There are inevitable events that take place in life such as death and taxes. There’s no escaping them. Another one that falls into this category is retirement because you’ll have to face this at some point. When you reach a certain age, tax services in Manila note that some companies impose a mandatory retirement. Some describe this as a period of your life where you get to enjoy the fruits of your hard work and sacrifices. That will certainly be your future if you have your retirement planned properly.
When you plan your retirement well, you’ll have an opportunity to learn and experience some kind of financial security even when you no longer have a fixed income coming from work. That’s why developing a good retirement plan will be very beneficial for you in the future. Learn more about retirement and what it means for you in terms of tax dues. Because retirement doesn’t mean you are no longer exempt from obligations.
Retirement Plan
It is part of a compensation package that employers provide to their employees. All accounting services in the Philippines concur that having this retirement plan will provide employees with the financial security they need. A retirement plan will contain the individual’s income goals, investments actions, benefits, and requirements.
Types of Retirement Plans
1. Fixed or Defined Benefit Plan
In a fixed or defined retirement plan, the contributions will solely be shouldered by the institution for the benefit of all employees. It is fixed, definite, and specific. This retirement plan is expressed as the number of months per year. It is a fixed, specific, and definite retirement plan. It is usually expressed as the number of months per year of service and based on the employee’s salary history. The contributions for the funds are shouldered by the institution for the employees’ benefit.
- Defined Contribution (a.k.a. Provident Plan)
The primary contributor to the retirement fund is the employee and the employer has the choice to match the contributions of the employee. This retirement plan benefit depends on how much the contributions and the income for this fund is. The retirement benefit of the employee will depend on how many contributions were made. If there is any income of the fund, it is based on the contribution of the participant plus or minus the expense, investment income or loss, and forfeitures the account is associated with.
Benefits of Setting Up a Retirement Fund
For Employees, setting up a retirement fund will serve as financial support after employment or after death, sickness, and disability. It promotes wealth accumulation through tax savings. It also provides a financial cushion in the event of a company’s redundancy or retrenchment.
For Employers, setting up a retirement fund will help improve their employees’ morale and improve and increase their productivity and loyalty. It will also help promote and keep the good image of the company and lastly, it will help reduce their tax burden since the contribution of the employer is tax-deductible.
RA 11494 or BARO Act (Bayanihan to Recover One Act)
RA 11494 is an act that helps mitigate economic loss and provides ways how to mitigate it. Expert tax and audit services in the Philippines share that one of the notable characteristics of this act is the expansion of the exemption of retirement benefits from your income tax. It is stated under section 5 of RA 11494 that the retirement benefits granted between the 5th of June and the 31st of December 2020 should be exempted from tax given that the employee in the same company within the 12-month time shall be considered as proof of non-retirement and shall subject the benefits received to appropriate taxes.
Even before RA 11494 was passed, the amended Tax Code already provided tax exemptions for retirement benefits following some conditions. One of these retirement benefits includes an individual who reaches 60 years old but not more than 65 years old and who has worked and served for at least five years will be tax-exempt.
With RA 11494, there is no age condition to meet or the number of years the individual needs to serve. That is why tax experts can say that there has been an expansion of the income tax exemption of retirement benefits. The BIR or Bureau of Internal Revenue issued an RMC or Revenue Memorandum Circular clarifying the details of this policy. They gave a statement that the retirement benefits that employees receive in accordance with the BIR-registered retirement plan are exempted from income tax even if the employee did not meet the length of service condition in the retirement benefits plan of the employee.
Are you planning for the retirement of your regular employees? Perhaps you’re also fixing to retire soon. Whatever the case may be, our team of tax and accounting services in Pasig are ready to help. We can iron out the details for you.
