Kinds of income and will be taxed on the
income tax of individuals excess, but the MWE will
not lose his/her status as
Income tax formula for
such. Workers who
individuals
receive the statutory
Gross Income minimum wage as their
Less: Deductions (either basic pay remain MWEs.
itemized or optional standard - Also, the receipt of other
deduction) income during the year
Taxable Income does not disqualify them
x Tax Rate as MWEs.
Tax Due - Hence, bonuses and
other benefits received
above the present
Citizens (resident and statutory limit (now
nonresident) and resident P90,000 because of
aliens TRAIN) are taxable.
Take note: (Soriano v. Secretary of
Finance)
Income tax is imposed
upon taxable compensation The tax treatment of the
or employment income, following taxpayers:
business income, and (1) Individuals earning
income derived from the purely compensation
practice of professions income: taxed under the
derived by citizens and graduated rates
resident aliens.
Compensation income is all
Married individuals shall remuneration for services
compute separately their performed by an employee for
Individual income tax based his employer under an
on their respective total employer-employee
taxable income. relationship.
As long as there's an
Minimum wage earners are employer-employee
exempt from the payment relationship, remuneration
of income tax on their arising from it will be
taxable income. Holiday considered compensation
pay, overtime pay, night income.
shift differential pay, and
(2) Self-employed
hazard pay received by
individuals earning
them are likewise exempt
income purely from self-
from income tax.
employment or practice
of profession whose
- A MWE who receives
gross sales/ receipts and
taxable income in excess
other non-operating
of the minimum wage
Income do not exceed liable for the 3%
P3,000,000, a.k.a. the percentage tax under
VAT threshold: given two Section 116.
choices— either: a) The taxpayer must signify
under the graduated his or her intention to use
rates or b) 8% income the 8% tax rate in the 1st
tax rate quarter of the percentage/
income tax return. If not,
A self-employed individual is a
he or she is deemed
sole proprietor or an
considered to have chosen
independent contractor who
the graduated rates.
reports income earned from
self-employment.
A professional is a person Take note! What happens if
formally certified by a your gross sales/receipts and
professional body belonging to other non-operating income
a specific profession (like a exceed the P3,000,000 VAT
lawyer or a doctor). It also threshold?
refers to a person who
You are automatically
engages in some art or sport
subject to the graduated
for money as a means of
rates and can no longer
livelihood, rather than as a
use the 8% income tax
hobby.
rate.
self-employed individuals and You will also be subject
professionals have a choice to to other business taxes,
avail of: if any.
(a) The graduated rates;
or Take note of the different tax
(b) An 8% tax on gross base for computing the
sales/receipts and graduated rates and the 8%
other non-operating income tax rate.
income in excess of
Graduated rates: taxable
P250,000 in lieu of the
income
graduated income tax
8% income tax rate:
rates and the
gross sales/receipts and
percentage tax under
other non-operating
Section 116, NIRC.
income to be reduced by
Rules on availing the 8% tax P250,000.
rate: TAKE NOTE! o Gross receipts
The first P250,000 is not include all kinds of
subject to tax, since what is deposits. However,
taxed is anything in excess returnable deposits
of P250,000. or deposits held in
If you choose the 8% tax trust and recorded
rate, then you won't be as liability are
excluded. (RMC 50- Take note! it's basically just a
2018). combination of the rules.
Mixed income earners are
The 8% tax rate option is not taxed in this way:
available to the following:
For compensation income,
Purely compensation straight out use the
income earners (since they graduated rates;
have to use the graduated For income from business
rates); or practice of profession,
VAT-registered taxpayers, it’ll depend whether their
regardless of their gross gross sales/receipts and
sales/receipts and other other non-operating income
income; exceed the VAT threshold:
Non-VAT taxpayers whose o If it exceeds the VAT
gross sales/ receipts and threshold, then
other non-operating income straight out use the
exceeded the P3,000,000 graduated rates for
VAT threshold; that too.
