How will the withholding of income tax to workers be, presentation of projection of expenses and annexes, according to the Regulation of the Economic Development Law

The President of the Republic, Guillermo Lasso, issued the regulations for the Economic Development and Fiscal Sustainability Law, necessary to make the application of said tax law feasible on various issues. He made it through the Decree 304, of December 29, which will enter into force as soon as it is published in the Official Registry.

The regulation has been in force since November 29 on certain issues, but what refers to income tax (IR) will be applied for the fiscal year that starts this January 1, 2022.

The standard that contains 4 books, 93 articles, 8 general provisions, 16 transitory provisions and 1 reform provision, clarifies, among other issues, how will the withholding of income tax by companies for their workers in a dependency relationship.

The companies will continue to withhold the tax on a monthly basis. It also indicates that workers must present a projection of personal expenses in January and must compulsorily make the expense annex that supports them.

It is that although there is no longer the deduction of personal expenses as it was known, this proof is necessary for the reduction of a tax credit. Taxpayers must credit at least $ 5,000.7 in personal expenses that can be housing, health, food, clothing, tourism and education, including in the latter area the concepts of art and culture, to be able to benefit from the tax credit.

In accordance with the regulations, the withholding calculation will be done in accordance with the law.

To do this you have to follow several steps.

First calculate the gross income (all remuneration, including tenths, reserve funds). It should be checked whether all this exceeds the value equivalent to 2.13 basic fractions.

The The basic fraction is $ 11,310, so the value to verify is $ 24,090.30. If your income does not exceed this value, then 20% of personal expenses may be deducted from the tax and if it exceeds it may be only 10% of said expenses.

However, this discount has a limit that is the value equivalent to seven basic baskets determined by the National Institute of Statistics and Censuses (INEC). At the moment (November 2021) the basic basket of the INEC is in $ 715.31 figure that if we multiply by seven it is $ 5,007.17. In the event that the income does not exceed 2.13 times the deducted fraction, then they may be discounted up to $ 1,001.4. If the income exceeds 2.13 times, then only $ 500.7 can be discounted.

To establish the monthly withholding, on the other hand, all the wages that correspond to the worker must be added, except the thirteenth and fourteenth wages, projected for the entire fiscal year and deduct the values ​​of the contribution to Social Security. The regulation indicates that on the tax base thus obtained, the rate contained in the table of income tax for natural persons will be applied.

The reduction for the projection of personal expenses will be subtracted from the result obtained according to the limits established in the Law, and it will be divided by 12, to determine the monthly rate to be withheld for income tax. This according to the last current IR table.

The Taxpayers who work under a dependency relationship, within the month of January of each year, will present to their employer a projection of personal expenses that they consider will incur in the fiscal year, said document must contain the concept and the estimated or projected amount during the entire fiscal year. They must also submit the annex in February of the following year.

To illustrate, we present three cases:

Someone who has monthly income of $ 3,000 or annual of $ 36,000, The contribution to the IESS is subtracted $ 3,402 and according to the 2022 table, you should pay an annual income tax of $ 2,643, but if you present personal expenses of $ 5,007, a reduction of $ 500 is made and your tax goes to $ 2,142 , 30 or monthly $ 178.53.

Meanwhile a worker who has monthly income of $ 2,000 or annual of 24,000, the contribution to the IESS is subtracted ($ 2,268) And according to the 2022 table, you should pay an annual income tax of $ 964.70, but if you present personal expenses for $ 5,007. Taking into account gross income, this person can only get a discount of 10% ($ 500.7). Your annual tax would become $ 464, and each month your employer should withhold $ 38.67 from you per month.

Finally, if someone who has monthly income of $ 1,500 or annually of $ 18,000, the contribution to the IESS is subtracted ($ 1,701) and according to the 2022 table you should pay an annual income tax of $ 343.90. If you present personal expenses for $ 5,007 you can reduce 20% of that amount. That is, the tax is reduced to $ 0. If you do not submit the projected expenses and the corresponding deduction, the employer would deduct $ 28.66 per month. (I)