BIR Form 2306 Penalties: What Happens If You Issue It Late, Skip It, or Withhold Final Tax Wrong

A late, missing, or incorrect BIR Form 2306 exposes a withholding agent to civil penalties under Section 250 and Section 251 of the National Internal Revenue Code (NIRC), a compromise penalty under RMO No. 7-2015, and — for willful violations — criminal liability under Section 255. Because BIR Form 2306 documents final withholding tax (FWT), the exposure sits almost entirely with the withholding agent, not the payee — a structural difference from BIR Form 2307 that changes how these penalties actually play out.

This guide is a companion to What Is BIR Form 2306?, which covers the 20-day issuance rule and which payments use the form. Here, the focus is strictly on late issuance, non-issuance, and under-withholding penalties for BIR Form 2306 specifically.

What penalty applies to late issuance of BIR Form 2306? #

Late issuance of BIR Form 2306 — missing the 20-day-after-quarter-close deadline set by Revenue Regulations No. 11-2018 — is treated as a failure to file a required information return under Section 250 of the NIRC. The certificate qualifies as an information return because RR No. 2-98 prescribes it as the payee’s official record of final tax withheld, and the Tax Code penalizes late or missing information returns on a per-failure basis.

Section 250 itself states the rule directly:

“In the case of each failure to file an information return, statement or list, or keep any record, or supply any information required by this Code or by the Commissioner on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the Commissioner, be paid by the person failing to file, keep or supply the same, One thousand pesos (P1,000) for each such failure: Provided, That the aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty-five thousand pesos (P25,000).”

— National Internal Revenue Code, Section 250

In practice: a withholding agent who issues BIR Form 2306 to 40 depositors or payees a quarter late doesn’t face P40,000 in exposure — the P25,000 annual cap limits it — but the P1,000-per-certificate structure still adds up fast for any agent with more than 25 late or missing certificates in a year, and it applies regardless of whether the underlying final tax was correctly withheld.

What penalty applies if final tax was never withheld at all? #

Failing to withhold the final tax in the first place — as opposed to withholding correctly but issuing the certificate late — is a Section 251 violation, not a Section 250 one, and it is measured against the tax itself rather than a fixed per-certificate amount. Section 251 makes a withholding agent liable for a penalty equal to the total tax that should have been withheld or remitted, on top of the deficiency tax, the standard 25% surcharge, and interest on the unpaid amount.

Why does a BIR Form 2306 failure land differently than a BIR Form 2307 failure? #

Because BIR Form 2306 documents final withholding tax, the withholding agent — not the payee — carries essentially all of the downstream exposure when withholding goes wrong, which is not automatically true for creditable withholding tax under BIR Form 2307. Under the final withholding system, the tax withheld is the payee’s full and final settlement on that income; the payee doesn’t separately report or reconcile it on their own return.

Revenue Regulations No. 2-98, Section 2.57(A), sets out exactly why the exposure sits with the payor:

“Final Withholding Tax. — Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax return for the particular income.”

— Revenue Regulations No. 2-98, Section 2.57(A)

The practical consequence: if a bank or corporation under-withholds final tax on interest or dividends, the BIR pursues the payor for the deficiency, surcharge, and interest under Section 251 — the depositor or shareholder who received the income isn’t expected to compute or remit the shortfall themselves. That’s the opposite of how some creditable withholding failures can ripple back onto a payee’s own filing position, and it’s a reason FWT compliance failures concentrate risk on the withholding agent alone.

When does a BIR Form 2306 violation become a criminal matter? #

A BIR Form 2306-related violation becomes a criminal matter under Section 255 of the NIRC only when the failure to withhold, remit, file, or supply correct information is willful — not for an isolated late certificate or a one-off clerical error. Section 255 carries a fine of not less than P10,000 and imprisonment of one to ten years, and it applies in addition to, not instead of, the civil penalties under Sections 250 and 251.

Most real-world gaps — a certificate issued a few weeks late, a single payee missed during a system migration, a TIN typo on one certificate — are handled administratively rather than criminally. Willfulness typically becomes a live concern with a documented, repeated pattern of non-withholding or non-filing rather than a one-time lapse.

What is RMO No. 7-2015 and does it still apply to BIR Form 2306 violations? #

RMO No. 7-2015, the Revised Consolidated Schedule of Compromise Penalties, gives the BIR a fixed-amount way to settle non-fraudulent Tax Code violations — including BIR Form 2306 issuance and withholding failures — instead of pursuing criminal prosecution under Section 255. The schedule remains the BIR’s operative compromise framework; it has not been repealed, only adjusted. Revenue Regulations No. 6-2024, effective April 27, 2024, reduced compromise penalty amounts under the schedule by 50% specifically for taxpayers classified as micro and small under the Ease of Paying Taxes (EOPT) Act — it narrowed amounts for that segment rather than replacing the schedule itself.