Taxpayers subject to Other o If it does not exceed
Percentage Taxes (except the VAT threshold,
those under Section 116, then the taxpayer has
NIRC); a choice to use either
Partners of a general the graduated
professional partnership rates; or
since their distributive 8% income tax
share from the GPP is based on gross
already net of costs and sales/receipts
expenses; and and other non-
Individuals enjoying income operating income
tax exemption (like those in lieu of the
registered as Barangay graduated rates
Micro Business and percentage
Enterprises). tax under Section
116.
(3) Mixed income earners, or
Take note! The total income
those who earn Income
tax liability of the mixed
from both compensation
income earner is the sum of
and from self-
the liability for compensation
employment: taxed
income and liability for the
under the graduated
income from business or
rates for their
practice of profession.
compensation income
and for their self- Take note! Mixed income
employment income, it earners are not entitled to the
will depend on VAT P250,000 reduction because
threshold. this has already been applied
in computing the income tax Prizes exceeding 20%
P10,000 (prizes
on compensation. amounting to
P10,000 or less
shall be taxed
under Section
PASSIVE INCOME 24[A])
Winnings (except 20%
PCSO and Lotto
winnings
Take note! That passive
amounting to
income is usually subject to P10,000 or less,
final tax. In other words, the which shall be
exempt)
income from these passive Dividend from a 10% (vs. 20%
sources is not used in domestic for nonresident
computing the gross income corporation, or aliens engaged in
from a joint trade/ business)
to determine the tax bracket stock company,
of the individual. The tax insurance or
liabilities from this passive mutual fund
company, and
income are withheld with regional
finality by the income payor; operating
headquarters of
hence, their nature as "final" multinational
taxes. company or
share in the
- Final Income tax are distributive net
interests, royalties, income after tax
of a partnership
awards, dividends, (except a
capital gains on sale of general
shares, realty professional
partnership),
Tax Rate on Final Tax joint stock or
Certain Passive joint venture or
Income on consortium
Citizens and taxable as a
Resident Aliens corporation
Interest under 15% (vs. exempt Interest on long- exempt
the expanded for nonresident term deposit or
foreign currency aliens engaged in investment in
deposit (FCD) trade/business) banks (with
system (see R.R. maturity of five
10-98 below) years or more)
Nonresident
citizens: exempt
Royalties from 10% For nonresident citizens and
books, literary
aliens, the passive income
works, and
musical from abroad is not taxable in
compositions the Philippines. Take note!
Royalties other 20%
than above
Royalties and other income
Interest on any 20% must come from within the
current bank Philippines since these
deposit, yield or
other monetary taxpayers are only taxed from
benefits from sources within the Philippines.
deposit However, note that dividends
substitute, trust
fund and similar from a foreign corporation
arrangement may be considered sourced
within the Philippines under lenders) other than by way of
Section 42. If these dividends deposit with banks through
can be grounded locally, the the issuance of debt
income here enters into the instruments (like banker's
computation of taxable acceptances, promissory
income under Section 24(A). notes, repurchase
agreements, certificates of
For resident citizens, passive
assignment or participation).
income that come from
outside the Philippines goes - when funds are
into their gross income (and simultaneously obtained
thus subject to the graduated from more than 20
rates under Section 24[A]) lenders/investors —
because resident citizens are whether in the primary
taxed from income sourced or secondary market —
worldwide. the instrument is
deemed a deposit
A note on interest income
substitute.
from foreign currency
deposits Type of Tax Rate Basis
income
Tax Rate on Interest Income Interest or 20% (Final Section
from Foreign Currency Deposit yield from Withholdin 24(B)
(FDC) deposit g) (1);
Interest income 15% substitute Section
actually received 25(A)
by a resident (2)
citizen or Interest Exempt Section
resident alien income from 24 (B)
from FCD long-term (1);
If it was Exempt deposits or Section
deposited by an placements 25 (A)
OCW or seaman with banks (2)
or nonresident Interest 5% if the Section
citizen income if remaining 24(B)
If it was in a 50% exempt/ preterminat maturity is (1);
bank account in 50% final ed 4 years to Section
the joint names withholding tax less than 5 25(A)
of an OCW and Of 15% years, (2)
his spouse (who 12%, if the
is a resident) remaining
interest income 15% maturity is
actually received 3 years to
by a domestic less than 4
corporation or years, 20%
resident foreign if the
corporation from remaining
FCD maturity is
less than 3
years
A note on deposit
substitutes
Capital Gains Tax (CGT)
A deposit substitute is a
Capital gains tax only applies
means of borrowing money
to the sale or disposition of
from the public (20 or more
the following:
individual or corporate
Shares of stock of a the final capital gains tax of
domestic corporation not 15%
traded through the local o Subject to tax only if it
stock exchange; and results into a gain.
