency in their financial obligations.

2. Alphalist of Employees

The Alphalist is attached to the BIR Form 1604-C. It is a report that provides the BIR with detailed information on employee compensation, benefits, and withholding tax throughout the year. The Alphalist also outlines each employee’s taxable and non-taxable income, encompassing exemptions and deductions.

3. BIR Form 1604-CF

Employers use this form, which is essential, to report the yearly compensation they pay their employees and the taxes that are withheld. This annual information return provides a detailed summary of employee income, tax deductions, and other relevant tax information. Additionally, the BIR Form 1604-CF serves as a record for both employers and employees, facilitating accurate tax filings and future reference.

4. BIR Form 1604-E

BIR Form 1604-E is a document that covers both final and expanded withholding taxes for the year. It ensures that all non-compensation-related taxes, including those outside regular payroll, are accurately documented and reported.

5. SSS, PhilHealth, and PAG-IBIG Contribution Reports

While these reports may not always be mandatory, employees have the right to request a record of their contributions. These documents detail both employer and employee contributions to government-mandated programs such as SSS, PhilHealth, and PAGIBIG. Maintaining accurate records of these contributions is essential for ensuring compliance with statutory requirements and safeguarding employee benefits.

How to Annualize Tax

Tax annualization requires attention to detail and a structured approach. Below are the steps explained in detail to ensure compliance and accuracy:

• Compile Income Data

Start by gathering all income earned by the employee throughout the year. This includes regular salaries, bonuses, allowances, and any additional compensation. It is essential to ensure the data is complete as well as accurate, reflecting all sources of income for proper computation.

• Deduct Non-Taxable Income

Identify and exclude non-taxable income items such as de minimis benefits, statutory contributions, and the 13th-month pay up to the allowable threshold. Proper classification of non-taxable components is also critical to avoid over-taxing employees and maintain compliance.

• Determine Taxable Income

Once non-taxable components are excluded, calculate the total taxable income. Sum up all income subject to tax after applicable deductions. Keep in mind that every deduction must align with current tax laws and regulations to avoid discrepancies.

• Apply Tax Table Rates

Refer to the latest income tax table provided by the BIR to compute the employee’s annual tax liability. The tax table includes various income brackets and their corresponding rates, which must be applied accurately based on the employee’s taxable income.

• Reconcile with Withheld Taxes

Compare the computed annual tax liability with the total amount of taxes already withheld during the year. This is to identify any discrepancies, such as overpayments or underpayments, and forms the basis for the necessary adjustments in the final payroll.

• Adjust Final Payroll

Make corrections in the final payroll to reflect any differences in taxes. If the employee has overpaid, issue a refund. On the other hand, if underpaid, deduct the remaining tax due from the final paycheck. This ensures that both the employer and employee meet their tax obligations.

• Generate Required Reports

Prepare all required reports, including BIR Form 1700/1701 and Form 2316. However, confirm first that these documents accurately reflect the computed figures and comply with submission deadlines.

• Distribute Tax Certificates

Provide employees with their BIR Form 2316 certificates promptly. This step is vital as these certificates serve as proof of income and taxes withheld, enabling employees to file their individual tax returns, if necessary.

Benefits of Tax Annualization with HRIS

Manual tax computation and reporting can be cumbersome and error prone. Thus, creating year-end reports and tax annualization with HRIS is essential for efficient computation because it automates data collection and calculations. Moreover, an HRIS can streamline payroll processes by providing accurate records of employee earnings and deductions throughout the year. Here are several benefits:

• Time Efficiency

An HRIS enhances efficiency by significantly reducing the administrative burden on HR teams, saving both time and resources. Through automation, data processing becomes faster compared to traditional manual methods. This allows quick and accurate computations. By streamlining year-end reports generation and tax annualization with HRIS, HR personnel are freed from repetitive administrative work. More importantly, this enables them to focus on more strategic initiatives that add greater value to the organization.

• Data Accuracy

Performing tax annualization with HRIS significantly improves the accuracy of computations by automating key processes and minimizing human error associated with manual data entry. This reduces the risk of miscalculations or oversight. Additionally, HRIS with cloud hosting provides a centralized hub for records to provide a single source of truth for employee data. Such ensures computations are always based on up-to-date and accurate information. This not only enhances efficiency but also promotes compliance and accuracy in tax reporting.

• Comprehensive Reports

An HRIS enhances comprehensive reporting by quickly and accurately generating all necessary reports. For those with advanced features in place, all calculations strictly comply with current BIR regulations. It can also provide real-time access to payroll data, empowering HR teams and management to make informed decisions efficiently. With its ability to produce detailed and compliant reports, having an HRIS for tax annualization simplifies year-end processes.

• Employee Self-Service

HRIS platforms often include self-service portals that allow employees to access their payroll information conveniently. This transparency empowers employees by giving them control over their personal data. Additionally, it fosters trust and confidence in the organization’s management of compensation and benefits.

How Hurey can help

Hurey offers comprehensive HRIS solutions designed specifically for managing payroll processes efficiently while ensuring compliance with Philippine labor laws and taxation requirements. These are how we can help:

• Automated Payroll Processing

Hurey streamlines payroll management by automating salary computations, tax deductions, and statutory contributions. Accordingly, HR teams can confidently deliver accurate payslips without delays or discrepancies.

• Compliance Updates

The HRIS simplifies compliance by tracking and incorporating updates to payroll-related laws and guidelines. This includes the amendments from the BIR and the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

• User-Friendly Interface

Hurey also has an intuitive interface that enables HR professionals to manage payroll functions efficiently, even without extensive technical expertise. Employees also benefit from a user-friendly self-service portal, where they can easily view and download payslips, tax certificates, and other payroll documents. This improves transparency as well as accessibility.

• Support Services

If any problem arises, Hurey has a 24/7 dedicated customer support to assist your queries. Whether it is a technical concern or a question about the updates, your organization can rely on our support team for prompt and accurate solutions. This ensures a seamless payroll experience and peace of mind for HR professionals as well as your employees.

Your Partner this Coming 2025

Year-end reporting and tax computation are crucial for ensuring compliance and maintaining trust within the organization. Implementing an HRIS like Hurey can significantly enhance efficiency, accuracy, and regulatory adherence. Simplify the complexities of year-end reporting and tax annualization with HRIS to enable your HR team to work seamlessly and stress-free.

With Hurey’s solutions, businesses can streamline year-end reporting while staying compliant with Philippine taxation laws. Empower your organization with a more organized, accurate, and efficient approach to payroll and tax management.

The most scalable HR and Payroll app in the Philippines