QAP Reporting When a Payee Is Also Your Employee

When a business pays someone who is both a regular employee and a separate, independent payee — for example, an employee who also leases storage space to the company or takes on a distinct side engagement — the non-employment payment is its own income stream, reported on the Quarterly Alphalist of Payees (QAP) and subject to expanded withholding tax, even though that same person’s salary is separately reported on the BIR Form 1604-C alphalist of employees. The two payments never belong on the same alphalist.

Why can the same person show up on two different BIR alphalists? #

A single individual can generate two legally distinct income streams from the same payor — wages from an employer-employee relationship, and a separate payment for something unrelated to that job, such as rent, a freelance repair job, or a consulting engagement done outside work hours. Philippine withholding law treats these as two separate transactions because they arise from two separate legal relationships, not because of who the payee happens to be.

A common real-world pattern: a company mechanic employed full-time in the motor pool also fixes a delivery van for the same employer on a weekend, billed and paid separately from payroll. Or, as in the worked example below, an employee who happens to own a small storage unit leases it to their own employer for company use. In both cases, the person is simultaneously an employee (for one purpose) and an independent payee (for the other), and the BIR’s withholding and alphalist rules require each stream to be reported on its own track.

What does RR No. 2-98 say about the two withholding tracks? #

Revenue Regulations (RR) No. 2-98, as amended, runs compensation withholding and expanded withholding tax (EWT) as two separate sections with two separate triggers — one keyed to an employer-employee relationship, the other to a payment for property, services, or professional work outside that relationship. Section 2.78.1 governs withholding tax on compensation and applies specifically to remuneration an employer pays an employee for services performed under an employer-employee relationship — the salary, wages, and regular pay covered by BIR Form 1601-C and certified annually on BIR Form 2316.

Section 2.57.2, by contrast, covers income payments that fall outside that employment relationship — rentals, professional fees, and a long list of other payment types — regardless of whether the payee also happens to work for the payor in some other capacity. The rental category is one of the most common ways an employee ends up on the payor’s own QAP. Section 2.57.2(B) fixes the rate directly:

“On the gross rental for the continued use or possession of real property used in business which the payor or obligor has not taken or is not taking title, or in which he has no equity — Five percent (5%)”

— Section 2.57.2(B), Revenue Regulations No. 2-98, as amended by RR No. 11-2018

Nothing in either section conditions the applicable withholding track on whether the payee holds some other, unrelated relationship with the payor. What decides the track is what the specific payment is actually for. For the general test used to tell an employee’s pay from an independent payee’s fee in the first place, see Employee or Independent Contractor? Why BIR Withholding Tax Treatment Depends on the Answer — the same control-test logic applies here to the non-employment engagement, even though the same individual is unambiguously an employee for their regular job.

Does QAP care whether the payee is also your employee? #

QAP has no carve-out for a payee who happens to also be on the payor’s own payroll — it simply lists every payee the withholding agent deducted expanded or final withholding tax from during the quarter, and an employee paid for something outside their job is, for that one payment, an EWT payee like any other. QAP is filed as an attachment to BIR Form 1601-EQ or 1601-FQ under the framework RR No. 11-2018 built on top of RR No. 2-98’s withholding rules, and its listing requirement runs off the fact that a payment was subject to EWT — not off any check on whether the recipient has a second, unrelated relationship with the payor. See What Is QAP? for the full field-by-field breakdown of what a QAP row must contain.

Practically, this means a single individual can legitimately appear:

• On the Alphalist of Employees feeding BIR Form 1604-C, for their salary
• On the QAP, feeding BIR Form 1604-E, for an unrelated non-employment payment

Both listings are correct and both are required — one does not substitute for, or excuse, the other.

Worked example: Maria’s salary and Maria’s storage unit #

The payee below is fictional, illustrating a dual-income-stream scenario rather than an actual taxpayer record.

Maria is a full-time accounting staff employee at a mid-sized distribution company, earning a monthly salary of ₱28,000. Separately, Maria owns a small storage unit near the company’s warehouse and leases it to her own employer for ₱8,000 a month to store overflow inventory — a transaction wholly unrelated to her accounting job, billed and paid under its own lease agreement.