What a compromise penalty does and doesn’t do:

• It settles violations that are not fraudulent — fraud is excluded from compromise and must be pursued criminally under Section 255
• It is offered in lieu of criminal prosecution, not as a substitute for paying the underlying deficiency tax, surcharge, and interest
• The compromise amount is assessed separately from, and in addition to, the Section 250 or Section 251 civil penalty it relates to

Worked example: a bank that issues BIR Form 2306 late on depositor interest #

A domestic bank credits ₱50,000 of deposit interest to a resident individual depositor in the first quarter of 2026, correctly withholds 20% final tax under NIRC Section 24(B), but its back office misses the April 20 deadline and issues BIR Form 2306 six weeks late.

Because the bank withheld and remitted the ₱10,000 correctly, only the late-issuance penalty under Section 250 applies here — not the far larger Section 251 exposure, which is measured against the tax itself. Had the bank instead failed to withhold the 20% final tax on the ₱50,000 interest entirely, the exposure would shift to a ₱10,000 penalty under Section 251 (equal to the unwithheld tax), plus the 25% surcharge, interest, and the underlying ₱10,000 deficiency tax — a materially larger number than the fixed, capped Section 250 penalty for a late certificate alone. That gap is the clearest illustration of why “issued late” and “never withheld” sit under different NIRC sections with very different stakes.

Frequently asked questions #

What is the penalty for late issuance of BIR Form 2306? #

Late or missing issuance of BIR Form 2306 is treated as a failure to file a required information return under Section 250 of the National Internal Revenue Code (NIRC), carrying a penalty of P1,000 for each such failure, up to an aggregate of P25,000 per calendar year, separate from any compromise penalty under RMO No. 7-2015.

What happens if a withholding agent fails to withhold final tax at all? #

Under Section 251 of the NIRC, a withholding agent who fails to withhold, account for, or remit final withholding tax is liable for a penalty equal to the total amount of tax that should have been withheld or remitted, on top of the deficiency tax itself, plus the standard surcharge and interest.

If a bank or company fails to withhold final tax, is the payee also liable? #

Generally no. Under Section 2.57(A) of Revenue Regulations No. 2-98, the liability for final withholding tax rests primarily on the payor as withholding agent, and any deficiency from a failure to withhold or under-withholding is collected from the payor, not the payee, because the payee is not required to file a return for that already-finalized income.

Can a BIR Form 2306 violation become a criminal matter? #

Yes, but only for willful violations. Section 255 of the NIRC imposes a fine of not less than P10,000 and imprisonment of one to ten years for willful failure to withhold or remit tax, file returns, or supply correct information, separate from and in addition to the civil penalties under Sections 250 and 251.

Does RMO No. 7-2015 still apply to BIR Form 2306 violations? #

Yes. RMO No. 7-2015’s Revised Consolidated Schedule of Compromise Penalties remains the BIR’s operative framework for settling non-fraudulent withholding violations, including those tied to BIR Form 2306, and it has since been supplemented — not replaced — by Revenue Regulations No. 6-2024, which reduced compromise penalty amounts by 50% for micro and small taxpayers.

Summary #

BIR Form 2306 penalties split along the same line as the underlying failure: issue the certificate late or not at all after withholding correctly, and Section 250 applies (P1,000 per failure, capped at P25,000 a year); fail to withhold the final tax itself, and Section 251 applies (a penalty equal to the unwithheld amount, plus surcharge and interest) — a materially larger exposure. RMO No. 7-2015 still governs compromise settlement for non-fraudulent cases, narrowed for micro and small taxpayers by RR No. 6-2024, and Section 255 criminal liability is reserved for willful, repeated violations. The structural difference from BIR Form 2307 is worth remembering: because final withholding tax fully settles the payee’s liability, RR No. 2-98’s Section 2.57(A) puts the deficiency risk on the payor, not the payee, which is exactly why getting BIR Form 2306 right the first time matters more to the withholding agent than it does anywhere else in the withholding system.

For the equivalent penalty structure on creditable withholding tax, see BIR Form 2307 Penalties; for the compensation-side certificate, see BIR Form 2316 Penalties. For how all three certificates’ deadlines compare side by side, see Withholding Certificate Deadlines in One Table.