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Do I Need to Declare Income Tax if My Employer Paid My Income Tax?

‘Income tax borne by employer’ is a form of income and is chargeable based on Section 13(1)(a) of the ITA 1967. This is because it is a form of monetary benefit arising from an employment. Let's have a look at an example that can help you understand why you have to declare it anyways.
Do I Need to Declare Income Tax if My Employer Paid My Income Tax?

Question:

Hi, I’m John. I’ve been working for EJN Holdings Bhd (EJN) for the last 10 years.

In 2017, I was its Senior Manager and have earned a fixed salary of RM 10,000 a month. In addition, I’d received a bonus of RM 20,000, which amounts to two months of my fixed salary.

On 1 April 2018, I was promoted to be EJN’s Vice President. From it, I was given a raise in fixed salary to RM 15,000 a month. Also, EJN, my employer, offered to pay for my income tax payments starting from year assessment of 2017. Hence, I did not pay a single cent in income tax for 2017. In the same year, I’d received a bonus of RM 30,000, which amounts to two months of my new fixed salary.

In 2018, I’d claimed the following tax reliefs for income tax declared for 2017:

– Personal Relief: RM 9,000.
– EPF and Life Insurance Premium: RM 6,000.
– Insurance Premium on Education or Medical: RM 3,000.
– Child Relief: RM 4,000 (I have two children below 18 years old).

I intend to claim similar tax reliefs when I declare my income tax for year 2018.

My question is: ‘Do I need to declare ‘my income tax 2017 paid by my employer’ in my upcoming income tax filing for 2018?’

Answer:

The answer is Yes.

John is required to declare ‘his income tax borne by his employer’ based on the Income Tax Act (ITA) 1967 under Section 13(1)(a). It involves tax chargeability of gross income in either monetary form or in kind which can be converted in cash arising from one’s employment.

It includes income tax borne by one’s employer.

In John’s case, I would calculate:

  • Income Tax Payable for 2017.
  • Income Tax Payable for 2018.

Income Tax Payable for 2017

For 2017, John’s chargeable tax is calculated as follows:

No. Item Amount (RM) Total Amount (RM)
Gross Income
1 Fixed Salary
(RM 10,000 x 12 months)
120,000
2 Bonus 20,000
140,000
Less: Reliefs
3 Personal Relief 9,000
4 EPF & Life Insurance Premiums 6,000
5 Medical & Education Insurance Premiums 3,000
6 Child Relief (2 Children) 4,000
(22,000)
7 John’s Chargeable Income for 2017 118,000

John’s income tax payable for 2017 is computed as follows:

No. Income Tax Income Tax Payable (RM)
1 On the First RM 100,000 11,900
2 On the Remaining RM 18,000 @ 24% 4,320
3 John’s Income Tax Payable for 2017 16,220

As stated, EJN, John’s employer has paid for John’s income tax for 2017. Hence, the amount of RM 16,220 is a form of income received by John in 2018. Thus, it would be declarable as John’s gross income for year assessment 2018.


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Income Tax Payable for 2018

For 2018, John’s chargeable tax is calculated as follows:

No. Item Amount (RM) Total Amount (RM)
Gross Income
1 Fixed Salary (before Promotion)
(RM 10,000 x 3 months)
30,000
1 Fixed Salary (after Promotion)
(RM 15,000 x 9 months)
135,000
3 Bonus 30,000
4 John’s Income Tax 2017 Borne by Employer 16,220
211,220
Less: Reliefs
5 Personal Relief 9,000
6 EPF & Life Insurance Premiums 6,000
7 Medical & Education Insurance Premiums 3,000
8 Child Relief (2 Children) 4,000
(22,000)
7 John’s Chargeable Income for 2018 189,220

John’s income tax payable for 2018 is computed as follows:

No. Income Tax Income Tax Payable (RM)
1 On the First RM 100,000 11,900
2 On the Remaining RM 89,220 @ 24% 21,413
3 John’s Income Tax Payable for 2018 33,313

Hence, John’s income tax payable for 2018 is RM 33,313, a little more than two times his income tax for 2017. But, John is not fretting about it as his employer is the one paying for it.

Conclusion:

‘Income tax borne by employer’ is a form of income and is chargeable based on Section 13(1)(a) of the ITA 1967. This is because it is a form of monetary benefit arising from an employment.

In addition to ‘income tax borne by employer’, Section 13(1)(a) covers a diverse range of monetary benefits namely – salaries, bonuses, gratuities, commissions, fees, loan interests, club memberships, children school fees, scholarships, asset given free of charge or sold at a discount, gift vouchers, public service awards & so on and so forth.

Your situation could be unique and more complicated.

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