Understanding Income Tax Withholding
Global Payroll for Brazil provides rules and elements to calculate and deduct withholding of income tax using the graduated tax rate for monthly payroll, 13th salary, and vacation payments.
This section discusses:
Income tax rates and amounts.
Allowable tax deductions.
Income tax calculation.
Special tax withholding situations.
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.
Data for Retirement and Dependent Deductions
To ensure that the system calculates the proper deductions:
Select the IR Ded Retirement check box on the Payee Parameters page ( ) for payees who are inactive retirees.
Inactive retirees are entitled to an additional deduction from their gross income for income tax purposes.
Enter dependent data on the Dependent Information - Personal Profile page in PeopleSoft HR.
Calculating Dependents
Using the information entered for each dependent in PeopleSoft HR (gathered using an array), the system uses the formula IR FM NUM DEP IR to determine whether each dependent meets the conditions that enable an employee to claim an income tax deduction for the dependent. For example, the dependent's economic status must be Dependent or Dependent/Beneficiary to qualify as a dependent for income tax purposes. The system flags each dependent that meets these criteria.
When calculating income tax, the system multiplies the total number of dependents by the deduction amount per dependent to determine the employee's total deduction amount for dependents.
You can view the number of dependents for income tax on the Review Dependent Data BRA page.
See Viewing Dependents.
Each calculation type has its own income tax deduction element.
To determine the income tax withholding, each income tax deduction element:
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:
Compares the simplified monthly deduction and the income tax deduction accumulator amounts, and noting the higher value between the two.
Deducts the amount identified in the previous step from the gross income accumulator.
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:
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.
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:
Income Tax Calculation Type |
Income Tax Deduction Element |
Pre-Process Formula |
---|---|---|
Monthly payment |
IRRF |
IR FM IRRF SAL |
13th salary |
IRRF 13 SAL |
IR FM IRRF 13SAL |
Vacations |
IRRF FER |
IR FM IRRF FER |
This section provides information about special tax withholding situations.
Salary Advance
If the salary advance is completed within the month that the income is earned (just paid early within the same month) the tax calculation is normal. In this case, there is no Income Tax calculation. However, if the advance is paid in a month other than the month in which the respective payment occurred, the advance is taxed in the month in which it is paid along with other earnings for the same period. For this calculation use the variable IR VR REG CX.
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.