Forgetting to deduct withholding tax is a widespread occurrence. This is especially true if you are new to the business. So, does such forgetting to deduct withholding tax constitute tax evasion? Also, since two parties are involved, it isn’t easy to know whose responsibility it is. Let’s look at it together, including what happens if you forget.
- What is withholding tax, and when is it due?
- What happens if you forget?
- Foreclosure
- You can get a deferment until you convert the items into money.
- Payment is the obligation of the person who made the payment, even if it appears to be a replacement payment.
- Withholding tax varies depending on whether you are paid as a salary or a contractor.
- What about the recipient?
- In case of remuneration Disturbance to the other party
- Be wary of professional services because they question your professionalism.
- The withholding tax has been settled as a matter of income and corporate tax law.
- Let’s understand withholding tax and ensure we don’t forget to process withholding income tax.
What is withholding tax, and when is it due?
Withholding income tax is a tax deducted from monthly payments and paid to the government by businesses that pay salaries and remuneration. This system is also known as withholding tax because it allows employees to pay taxes on the income they receive during the year in advance before the employee files a tax return.
It is regulated by law and must be paid by the 10th of the month after the salary is paid. Since withholding tax is an essential national tax for businesses, it must be paid accurately and promptly.
What happens if you forget?
It is hazardous for businesses to forget to pay withholding tax. It may be penalized if a company fails to pay the tax by the due date. Moreover, the fact that the delay is noticeable and may seem mechanical.
Who pays the tax due?
If, due to a business error or lack of understanding, a person neglects their obligation to withhold income tax and fails to pay it, who is responsible for the payment? It is the business that pays the salary or remuneration.
Here is an example of how it feels to pay.
I forgot to get the withholding tax portion when I paid my salary, so I want to wait until I get it.
However, it is the business that did not get it. It is also the business that has not paid it. Even if you did not collect withholding tax from the person who receives your salary or remuneration, you are obligated to pay it immediately.
Delinquent taxes are ruthless.
If a business owner forgets to pay withholding tax, the tax is automatically assessed as delinquent from the overdue date. This is an interest-like penalty for failure to pay by the deadline set by law.
The interest rate is like this. It should be pretty high.
| Interest rate | Principles | January-December 2022 |
|---|---|---|
| Forgotten by 2months | 7.3% | 2.4% |
| Forgotten after 2months | 14.6% | 8.8% |
In addition, additional tax for non-payment
If a business forgets to pay withholding tax, it may be subject to an additional surcharge for non-payment. Since there is a sanction element, it can be overlooked once the following cases have occurred.
- No late payment has been made in the past year, and price was completed within one month of the due date.
- The amount of additional tax for non-payment is less than 5,000 yen
Then how is it calculated?
| Before notice | After notice | |
|---|---|---|
| Rate of interest | 5% | 10% |
| Principle calculation for failure to pay JPY80,000 | JPY4,000 | JPY8,000 |
| Principle calculation for failure to pay JPY100,000 | JPY5,000 | JPY10,000 |
In the above example, JPY80,000 had been paid before the notice, so we have managed to avoid any sanction.
Foreclosure
If the taxpayer neglects to pay the tax, there is a possibility that their property will be
foreclosed. Naturally, ignoring a letter of demand sent by the tax office is dangerous.
In addition, even if the property is confiscated, it should not be given away immediately. You will receive a moratorium until the seized items are converted into money or tax payments.
You can get a deferment until you convert the items into money.
The term “conversion” is unfamiliar to most people, but it means the seized property will be converted into money. There is a possibility that the repossessed items can be waited for without being disposed of. In technical terms, it is called deferment of realization.
The conditions are as follows.
Requirements for receiving a deferral of revaluation
- The taxpayer is deemed to be in danger of making it difficult to continue their business or maintain their livelihood if they pay the tax.
- The taxpayer is recognized as having a good faith intention to pay the tax.
- The applicant is not in arrears of any national tax other than the federal tax for which the deferral of revaluation is sought.
- The application is submitted within six months of the due date of the national tax.
- As a general rule, collateral has been provided
It is also possible to request that the tax payment wait because there is no money. This is called deferment of tax payments. As a general rule, a deferment of tax payment may be granted for one year or less. The requirements are as follows.
Requirements for tax payment deferment
- One of the following facts (1) to (6) must exist.
- The property was damaged or stolen.
- The taxpayer or a family member is ill or injured.
- The taxpayer’s business has closed or is no longer in operation.
- Suffered a significant loss in business
- Any facts listed in (1) through (4) above have occurred.
- The amount of tax due is fixed by filing an amended return, or other means more than one year after the original due date.
- The taxpayer is deemed unable to pay the national tax due at once based on the relevant facts of the moratorium.
- (In the case of 1(6) above, the application must be submitted by the due date.)
- In principle, collateral is provided
Be careful not to get into this situation.
Payment is the obligation of the person who made the payment, even if it appears to be a replacement payment.
The tax office has not made this kind of decision on its own. The above is the result of a series of court cases.
In particular, it is about who pays the tax. In effect, it is produced by the person who received the salary or remuneration. You may feel, “Since I am paying on your behalf, why can’t someone else pay if I forget to pay?” You may think that this is not the case. However, in reality, the person who paid the fee is obligated to pay it, not the person who received it.
This is important to note.
Withholding tax varies depending on whether you are paid as a salary or a contractor.
It may not be common to forget to withhold tax on wages. You should pay attention to the case where there is a distinction between salary and remuneration. Tax inspectors sometimes target this.
This is a long sentence, so I won’t go into it here, but it is also a point to keep in mind.
What about the recipient?
If a business partner company did not withhold taxes, there may be reasons such as disappointment or misinterpretation. If you forgot to take withholding tax from employees, professionals, etc., it is advisable to collect additional withholding tax. You can take it from the following payment if there is one. It would be easier than asking for it back.
However, the recipient should also be careful.
In case of remuneration Disturbance to the other party
If you inconvenience the other party by paying withholding tax, it may affect your daily dealings. If you are good at your job but sloppy or not good. It is important to note that people like you for the quality of your work, but you can’t do it well.
Be wary of professional services because they question your professionalism.
Professionals are viewed as having some expertise. If you do not point out to them that they have omitted withholding tax, their expertise may be questioned. Caution is required.
The withholding tax has been settled as a matter of income and corporate tax law.
Even if the withholding income tax were omitted from the other party, it would be reimbursed in the income tax return or corporate tax return. Once the period is over, there will be no omission of tax payment for the portion of sales that is correctly recorded as sales.
Let’s understand withholding tax and ensure we don’t forget to process withholding income tax.
Many people feel that withholding tax is a hassle. However, it is a system that has been established and should be implemented appropriately. It cannot be faked in case of a mistake, so it is essential to remember to handle it properly daily.
