Withholding at source: this is how you can reduce your tax base – Sectors – Economy

All those workers to whom the withholding taxthat is, the Dian takes away a percentage of their income in advance that is added to the annual payment of income tax, they should know that they can take advantage of a series of tax alternatives to reduce the taxable base on which they are applied .

Thus, although in this 2023 the withholding generally applies on the monthly payments of 5’903.000This figure may vary depending on whether or not the worker chooses to make use of certain concepts that allow him to reduce his tax base.

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The deadline that workers have to present or update the documents in their company is on April 15. However, if the person does not have enough, they can be delivered later and the deduction would apply later. Of course, without being retroactive.

This same process is repeated every year and the supports that are presented to reduce the withholding tax base are valid from April to March of the following year.

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What concepts allow me to reduce withholding at the source?

Although there are various concepts that allow us to reduce retention, Ángela González, associate partner of Taxes at the firm EY Colombianote that all of them together cannot exceed 40 percent of the worker’s total monthly income minus mandatory health and pension contributions.

“In addition, an annual limit of 1,340 Tax Value Units (UVT) must be observed, which, converted to pesos by 2023, is equivalent to approximately 56 million pesos,” says the expert.

According to the Tax Statute, this limitation does not apply in the case of payment of retirement, disability, old age, survivors and professional risk pensions, substitute compensation for pensions and returns of pension savings.

The concepts that can be deduced are the following:

1. EXEMPT WORK INCOME: This benefit applies to all workers and consists in the fact that 25 percent of their taxable payments are exempt from income tax. Said percentage cannot exceed 33 million pesos per year.

2. INCENTIVES ASSOCIATED WITH THE PURCHASE OF HOME: According to González, when a property is acquired for housing, there is a double benefit. On the one hand, the resources that channel taxes through a savings account for the promotion of construction (AFC) are free, as long as certain conditions are met. And on the other, the interest you pay when you have a current credit is also tax-free, although some limitations apply.

The value to decrease monthly for this concept is the result of dividing by 12 or by the number of months to which the total value of the payments specified in the certificate corresponds. The maximum you can deduct per month is 100 UVT (about 4,241,200).

For this purpose, the worker must submit a copy of the tax certificate issued by the financial entity. It must be taken into account that if the mortgage obligation is shared with the spouse or another person, the worker must attach an authorization stating that the other person will not request the deductibility of the corresponding part. Otherwise, the value of the deductible will be divided by the number of people that appear on the certificate.

3. PREPAID MEDICINE:
Both prepaid medicine, complementary plans or health insurance that you paid for yourself and your family last year can also help you reduce withholding at source.

The value to decrease monthly is the result of dividing by 12 or by the number of months to which the total value of the payments specified in the certificate corresponds, without exceeding 16 UVT (679,592 pesos) per month.

For this purpose, the worker must present a copy of the certificate issued by the prepaid medicine entity or complementary health plan.

4. DEPENDENTS:
When the worker has children or dependents who meet certain conditions, they can also lower their withholding base. This deduction is limited to 10 percent of gross income, up to a maximum of 32 UVT (1,357,184) per month.

For example, the deduction applies when:

– You have children up to 18 years of age. To do this, you have to attach the civil registry.

– You have children up to the age of 23 but you are paying for your child’s education. In this case, I also have to present the study certificate.

– Your children are over 23 years of age and have a situation of dependency caused by certified physical or psychological factors. Here you will also need to present this certificate.

– Your parents, siblings or spouse are in a situation of dependency, either because they have no income or due to physical or psychological factors certified by Forensic Medicine.

5. VOLUNTARY PENSION FUNDS:
Money that the employee saves in voluntary pension funds is tax free as long as the resources remain for at least 10 years or other requirements are met. The maximum value to apply is 30 percent of the year’s income and up to 3,800 UVTs.

a real calculation

In order to understand more in detail how it works, EY Colombia made a hypothetical exercise for a person who has a monthly income of 7.5 million pesos, is currently paying a home loan and has a dependent minor child.

If that person does not pass any paper to your company’s human resources, they would take away about 207,000 pesos from withholding at the source. However, if that same worker uses these tax breaks, only about 15,000 pesos per month would be deducted.

WITHOUT USING TAX BENEFITS
(figures in pesos)
​
Income for the month 7,500,000

(-) Mandatory social security contributions 675,000
(-) Dependent benefit
(-) Home loan interest benefit
(-) Benefit 25% of exempt income 1,706,000
(=) Income subject to withholding 5,119,000

Withholding at source for the month 207,000

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WITH THE USE OF TAX RELIEF
(figures in pesos)

Income for the month 7,500,000

(-) Mandatory social security contributions 675,000
(-) Dependent benefit 750,000
(-) Home loan interest benefit 600,000
(-) Benefit 25% of exempt income 1,369,000
(=) Income subject to withholding 4,106,000

Withholding at the source of the month 15,000