Discount for income tax will be seen these days in payment roles

Soledad works for a private company in Guayaquil and always saw from afar her colleagues making the projection of personal expenses, a document that is used to calculate income tax (IR).

This year she had to fill out the form and was disoriented on the subject. She did not know how to proceed or how much to put down, but together with her husband she did it and finally gave the form to her employer.

His salary is less than $2,000 a month, not counting utilities. These are around $ 900. You do not commission or receive bonuses. He says he doesn’t know if he will be deducted for income tax caused, but he still made the projection as a precaution.

He claims that the On February 1, you will request the payment list from the Human Resources Department to see if you have a discount for IR.

Like Soledad, other citizens will be waiting for the document to verify the discount for IR, which this year governs with a new scheme in the discounts for personal expenses, supported by sales receipts, of 10% and 20% of said expenses.

According to tax experts, the new procedure has caused astonishment and confusion among taxpayers. Some rely on professionals and others venture to perform the calculation on their own.

Because Javier Bustos, Professor of Taxation at the Universidad Espiritu Santo, advises workers to take advantage of the Human Resources area of ​​each company to orient themselves on the subject.

To establish this monthly withholding, it is necessary to add the remuneration for twelve months. The thirteenth and fourteenth remuneration are not considered. But the values ​​of the contribution to Social Security are deducted.

How much will those who earn more than $2,000 per month pay in income tax in Ecuador?

The regulation indicates that on the taxable base thus obtained, the rate contained in the table of income tax for natural persons will be applied.

The basic fraction is $11,310 and the limit for personal expenses, which must be taken into account to calculate the reduction of income tax, by means of a tax credit, will be $5,037.55. This value corresponds to seven basic family baskets ($719.65), as established in the Law for Economic Development and Fiscal Sustainability after the COVID-19 Pandemic.

This ceiling implies a lower deduction and therefore a higher payment of income tax for natural persons.

Taxpayers may make the deduction of 10% or 20% of the $ 5,037.55.

This reduction will be applied as a tax credit when paying the IR.

The $5,037.55 limit is for all personal housing, health, food, education, clothing, and tourism expenses.

The regime has said that the IR hike will affect those earning $2,000 a month going forward. But it could reach people with lower salaries because profits, bonuses and compensation received in the year are contemplated. Those incomes are difficult to calculate, says tax expert Hugo Mejía.

“You can’t project it, unless the person knows that they are going to receive a commission in the next month. Likewise, the profits, you don’t know how much you are going to receive, that doesn’t happen in reality”, he says.

What’s more, It may happen that a person who currently does not pay taxes, but who raises his salary along the way, exceed that basic fraction. In this situation, according to Mejía, a projection of personal expenses must be sent.

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

Bustos and the tax expert Hugo Mejía explain how to carry out the calculation in a simple way to know if the tax would be paid and what the amount is.

First, the salary is multiplied by twelve, without counting the tenths. The personal contribution to the IESS, whose percentage is 9.45%, is deducted from this value. That total is the tax base and I place it in the table. Knowing what range it is in, the surplus is taken out and obtained by subtracting the tax base with the basic fraction of the table.

From that result I take the percentage where my base fell on the table. I add the tax on the basic fraction. And that is the value to pay for annual income tax.

Now to make the reduction, it can be 20% if the gross income is less than $ 24,090 and if it is greater, only 10% applies. In gross income, consider all income, including tenths and reserve fund.

The first case for calculating income tax is for a citizen who earns $1,750, who receives $1,750 as his thirteenth salary and $425 as his fourteenth.

He earns $21,000 a year (not counting tenths) and his tax base is $19,015.50. This last figure is obtained by subtracting the $21,000 with 9.45% of the IESS personal contribution ($1,984.5).

The basic fraction of this citizen, according to the income tax table, is $18,010.01, whose tax falls on $515, which corresponds to 12%.

The basic fraction must be subtracted from this tax base to obtain the surplus. In this case, we subtract $19,015.50 with $18,010.01 resulting in $1,005.50. Now it is required to obtain the excess fraction tax and it is done as follows: we take 12% out of the excess fraction which was $1,005.50 yielding $120.66.

Once we do this operation we will have the value of the income tax to pay adding the $515 from the table plus the excess tax that was $120.66. The total is $635.66.

However, there is the possibility of lowering this IR. For this procedure we are going to take the taxable income, to which we will add the aforementioned tenths and reserve funds and gives a result of $24,924.24.

It means that it is greater than the base value to calculate the discount ($ 24,090.30), so 10% of the personal expenses limit applies. If the IR was $635.66, this citizen ends up paying $131.91 a year.

A second case is of a person who receives $3,000 monthly, that is, $36,000 a year. In this case, the tax base is $32,598. And following the same calculation procedure, it is located in the sixth range of the table, whose basic fraction of the tax is $2,449.40, corresponding to 20%.

Once we remove the excess fraction of the tax and add the $2,449.40, we will obtain $2,643.00 of IR.

Then, we proceed to the calculation of the discount. As the gross income adds up to $42,423.80, the 10% deduction applies to the limit of personal expenses, always supported by sales receipts.

Here the citizen has a discount of $503.76 and his annual withholding will be $2,139.25, which becomes $178.25 a month, which is deducted via role.

This is the income tax table that the 2022 personal expenses projection will help calculate

The Government maintains a virtual calculator enabled to know the IR. Following one of the previous cases the result is not exact.

For example, someone who earns $3,000 shows an IR of $153.43 per month, which is $1,841.16 per year. This is a difference of just over $300.

For Mejia, the result that the calculator throws can be an approximate, but it emphasizes that it is important to do it separately. Criterion shared by Bustos to avoid further confusion. (I)