Did you know that when an employer agrees to pay an employee’s income tax, this “benefit” is considered part of the employee’s taxable income?

While this might seem like a generous gesture, it comes with tax implications for both the employer and the employee.

I will break down the essentials of the new guidelines under Public Ruling No. 3/2024 issued by the Inland Revenue Board of Malaysia (IRBM) and highlight examples to simplify how this works.

When an employer pays an employee’s income tax, this payment is classified as a “perquisite,” which becomes part of the employee’s gross income.

For example, if your annual salary is RM100,000 and your employer pays RM20,000 in taxes on your behalf, your taxable income increases to RM120,000.

Employees need to understand how employer-borne taxes might elevate their taxable bracket, while employers must plan for the associated costs.

My tip for EMPLOYERS is to ensure all taxable benefits are reported in the annual EA form, including taxes borne on behalf of employees.

My tip for EMPLOYEES is to educate employees about how this benefit impacts their net income and taxable bracket.

Please don’t argue with me as licensed tax agent on tax borne by employers. I really don’t care how your “ex-tax agent” or “tax guru” teach you.