Understanding Salary Withholding Tax: What Is It and How Should Entrepreneurs Manage It?
Salary withholding tax is the tax that an employer remits to the Revenue Department after paying a salary to an employee. The employer will issue a 50 Tawi certificate as evidence of tax remittance.
As an employer or HR professional, what matters at the end of every month isn't just paying salaries on time, but also an unavoidable legal duty: deducting withholding tax from employee salaries to remit to the Revenue Department. If managed incorrectly, it could become a burden of fines and damage the business's reputation.
This article will take you through an in-depth understanding of what salary withholding tax is, summarizing everything employers need to know in one place.
Key Takeaways
- Companies or juristic persons have a legal duty to deduct withholding tax from salaries and other income of employees to remit to the Revenue Department.
- P.N.D. 1 is used for filing tax deduction details on a monthly basis, while P.N.D. 1 Kor is a summary of total income and tax for employees over the year.
- Correct deduction and filing help employees have evidence of income for financial transactions and allow them to claim tax refunds for excess tax as entitled.
- If tax is not remitted, employers face criminal liability, fines, and potential suspension of their VAT registration certificate, which severely affects business credibility.
Table of Contents
- Clearing Up Doubts: What Is Withholding Tax?
- Salary Withholding Tax: How Do P.N.D. 1 and P.N.D. 1 Kor Differ?
- Who Must Deduct Withholding Tax from Employee Salaries?
- Why Organizations Must Deduct Withholding Tax from Employee Salaries
- What Are the Impacts of Not Filing Salary Withholding Tax Forms P.N.D. 1 and P.N.D. 1 Kor?
- Frequently Asked Questions (FAQs)
- Salary Withholding Tax: Important Matters Office Workers Must Know!
Clearing Up Doubts: What Is Withholding Tax?
Salary withholding tax is the income tax that employers must remit to the Revenue Department after paying salaries to employees. Normally, income earners meeting the tax threshold must pay tax between January and March of every year. However, when tax is deducted from the salary, the income earner does not need to pay tax during that period because it is considered pre-paid. Consequently, when tax filing time comes, the income earner only files the tax return to claim a refund or pay additional tax if they have other income besides the salary only.
Learn more about what e-Receipt and e-Tax are here.
Salary Withholding Tax: How Do P.N.D. 1 and P.N.D. 1 Kor Differ?
Although P.N.D. 1 and P.N.D. 1 Kor are both forms for reporting salary withholding tax regarding employees, there are key differences employers should know, both in filing frequency and income types, as follows:
1. P.N.D. 1 (Monthly Filing)
P.N.D. 1 (Monthly Filing) is the tax return form that employers must file every month.
- What to specify: Details of salary payments, wages, and other income received by employees in that month.
- Duty of the employer: Calculate withholding tax on salary according to the progressive rate (or as required by law) and remit it to the Revenue Department by the 7th of the following month (or the 15th if filing via the internet).
2. P.N.D. 1 Kor (Annual Filing)
It is a summary of assessable income payments throughout the year, filed only once a year.
- What to specify: Summary of total income for each employee, such as salary, commissions, bonuses, and rewards, including the total accumulated withholding tax throughout the year.
- Duty of the employer: Compile all data previously filed in P.N.D. 1 throughout the year to summarize and submit again within February of the following year so the Revenue Department can verify employee income data completely.
Who Must Deduct Withholding Tax from Employee Salaries?
Those who have the duty to deduct withholding tax and file form P.N.D. 1 are employers who are juristic persons (e.g., companies or limited partnerships) with legal obligations to deduct tax when paying assessable income under Section 40 (1), such as salaries and bonuses.
This includes Section 40 (2), such as fees, brokerage fees, or compensation for work accepted. The employer must calculate and deduct tax from the amount paid to the employee according to specified criteria, along with filing the return and remitting the employee's salary withholding tax to the Revenue Department on a monthly basis within the period specified by law.
Why Organizations Must Deduct Withholding Tax from Employee Salaries
The reasons why organizations must deduct withholding tax from employee salaries are as follows:
1. It is a Legal Requirement
Companies or employers paying assessable income under Section 40 have the duty to issue a Withholding Tax Certificate (50 Tawi) to employees to prove that tax has been deducted from the salary, in accordance with Section 50 of the Revenue Code. If any company avoids remitting salary withholding tax for more than 2 consecutive years, the Revenue Department has the right to suspend the VAT registration certificate and may also proceed with criminal prosecution.
2. Protecting Tax Refund Rights for Employees
If an employee files a tax return to claim a withholding tax refund, but the employer has not filed the withholding tax return forms, known as P.N.D. 1 and P.N.D. 1 Kor, the employee will lose the right to claim a tax refund from their salary.
3. Maintaining Financial Credit
Image is crucial for businesses that are registered companies. If financial institutions discover that your company has a history of avoiding employee salary withholding tax remittance, it may make financial transactions and borrowing from financial institutions much more difficult.
What Are the Impacts of Not Filing Salary Withholding Tax Forms P.N.D. 1 and P.N.D. 1 Kor?
Neglecting the duty to file employee salary withholding tax returns as required by the Revenue Code not only results in lost tax benefits but also causes widespread negative impacts as follows:
1. Impact on the Employer (Juristic Person)
- Burden of fines: Must pay fines according to the law if filing is late or omitted.
- Risk to Tax Registration (Por.Por. 20): If intentionally not filing P.N.D. 1 Kor for 2 consecutive years, the Revenue Department may suspend the VAT registration certificate, directly affecting business operations and tax invoice issuance.
- Business credibility: Affects image and credit applications with financial institutions due to a lack of evidence of transparent tax management.
- Legal risk: If there is fraudulent intent or intentional avoidance of filing, criminal prosecution may occur according to the law.
2. Impact on the Employee (Staff)
- Loss of tax benefits: Employees may not be able to use tax deductions or claim refunds because there is no database confirming tax deduction in the Revenue Department's system.
- Difficulty in transactions: Employees may have problems getting loan or credit card approvals because they lack credible income and tax documentation.
3. Impact on the Public and Economic System
- Reduced state revenue: Causes the state to lose revenue used for national development and budget administration.
- Business inequality: Creates an underground economy and unfair competition for businesses that perform their legal duties correctly.
Frequently Asked Questions (FAQs)
What salary amount is exempt from withholding tax?
If monthly income is lower than 26,583 Baht, withholding tax will not be deducted from the salary.
When must employers file employee salary withholding tax?
Employers must file P.N.D. 1 monthly by the 7th (or the 15th if filing online) of the following month, and file the P.N.D. 1 Kor summary annually by the end of February of the following year.
Salary Withholding Tax: Important Matters Office Workers Must Know
Salary withholding tax is considered a legal duty that juristic person employers must manage correctly by calculating tax deductions from employee income to remit to the Revenue Department via P.N.D. 1 for monthly filing and P.N.D. 1 Kor for the annual summary. Correct execution not only helps maintain the organization's credibility and avoid civil penalties or criminal cases but also protects employees' benefits, both in claiming tax refunds and serving as important evidence for smooth financial transactions.
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References
1. “Simple Guide to Withholding Tax.” n.d. https://www.rd.go.th/fileadmin/download/insight_pasi/RDHandBook.pdf
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