Today we address a particularly useful topic: how to calculate withholding tax.
The Withholding Tax is an income tax or IRES deduction that is applied to the sums that the supplier receives from the customer or employer.
We can list different types including:
1) Withholding as a Title of Advance which provides for a withholding of 20% by the recipient of the service and the Withholding Tax.
2) Withholding tax which provides for a payment equal to 20% of the total.
We can then make another distinction that allows us to differentiate the different types of Withholding Tax based on the performance on:
– Income from self-employment for personal income tax purposes.
– Occasional performances.
– Invoices between holders of VAT numbers.
HOW TO CALCULATE THE WITHHOLDING TAX: THE PERCENTAGES
Whenever a professional service is required in favor of natural persons, holders of VAT or legal entities, an invoice with withholding tax will be issued. That is, with the deduction equal to 20%.
This invoice can be issued by professionals, accountants, notaries etc.
The Withholding Tax is, in other words, a withholding made on a taxable basis made by the customer who receives the service.
It is mandatory for the professional who issues the invoice to insert the Withholding Tax in the latter.
The customer, at this point, must pay a sum equal to 20% of the total. Number representing the remuneration due for the service to the tax authorities. Fill in form f24 indicating the Tax Code for withholding tax.
The customer is required to withhold the amount of the Withholding Tax to pay it to the Financial Administration using the above model.
This mechanism called “Tax Replacement” can be applied if the Client is one of the subjects indicated in paragraph 1 of Article 23 of Presidential Decree N 600/73.
These subjects are defined with the term “Tax Substitutes”.
In this case, how is the withholding tax calculated? On the income due to the recipient as consideration for the service rendered.
Through the mechanism of the Tax Replacement, the Tax Administration is able to shift the obligation to pay a tax burden:
– where a subject has to carry out the professional service.
– Towards a third party.
This makes fraud against the tax authorities less likely.
The professional, issuing the invoice, must indicate the Withholding Tax distinguishing:
– a 20% Withholding Tax as an Advance on Income Tax for individuals with the obligation to pay back.
– A sum equal to 30% in the case of non-resident subjects for whom the withholding is not by way of Advance Tax but as a Definitive Title.
At this point it is necessary to highlight that the customer, that is the one who requests and pays the Professional Service, must pay the sum due to the professional.
And, in addition, 20% to the Treasury as withholding tax using, as already mentioned, the model f24 Agenzia delle Entrate.
In the above model it is necessary to enter the code 1040 by the 16th day of the month following the day of payment of the amount due.
The professional who receives the compensation must have from the client a certification of the total amount of the sums that have been paid. In addition to the amount of withholdings, deductions and social security contributions plus other non-mandatory data and account for everything.
HOW TO CALCULATE THE WITHHOLDING TAX: THE OBLIGATION AND THE SCOPE OF APPLICATION
The withholding tax obligation applies whenever an independent work performance is requested from a professional.
The subjects, Tax Substitutes for whom this obligation applies fall into the following categories:
– Natural persons who carry out business activities or arts or professions.
– Joint-stock companies resident in the territory of the State.
– Public or private bodies other than companies.
– Unrecognized associations.
– Partnerships and equivalent bodies.
– Agricultural enterprises.
– Bankruptcy Trustees.
– Companies and entities not resident in Italy.
– Public administration.
– European groups of economic interest.
SELF-EMPLOYMENT AND OCCASIONAL PERFORMANCE
The Invoice with Withholding Tax is applied to the remuneration received for self-employment and for occasional services. And for the assumption of obligations to do, not to do or allow, on the profits deriving from Employment Contracts, on the profits due to the promoters and the founders of Spa or Srl.
It also applies to profits deriving from the sale of copyright by the same author. And on the Rights for Intellectual Works transferred by individuals who are not entrepreneurs or professionals who have purchased them.
On a fee of less than 25.82 euros, the Withholding Tax is not applied. Provided, however, that it does not represent an advance on the Total Amount and that it does not exclusively carry out Commercial Activities.
In the field of professional self-employment we can say that it differs from the Business Activity for various aspects of a fiscal and social security nature.
The “Tax Substitute” pays the sum quantifiable as withholding because self-employment is subject to income.
It is important to consider the manner in which the invoice is issued and how the calculation is made. In fact, there are variations depending on the type of work performed and therefore also based on the professional who performs the service.
We can affirm that there are two broad categories of professionals from the social security aspect:
– Subjects without a specific Category Assistance and Pension Fund.
– Subjects with a Category Assistance and Pension Fund who pay contributions every year.
Estimated belonging to one of the two categories, Professionals apply a 4% increase in the taxable amount which differs according to whether they belong to one or the other class.
PROFESSIONALS WITHOUT A SOCIAL SECURITY CASH: CALCULATION OF THE INVOICE WITH WITHHOLDING TAX
Self-employed workers who carry out an activity and who do not rely on a Social Security Fund and who, therefore, do not use it, must register with the INPS Separate Management.
Pursuant to ART. 4 PARAGRAPH 3 of Legislative Decree 295/96, the Professionals in question can optionally decide whether to apply a 4% increase on the gross fees.
A compensation that under the tax aspect differs as follows:
– must be subject to VAT.
– As an increase in the fees, it is also taxable for personal income tax purposes and therefore subject to a 20% withholding tax.
Finally, the expenses advanced by the professional must also be taken into consideration, which are charged back to the customer on the invoice.
Once the tax base has been quantified, it can be applied to the Withholding Tax as well as the correct rate.
THE RATES OF WITHHOLDING TAX
We have already appropriately explained that the application of a Withholding Tax on the remuneration paid, as regards self-employed work, amounts to 20% of the total and for non-residents 30% of the 100%.
An Irpef Withholding Tax of 20% must be made in the case of income assimilated with the rate. This is according to the bracket on income paid for self-employment concerning the economic use of intellectual property.
As regards the remuneration of amateur sportsmen, if the salaries exceed the threshold of 20,058.00 euros, a tax title must be applied for Irpef purposes, with a 23% rate increased by regional and municipal surcharge.
PROFESSIONALS ENROLLED IN A SOCIAL SECURITY FUND: CALCULATION OF INVOICE WITH WITHHOLDING
Professionals enrolled in a Professional Register (for example Chartered Accountants, Lawyers, Notaries, Engineers) have a Welfare and Pension Fund to which they can register and pay contributions.
A part of these contributions are called “Supplementary Contributions” and are charged to the customer in the invoice, exercising the professional’s right of compensation.
Generally it is equal to 4% of the remuneration, but it must always be checked according to the pension fund to which it belongs.
The “Supplementary Contribution” must be subject to VAT and, not having the nature of a consideration and not constituting a Taxable Base, it is not considered in the calculation of the 20% Withholding Tax and thus is not subject to Irpef.
CERTIFICATION AND WITHHOLDINGS
Whenever a professional carries out his work, that is, he delivers a service, he is issued with a certification of Withholding Tax. And you will be able to insert it in the Withholding Tax Return.
This certification must be approved by a Labor Commission by March 31 of the year following the one to which it is signed.
Some data are included in the certification, namely the total amount of the sums paid, the total amount of withholdings, tax deductions, social security contributions, other non-mandatory data such as VAT.
At this point, the customer must carry out a new Single Certification.
In this case, the subjects who commission a job assume the role of “employers” and are required to present the certification to both the professional and the Revenue Agency.
HOW TO CALCULATE THE WITHHOLDING TAX
The invoice with 20% withholding tax is based on the calculation of the tax base and 4% Inps.
Claims must be carefully considered, in the sense that it is necessary to consider those INPS different from those of a Professional Fund.
The former, as we have already explained, are taxable to the IRPEF fin and therefore relevant for the calculation of the Withholding Tax.
Their amount is equal to 4% and their inclusion in the invoice is optional.
The Revenues of the Professional Funds, of a variable amount depending on the reference body, are instead irrelevant for the purposes of personal income tax. And, consequently, they should not be taken into account when it comes to calculating withholding tax.
For this withholding tax, only the fee agreed with the customer is important.
CALCULATE THE WITHDRAWAL FROM THE GROSS AMOUNT
Having available the gross amount, the withholding tax can be calculated by multiplying this by 0.2, since the percentage attributable to withholding is 20%.
There is also another way, that is by multiplying the Gross Amount by 0.8.
In this way the net value of the service is obtained, to which to add its 20% by way of withholding.
It can also be obtained by calculating the Net amount by 0.25 or, alternatively, by subtracting the net from the gross.
HOW TO CALCULATE THE WITHDRAWAL FROM THE NET AMOUNT
We mentioned above the operations to calculate the Withholding from the net amount, that is, multiplying the latter by 0.25. The result we have is equal to the amount of the withholding tax.
Alternatively, the net can be divided by 0.8, thus obtaining the Withholding Tax.
PAYMENT OF THE WITHHOLDING 20%: PAYMENT F24
The f24 (Retention Advance Income Self-employed Work) is paid to the tax authorities by the customer who pays the remuneration to the Professional, using the f24 form electronically and affixing the Tax Code 1040.
INVOICE WITH WITHDRAWAL OF TRADE AGENTS REGISTERED WITH ENASARCO
Commercial Agents are not considered professionals but rather entrepreneurs.
However, it is useful to see how withholding tax applies on their invoice.
The Commercial Agents have Enasarco as their pension fund , which differs profoundly from those seen up to now.
In the invoice of a commercial agent, the accrued commission is directly taxable VAT, in the absence of other additional charges.
The Enas withholding tax is equal to 50% of the expected contribution.
The rate for 2019 is, overall, 16.50%.
50% of the rate is therefore equal to 8.23%.
Finally, we can estimate that the Withholding Tax will be 23% of 50%.
INVOICE FOR PROFESSIONAL ON A FLAT SYSTEM
Taxpayers who adhere to the flat-rate regime referred to in Article 1 Paragraphs 34 to 89 of Law No. 190/214 and Article 1 Paragraphs 111 to 113 of Law No. 208/2015 can take advantage of some tax advantages.
These advantages can be the exemption from VAT obligations and the Waiver of the application of the Withholding Tax.
It is important to fill in the form f24.
As we have already mentioned previously, the Tax code that must be affixed is 1040 if the Withholdings concern self-employed workers in relation to remuneration for the exercise of Arts or Professions even in an unusual form.
Instead, the Tax Code “1038” is used for withholding taxes on Commission or Agency, Mediation or Representation reports.
The corresponding data must be entered in the box of form f24 where the words “Rateation / Region / Province / month appear.
HOW TO CALCULATE THE WITHHOLDING DEPOSIT FOR OCCASIONAL BENEFIT
Withholding tax for occasional work is a very widespread payment instrument, used, as can be understood, to pay for occasional work.
There are many young people, for example, who, having no fixed employment, find themselves having to carry out small tasks for a short period. And, therefore, they are paid through this payment method.
The Withholding Tax on occasional services is a payment system that allows remuneration even for those who do not have a VAT number.
Occasional services, by definition, must not exceed a certain number of days per year. And their salary must not exceed the threshold of 5,000 euros / year.
They are paid with the Withholding Tax formula.
Generally the client is not very inclined to hire collaborators for an occasional service.
This is because he must perform the same procedures put in place for the same type of worker with a VAT number, and then he must also anticipate the Withholding Tax via f24.
The employee who is not in permanent employment is only partially interested in the occasional service.
In fact, when he has to carry out any task for a short time, if it does not exceed 5000 euros / year, he does not have to pay INPS contributions. But, at the same time, it does not have access to social safety nets in case of involuntary job loss.
WHEN IS THE OCCASIONAL PERFORMANCE CONVENIENT?
The conclusions we can draw are that the occasional service is only worthwhile if the collaboration between the employer is of short duration. And that the latter does not plan to collaborate further with the client for a longer period or with others in the same sector.
The occasional service with withholding tax is useful because it allows the client to pay a worker as a professional even if he does not have a VAT number.
Everything is regulated by laws that protect both parties, that is, which indicate the methods and duration of the collaboration.
The worker and the client, in fact, must have a collaborative relationship but only occasionally. And a relationship of subordination must not be established between the parties, under penalty of penalties for the latter, who would be forced to recognize the worker a permanent contract.
Upon payment, the collaborator will deliver to the customer the receipts of the occasional service with the Withholding Tax plus the Stamp Duty in the event that the amount exceeds 177.47 euros.
The customer will pay the fee to the collaborator who is also in possession of the receipt with withholding tax. Unless he himself provides it at the meeting.
RECEIPT OF OCCASIONAL BENEFIT WITH WITHHOLDING DEPOSIT
By examining the receipt with Withholding Tax we can say that it must contain all the necessary and mandatory data required, namely:
- Receipt date and number.
- Personal details of the collaborator and tax code.
- Customer data: tax code and VAT number.
- Description of the activity performed by the collaborator.
- Amount of gross compensation paid
- Withholding tax applied, usually 20%
- Net amount (the amount equal to the Withholding Tax is subtracted from the gross amount)
- Import stamp duty on receipts above € 177.47
Upon receipt of the document, the client must pay the Collaborator.
It is best if the payment is made with a traceable tool.
He must also pay the amount of the Withholding Tax, again by the collaborator.
The latter amount must be paid to the tax authorities within the terms provided for by the law, a subject we have already spoken about.
The collaborator must also declare with the Income Tax Report all the compensation received by submitting the Withholding Tax.
The State then, considering the Income of the Collaborator, will have to return part or the entire percentage paid in the event of a refund of the Tax or adjustment, if the taxes represent the 20% already paid.
EFFECTIVE REVIEW OF THE WITHHOLDING DEPOSIT
The sanctions relating to the violations committed by the withholding agents may be subject to redress.
It has been established that the reduction in sanctions decreases with the increase in the time in which repentance occurs.
By intervening in time, it is therefore possible to cancel the violations and correct the declarative infidelities, by presenting a new model f24.
As regards the f24 model, if the violation is to be corrected, the Code “8929” must be used.
In detail: if the withholdings for one year are not paid within the deadline set for sending the 770 in the following year and exceed 150 thousand euros, the crime of failure to pay is triggered, severely punished by our law.
The applicable penalties vary according to the delay. If, for example, the active repentance occurs within 14 days following the deadline to be respected, the penalties are equal to 0.1% for each day of delay (up to 31 December 2015 they were equal to 0.2% for each day ).
If the active amendment takes place within 30 days after the deadline to be met, the penalties are equal to 1.5% (up to 31 December 2015 they were equal to 3% for each day).
In the event that the active repentance occurs within 90 days following the deadline to be respected, the penalties are equal to one ninth of the minimum (the minimum is 258 euros).
If the active repentance occurs within the deadline to be respected for the presentation of the declaration of the current year, the penalties are equal to one eighth of the minimum.
If this occurs within the deadline to be respected for submitting the declaration for the following year, the penalties are equal to one seventh of the minimum.
As for the total amount to be paid, it must include the amount of the Withholding and the penalties.