At the end of the year, the tax withheld from each employee must match the tax due on their whole year's pay. Sahora does this "annualization" in each pay group's last payroll of December. This guide explains what changes in that payroll, how refunds and shortfalls are handled, and what Sahora settles in January.
Before you start
- Enter each employee's earlier pay this year: pay from a previous employer (from their 2316) or your company's own payroll before Sahora. Use Previous employer and earlier pay this year on the employee's page, then Add record (see Moving to Sahora mid-year). Without it, the year's tax comes out wrong.
- Approve the year's earlier payrolls of the pay group. Sahora won't compute a payroll while an earlier period of the pay group this year is still open.
- Pay the 13th month pay (see 13th month pay). Once the year's 13th month pay and other benefits pass ₱90,000, the excess is taxable and counts in the annualization.
Which payroll is the year-end payroll
It is the pay group's last payroll of the year with a December pay date. If your second December cut-off is paid in January, the year-end payroll is the one paid in December. It applies whatever withholding tax method your company uses.
When you open that period's payroll, you see a "Year-end payroll" note at the top. Check the withholding tax column before you submit.
What Sahora computes
For each employee in the year-end payroll:
- It adds up the year's taxable pay: earlier payrolls this year, the earlier pay you entered, and this payroll.
- It applies the annual tax table in force to that total.
- It subtracts the tax already withheld this year, including by a previous employer.
What is left is the tax on this payslip. The payslip line shows the computation. For the tax tables, see the cost calculator and Statutory updates.
If too much tax was withheld
The difference is refunded on the year-end payslip as "Withholding tax refund (year-end)", a negative tax line that adds to net pay. The employee's row is marked "Tax refunded".
The month's 1601-C shows the tax net of refunds. If the refunds are larger than the month's tax withheld, the 1601-C page tells you so (see BIR Form 1601-C).
If too little tax was withheld
Sahora withholds what the pay allows without going below your company's Minimum net pay, and marks the row "Tax carried forward". The rest is withheld in the pay group's first payroll of January, as "Withholding tax still due" for the past year. It is remitted with January's 1601-C and doesn't count as tax withheld for the new year.
What is settled in January
In the pay group's first payroll of January, Sahora also settles last year's 13th month pay. It works out the year's actual 13th month from the basic salary on last year's approved payrolls and earlier pay records, then compares it with what was given:
- If less was given, the difference is added as "13th month pay adjustment".
- If more was given, the difference is deducted as "13th month overpaid".
This happens only when 13th month pay was given last year.
Until every one of last year's payrolls of the pay group is approved, nothing is settled and the employees are marked "Last year not settled". Approve them, then compute the January payroll again.
Good to know
- Employees who leave during the year are annualized in their final pay instead (see When an employee leaves).
- After the year-end payroll, check the 2316s for notes such as tax still due (see BIR Form 2316).
- A correction after the year-end payroll is approved goes through an adjustment run (see Adjustment runs and back pay).