The company’s payroll system withholds ₱1,075 from Maria’s salary each month under the compensation table and reports it through BIR Form 1601-C; her year-end BIR Form 2316 reflects the salary only. Separately, the company’s accounts payable function withholds ₱400 from the monthly lease payment under ATC WI100, issues Maria a BIR Form 2307 for the lease, and includes that ₱8,000/₱400 row on the quarter’s QAP — using the same TIN Maria uses everywhere else, since a payee has only one TIN regardless of how many roles they occupy. Maria’s QAP row looks exactly like any other individual lessor’s row; nothing on the QAP DAT layout flags her as also being an employee, and nothing needs to.

Mistakes to avoid when a payee is also an employee #

The most common error is commingling the two streams — netting the lease payment into payroll, reporting the rent on the Alphalist of Employees, or skipping the QAP filing because “she’s already on our 1604-C.” None of these are correct, and each creates a downstream problem:

• Reporting the lease as additional compensation. Running the ₱8,000 through payroll and withholding it under the compensation table instead of the 5% EWT rate applies the wrong withholding system to income that isn’t compensation at all — see Employee or Independent Contractor? for what an examiner does with a misclassified payment.
• Issuing BIR Form 2316 instead of BIR Form 2307 for the lease. BIR Form 2316 certifies compensation income only; a non-employment payment needs its own BIR Form 2307, separate from the year-end compensation certificate.
• Skipping the QAP row because the payee is “already covered” on 1604-C. The two alphalists cover different transactions and different forms; leaving the lease off QAP understates the company’s expanded withholding tax return and its own BIR Form 1604-E at year-end.
• Using a different TIN format or a truncated TIN for the QAP row. A payee’s TIN must match exactly across every filing that names them; a mismatch here can trigger the same kind of validation rejection covered in What to Do When a Payee Gives You a Wrong or Missing TIN for QAP Reporting.

Step-by-step: reporting the non-employment payment correctly #

1. Confirm the payment is for something outside the employment relationship — a lease, a separate contracted job, professional services, or another category under RR No. 2-98, Section 2.57.2.
2. Apply the EWT rate for that category, not the compensation withholding table — 5% for a real property lease under Section 2.57.2(B), or the applicable rate for the specific payment type.
3. Issue a BIR Form 2307 for the payment, separate from any BIR Form 2316 the payee also receives as an employee.
4. Include the payment on that quarter’s QAP, using the payee’s correct TIN, the applicable ATC (WI100 for an individual lessor), the gross payment, and the tax withheld.
5. Keep the compensation and non-employment records in separate systems or ledgers so payroll totals and QAP totals never get combined by mistake.
6. Validate and submit the QAP DAT file through the BIR Alphalist Data Entry and Validation Module before the 1601-EQ/1601-FQ deadline for the quarter.

Summary #

A payee’s other relationship with the payor — including being that payor’s own employee — does not change how a non-employment payment is withheld or reported. RR No. 2-98 splits withholding into two tracks based on what the payment is for: compensation under Section 2.78.1 for services performed under an employer-employee relationship, and expanded withholding tax under Section 2.57.2 for everything else, including a lease like Maria’s storage unit at 5% under Section 2.57.2(B). QAP lists EWT payees regardless of whether they also appear on the company’s own payroll, so the fix is procedural, not conceptual: keep the two streams in separate ledgers, apply the correct withholding rate and certificate to each, and make sure the non-employment payment lands on the QAP even though the same person’s salary is already accounted for on BIR Form 1604-C. For the TIN-matching side of a clean QAP row, see What to Do When a Payee Gives You a Wrong or Missing TIN for QAP Reporting; for the classification test behind the non-employment engagement itself, see Employee or Independent Contractor?.

Sources #

Primary sources

• BIR — Bureau of Internal Revenue
• Revenue Regulations No. 2-98, Sections 2.57.2(B) and 2.78.1, as amended by Revenue Regulations No. 11-2018

Secondary sources

• Tax and Accounting Center, Inc. — 21 Items Subject to Expanded Withholding Tax under TRAIN (RA 10963)
• Grant Thornton Philippines — Submitting the Quarterly Alphabetical List of Payees (QAP)