It is not an overstatement to say that 2020 has been a difficult year for many people, with the Covid-19 pandemic wreaking havoc across the world. The economic consequences of the pandemic were and still are far-reaching, affecting many business across different industries – which in turn translated to many people having to find new jobs with another employer or becoming unemployed.
With the tax season now upon us, some frequently asked questions by these groups of people are these: what does the tax-filing process look like now? Will they need to take additional steps or fill in extra forms? Do jobless individuals still need to file their taxes if their total income for 2020 fall beneath the requisite amount of RM34,000?
We’ll discuss these and more in this article.
If you changed jobs in the previous year
The tax-filing process for someone who changed jobs in the previous year isn’t too different from the usual procedure, actually! It will involve some extra calculations and EA forms, but otherwise, everything else is pretty much the same.
Similar process, but with extra EA forms
Essentially, filing your taxes when you have more than one employer in the assessment year means you’ll need to combine the total income earned from both companies in a single BE form. The most efficient way to do this is with the EA forms obtained from your previous and current employers. Note that all employers are legally bound to provide their employees – both current and former – with an EA form, so make sure to collect yours!
Your EA forms will provide a summary of the information that you need to file your taxes seamlessly: total income, Employees’ Provident Fund (EPF) contribution, Social Security Organisation (SOCSO) contribution, as well as monthly tax deduction. When filing up your BE form, just add the total amount of the respective categories from the different EA forms, and you’re good to go! Be sure to also update your employer’s tax number (E Number) so that it reflects your current employer’s.
What if you didn’t get your EA form from your previous employer?
You can still file your taxes, but it’ll just take a bit more work on your end. Not having your EA form from your previous employer means you’ll need to find all the required information yourself via your salary slips, EPF, and SOCSO statements from the year of assessment. Clearly, this will involve some tedious work, and there is always the likelihood of miscalculations, so do your best to follow up with previous employers before resorting to manual calculations!
If you really are left with no choice, however, your total income, EPF and SOCSO contributions, as well as your monthly tax deductions (MTD/PCB) can be found in your salary slips. Collect all your salary slips from the different employers that you’ve worked with in the year of assessment, and compile these figures. Naturally, this gets more cumbersome the more companies you’ve worked with, so be extra cautious here!
You can also cross check your EPF contributions through your EPF statement online, as well as your SOCSO contributions via your iPERKESO account.
If you were retrenched or unemployed in the previous year
As a rule of thumb, any individuals earning a minimum of RM34,000 after EPF deductions must file their taxes. But what if you were retrenched or unemployed during the year of assessment, and your income did not come up to the requisite amount? Will you still need to file your taxes?
The answer: Yes. You are obligated to file your taxes yearly once you’ve registered your tax file, even if you do not earn the requisite amount. It is also necessary to file your taxes as your retrenchment or unemployment compensations are considered as taxable income – with some eligible for tax exemptions.
Compensation for loss of employment
According to the Lembaga Hasil Dalam Negeri Malaysia (LHDN), compensation for the loss of employment is defined as a payment that is made by employers to their employees upon their termination. Examples of compensation for loss of employment include:
- Salary or wages in lieu of notice
- Compensation for breach of a contract of service
- Payments to obtain release from a contingent liability under a contract of service
- Ex-gratia or contractual payments, such as redundancy or severance payments (such as Voluntary Separation Schemes (VSS))
- Payment to restrict an employee from finding similar types of employment after termination with current employer
- Full exemption: The compensation is made on account of loss of employment due to ill health
- Partial exemption: Exemption of RM10,000 for every completed year of service (full 12 months) with the same employer or with companies in the same group
For YA2020 and YA2021, however, the government has increased the exemption limit for compensation for loss of employment to RM20,000 for each completed year of service. So for example, if you’ve served your employer for four years and were retrenched in 2020, you can enjoy an exemption of up to RM80,000 (RM20,000 x 4 years) on your compensation.
Aside from the above, individuals who received retrenchment benefits via the Employment Insurance System (EIS) last year will also be exempted from tax with regard to the financial aid received. This assistance is managed by the SOCSO and was offered under the Economic Stimulus Package 2020.
Filing your taxes as an unemployed individual
The tax-filing process for an unemployed individual is not too different from the usual process either! You’ll have to include the compensation amount as part of the statutory income from your employment, along with your other earnings, but make sure to deduct the allowed exemption before doing so. Other than that, you can go ahead and fill in your BE form as usual.
For precaution, make sure to compile and keep all the necessary documents to prove that the lump-sum payment that you receive is your compensation for loss of employment. Aside from your termination letter and contract, you may also want to save your payslips and EA forms as evidence of your tenure with your former employer.
With this, we hope that you have a better idea as to how to file your taxes under these different circumstances. Do also check out our Income Tax page for other tax-related content, such as our step-by-step YA2020 Income Tax Guide, tax reliefs that you can tap into, and how to file your taxes if you’re a first-timer.