The annualization of tax ensures that each employee’s total tax withheld aligns with the correct annual tax liability based on Bureau of Internal Revenue (BIR) regulations. This process reconciles the total taxes withheld throughout the year against the actual annual tax due.
The option to annualize tax becomes available on the last payroll run of the year, typically the second half or Period 2 of December for Semi-monthly paid employees or Period 4 of December for weekly paid employees. Only employees included in this payroll run will be annualized automatically.
Once the annualization is completed, you may refer to Column L of the Annualization Report, where the values should reflect zero, indicating that the employee’s tax obligations have been fully reconciled. If you encounter amounts under the Tax Payable or Tax Refund columns, this may indicate that certain employees were not included in the payroll run or that additional adjustments are required. For further guidance, you may refer to the related KB article: Why is there an amount under Tax Payable or Tax Refund Column of Annualization Report?
For resigned employees, it is important to ensure that their final pay is processed. Employees who were not included in the payroll run—such as those on maternity leave or those excluded from December Period 2 for other reasons—should have their tax reconciled through an Adjustment Run. This ensures that all employees, regardless of their employment status, are properly accounted for in the annualization process.
Lastly, to ensure accurate computation during annualization, it is also important that previous employer details (BIR 2316) and any payroll processed outside Sprout have already been uploaded into the system prior to running the annualization process. This helps guarantee that all income and withholding data for the year are properly accounted for.
Related KB Articles:
- Synced Accounts: How to Add Previous Employment Details in the Alphalist?
- How to Upload YTD using Adjustment Run
- Step-by-Step Guide to Completing a Year-To-Date Template
- Sprout Reminder: Year End Preparation
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