BIR Ruling [DA-237-96]

July 10, 1996 BIR RULING [DA-237-96] MEMORANDUM TO : The Regional Director Revenue Region No. 8 Makati City RE : Claims for refund of excess taxes withheld from individuals deriving purely compensation income This refers to the Regional Revenue Memorandum Order No. 4-96, you issued on June 17, 1996 to the Chiefs, Assessment, Finance and Legal Divisions, Revenue District Officers and others concerned, to hold in abeyance payment of the claims for refund of excess taxes withheld from individuals deriving purely compensation income until further instructions from this Office. It is your contention that since under Section 72(h) of the Tax Code, as amended by R.A. No. 7496 which took effect beginning calendar year 1992, the employer shall be the one to refund any excess tax withheld from purely compensation income of its employees, it is inconsistent with the said provision of law if the BIR shall make the refund to said employees. Relative thereto, Section 204 of the Tax Code, as amended specifically provides for the authority of the Commissioner to refund/credit excess taxes. The provision under Section 72(h) of the Tax Code, as amended, requiring the employer-withholding agent to make the refund of any excess tax withheld when it has determined the tax due from each employee after making the year-end adjustment on or before the end of the calendar year, is an exception to the general rule. Thus, the employer is allowed to make the refund of the excess tax withheld not later than January 25 of the succeeding year. The reason for prescribing this period within which to refund to the employee is, that while the taxes withheld during the last payroll period of the taxable year are still in the hands of the employer-withholding agent, the latter can refund any excess withholding tax to the employee and deduct the same from the total withholding taxes required to be remitted within twenty five (25) days from the close of the calendar quarter pursuant to Section 74 of the Tax Code, as amended. On the other hand, if the employer fails to make the refund to the employees concerned within the period prescribed for its payment, and has remitted to the Bureau the withholding taxes on wages of its employees, the employees have no other recourse but to claim a refund pursuant with Section 204 of the Tax Code, as amended, by filing an income tax return showing the excess tax withheld and/or paid. Said refundable returns are processed and verified by the Revenue District Office. Thereafter, said returns are forwarded to the Information Systems Operations Service (ISOS), for preparation of the payroll and issuance of the tax refund notice to individual refundees in accordance with existing rules and regulations. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue