Understanding Income Tax Withholding

To set up and maintain the parameters for calculating income tax withholding using the template provided by PeopleSoft, you must:

• Update the IRRF table when changes to deductible tax rates and installments occur.

  PeopleSoft delivers the IRRF table as a bracket (IR BR PCT IRRF). As the graduated tax table might vary during the year, you must maintain this bracket and retain the previous versions. The brackets are effective-dated. Calculations use the bracket in effect as of the payroll payment date.

• Update the following variables containing values for income tax calculation when changes occur:

  Variable	Description
  FP VR DESC SIMPLIF	Amount of simplified monthly deduction, which is used to calculate income tax if this amount is higher than or equal to the corresponding accumulator (IR DEDUCOES, IR DEDUCOES 13S, or IR DEDUCOES FER) value.
  FP VR IND DESC SIM	Indicates whether the simplified deduction amount was used in the income tax calculation for the employee. If the simplified deduction amount was used, the variable FP VR IND DESC SIM = Y appears in the payroll results for the employee on the Results by Calendar Group - Supporting Elements page.
  IR VR MIN IR	Minimum amount of income tax withholding.
  IR VR VRDED DEP	Amount of the deduction per dependent.
  IR VR VRDED APO	Retirement deduction amount.

• Ensure the elements composing the deductions for the income tax calculation are defined as members of the respective accumulator.

  The following table lists the accumulators for each type of income tax calculation:

  Income Tax Calculation Type	Accumulator
  Monthly payment	IR DEDUCOES
  13th salary	IR DEDUCOES 13S
  Vacation	IR DEDUCOES FER

• Ensure the elements composing the gross income for the income tax calculation are defined as members of the respective accumulator.

  These accumulators can include earnings and deductions such as Unjustified Absence.

  The following table lists the accumulators for each type of income tax calculation:

  Income Tax Calculation Type	Accumulator
  Monthly payment	IR RENDA BRUTA
  13th salary	IR REN BRUTA 13S
  Vacation	IR REN BRUTA FER

The accumulators for each type of income tax calculation (IR DEDUCOES, IR DEDUCOES 13S, and IR DEDUCOES FER) accumulate allowable tax deductions. Global Payroll for Brazil provides delivered deductions elements for the following allowable deductions:

• Alimony in compliance with court decision including pensions.

• Deductions for qualifying dependents.

• Contributions to social security (INSS).

• Contributions for private pension fund and the individual planned retirement fund (FAPI).

• Income from retirements and pensions.

Each calculation type has its own income tax deduction element.

To determine the income tax withholding, each income tax deduction element:

1. Runs a preprocess formula that determines the calculation base and stores it in a variable (IR VR REN LIQUID).

   To determine the calculation base, this formula:

   1. Compares the simplified monthly deduction and the income tax deduction accumulator amounts, and noting the higher value between the two.

   2. Deducts the amount identified in the previous step from the gross income accumulator.

2. Runs the generic income tax calculation formula (IR FM IRRF).

   This formula is common to the deduction elements for all the income tax calculation types. The formula:

   1. Applies the tax rate from the IRRF table (IR BR PCT IRRF) to the calculation base and determines the amount to withhold for income taxes.

   2. Compares the calculated amount to withhold for income taxes to the minimum amount to withhold for taxes.

      If the calculated amount is less than the minimum amount, the employee's amount to withhold for income taxes equals zero.

The following table lists the income tax deduction elements and preprocess formulas for each income tax calculation type:

This section provides information about special tax withholding situations.

The PeopleSoft system delivers a query that you can run to view the names of all delivered elements designed for Brazil. Instructions for running the query are provided in the Understanding How to View Delivered Elements topic.