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

‘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.
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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 personal income tax payments starting from year assessment of 2017. Hence, I did not pay a single cent in personal 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 personal 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 Personal income Tax for the year 2018.

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

You may also want to read: 10 Things a Tax Payer Should Know. Don’t Gamble, Understand the Basics Income Tax Filing in Malaysia.

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 changeability 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:

  • Personal Tax Payable for 2017.
  • Personal Tax Payable for 2018.

Personal 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 Personal 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 Personal Income Tax Payable for 2017 16,220

As stated, EJN, John’s employer has paid for John’s Personal 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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Personal 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.

Read also: ESOS – What You Need to Declare When Filing Your Income Tax.

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.

If you need customised tax services, you may use Joolah.my, a free search tool that quickly refers you to a handful of highly qualified tax consultants. You may also use Joolah.my to sift out the best accounting, audit, and tax service providers in Malaysia.