Sale of real property In the
Who are liable for capital
Philippines which is held as
gains tax?
a capital asset.
Tax Rate on Capital Gains
(1) Individual taxpayer,
On sale of shares 15% of the net whether citizen or alien;
of stock of a capital gains (2) Corporate taxpayer,
domestic
corporation not
whether domestic or
traded through a foreign;
local stock (3) Other taxpayers not
exchange held as
a capital asset falling under (1) and (2)
On sale of real 6% of the gross above, such as estate,
property in the selling price, or trust, trust funds and
Philippines held the current
as a capital asset market value at pension funds, among
the time of sale. others.
whichever is
higher Who are exempt from
Tax Rate on Income from Sale,
capital gains tax?
Barter, Exchange or other
Disposition of Shares of Stock of
(1) Dealers in securities (in
Domestic Corporations
If shares of stock 6/10 of 1% of terms of CGT for shares
are listed and the gross selling of stock);
traded through or gross value in
the local stock money of the
(2) Investors in shares of
exchange shares of stock stock in a mutual fund
If shares not 15% of the net company, as defined in
traded through capital gains
the local stock Section 22(BB), and
exchange Section 2(s) of R.R. 6-
2008, in connection with
Implications on shares of the gains realized by said
stock listed and traded in the investor upon
stock exchange from those redemption of said
that are not (applies also to shares of stock in a
corporations): mutual fund company;
and
Those listed and traded is (3) All other persons,
subject to the final whether natural or
percentage tax of 6/10 of juridical, who are
1% on the GROSS SELLING specifically exempt from
PRICE. (Stock Transaction national internal revenue
Tax) taxes under existing
o Hence, imposed investment incentives
whether there was a and other special laws.
gain or not.
Those NOT traded, the net
capital gain is subject to
TAXABLE INCOME condominium corporation's
responsibility to effectively
-Sec. 31. Taxable Income
oversee, maintain, or even
Defined. — The term taxable
improve the common areas
income means the pertinent
of the condominium as well
items of gross income
as its governance. (BIR v.
specified in this Code, less the
First E-Bank Tower
deductions, if any, authorized
Condominium Corp., G.R.
for such types of income by
Nos. 215801 & 218924, 15
this Code or other special
January 2020, which
laws.
invalidated the
Gross Income controversial RMC 65-2012)
Less: deductions Membership fees,
Taxable income assessment dues, and
Gross income means ALL other fees of similar nature
INCOME derived from of recreational clubs are not
WHATEVER SOURCE. This subject to income tax.
includes, but is not limited to, These only constitute
the enumeration in the codal. contributions to and/or
replenishment of the funds
Take note! Gross receipts (and for the maintenance and
thus, gross income) do not operations of the facilities
include monies or receipts offered by the clubs to their
entrusted to the taxpayer exclusive members.
which do not belong to them (Association of Non-Profit
and do not redound to the Clubs v. BIR, G.R. No.
taxpayer's benefit; and it is 228539, June 26, 2019).
not necessary that there must
be a law or regulation which Take note! As long as these
would exempt such monies membership fees, dues, and
and receipts within the the like are treated as
meaning of gross receipts collections as inherent
under the Tax Code. consequences of membership
and are, by nature, intended
Not included in Gross Receipts for the maintenance,
Condominium association preservation, and upkeep of
dues, membership fees, the recreational clubs' general
and other operations and facilities, these
assessments/charges are cannot be classified as
not subject to income tax income. It only forms part of
because they do not capital.
constitute profit or gain. WHAT ARE INCLUDED IN
These are collected purely THE GROSS INCOME?
for the benefit of the
condominium owners and 1. Compensation
are the incidental -
consequence of a
