11 SENIOR HIGH SCHOOL

FABM 2
Quarter 4 Module 5
Computing Gross Taxable Income
and Tax Due

NegOr_Q4_FABM211_Module5_v2

NegOr_Q4_FABM211_Module5_v2
FABM 2 Grade 11
Alternative Delivery Mode
Quarter 4 Module 5: Computing Gross Taxable Income and Tax Due
Second Edition, 2021

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NegOr_Q4_FABM211_Module5_v2
Introductory Message

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 I

This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at our own pace and time. You will be enabled to process
the contents of the learning resource while being an active learner.

The module is intended for you to explain the procedure in the computation of
gross taxable income and tax due.

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 I

Pre-assessment:
I. Identification: Identify the terms described in the sentences below. Choose your answer
from the word pool provided. Write the letter of your answer in your
activity notebook.

a. BIR Form 1700 d. Income Tax

b. BIR Form 1701 e. Income Tax Return

c. BIR Form 1701A f. Optional Deduction

1. It is a tax on the net income of an individual or a business.

2. It is the annual tax form that individuals file every April 15th of the following year.
3. This form will be used if an individual is earning purely business income or income
from your profession.
4. This form will be used by a mixed-income individual or those who opt for chosen
Graduated Tax rate with an Itemized Deduction Method.
5. This allows an individual to claim a deduction of 40% from his/her gross sales or
receipts for the quarter.

II. TRUE or FALSE. Read and analyze each statement below. Determine whether the
statement is TRUE OR FALSE. Write TRUE if the statement is
correct and write FALSE if otherwise. Write your answer in your
activity notebook.

1. Income Tax Return will be filed every 15th day of April on the same year.
2. If the annual income of an individual is beyond 250,000.00, he/she does not have to
pay and file an annual ITR.
3. Foreign corporations receiving income from sources within the Philippines needs to
file Income Tax Return.
4. Aliens, whether resident or not, receiving income from sources within the Philippines
need not to file Income Tax Return.
5. If an individual has an income of over 400,000.00 but not over 800,000.00 the
additional rate is 25%.

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III. DIRECTION. Computation. Fill out the tax rate that corresponds to the amount of Net
Taxable Income. Write your answer in your activity notebook.

Amount of Net Taxable Income

Rate
Over But Not Over
- 250,000.00 0%
250,000.00 400,000.00 11.
400,000.00 800,000.00 12.
800,000.00 2,000,000.00 13.
2,000,000.00 8,000,000.00 14.
8,000,000.00 15.

Task 1
DIRECTION: Answer the questions below. Write your answer in your activity notebook.

1. What is income?
_____________________________________________________________________
2. What is taxable income?
_____________________________________________________________________
_____________________________________________________________________
3. What is gross income?
_____________________________________________________________________
4. Who are not required to file Income Tax returns? Give at least 3.
a. ______________________________________________________
b. ______________________________________________________
c. ______________________________________________________
5. Who are exempted from Income Tax? Give at least 3.
a. ______________________________________________________
b. ______________________________________________________
c. ______________________________________________________

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 Answer the following questions in your notebook.
1. What is gross taxable income and tax due?
2. What is the procedure in the computation of gross taxable income and tax due.

is It

practice of profession, conduct of trade or business or on the pertinent items of gross income
specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions if any,
authorized for such types of income, by the Tax Code, or other special laws.

Who are Required to File Income Tax Returns?

Individuals

Resident citizens receiving income from sources within or outside the Philippines
o Employees deriving purely compensation income from two or more employers,
concurrently or successively at any time during the taxable year
o Employees deriving purely compensation income regardless of the amount, whether
from a single or several employers during the calendar year, the income tax of
which has not been withheld correctly (i.e. tax due is not equal to the tax withheld)
resulting to collectible or refundable return
o Self-employed individuals receiving income from the conduct of trade or business
and/or practice or profession
o Individuals deriving mixed income, i.e. compensation income and income from the
conduct of trade or business and/or practice of profession
o Individuals deriving other non-business, non-professional related income in addition
to compensation income not otherwise subject to a final tax
oIndividuals receiving purely compensation income from a single employer, although
the income of which has been correctly withheld, but whose spouse is not entitled to
substituted filing.
Non-resident citizens receiving income form sources within the Philippines
Aliens, whether resident or not, receiving income from sources within the Philippines

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 Non-Individuals

Corporations including partnerships, no matter how created or organized.

Domestic corporations receiving income from sources within and outside the
Philippines
Foreign corporations receiving income from sources within the Philippines
Estates and trusts engaged in trade or business

(Source: https://www.bir.gov.ph/index.php/tax-information/income-tax.html)

WHAT IS THE ANNUAL INCOME TAX RETURN?

The Income Tax Return (ITR) that most people refer to is the annual tax form that
individuals file every April 15th of the following year. This form summarizes all the income
(or loss) and individual incurred for the past year.

With the new Tax Reform Law (TRAIN), there are now 3 types of forms available to
file an annual ITR. Note that all these forms are new forms that were just recently launched.

o Form 1700 this form will be used by an individual with no other sources of income
other than employment
o Form 1701 this form will be used by a mixed-income individual or if you have
chosen Graduated Tax rate with an Itemized Deduction Method
o Form 1701A this form will be used if an individual is earning purely business
income or income from your profession
Under the new TRAIN law, those who earn less than 250,000.00 annually are
exempt from paying income tax returns. So, if an individual fall under this bracket, he/she
still have to file.

If an individual has an annual income more than 250,000.00, the TRAIN law gives
two options for filing and computing your taxes. He/she can either follow the 3% percentage
+ income tax (use the graduated income tax table) or use the new 8% Gross Receipt Tax.

After calculating taxable income, you will need to refer to the tax table below for the
tax dues.

TRAIN Tax Table

Effective until December 31, 2021

Range of Taxable Income Tax Due = a + (b*c)

Over Not Over Basic Amount Additional Rate Of Excess Over

(a) (b) (c)

- 250,000 - - -

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 250,000 400,000 - 20% 250,000

400,000 800,000 30,000 25% 400,000

800,000 2,000,000 130,000 30% 800,000

2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 - 2,410,000 35% 8,000,000
(Source: https://taxumo.com/blog/how-do-i-file-an-annual-income-tax-return/)

Computation of Income Tax Payable of Individuals (resident and non-

resident citizens)
A. Based on Graduated Income Tax Rate

Gross Income P ____________

Less: Allowable Deductions (Itemized or Optional) ____________
Net Taxable Income P ____________
Multiply by Tax Rate (0% to 35%) ____________
Income Tax Due P ____________
Less: Tax Withheld (per BIR From 2316) ____________
Income Tax Payable P ____________

In Graduated Income Tax Rate, an individual need to check first whether he/ she is on
Itemized Deduction or Optional Standard Deduction (OSD).

o OSD allows an individual to claim a deduction of 40% from his/her gross sales or
receipts for the quarter
o Itemized Deduction he/she must identify and deduct all the ordinary and necessary
expenses from his/her gross income. These expenses must attribute to the
development, management, and operation of his/her business-like travel and salaries

Now, both of the deductions have different formulas for computing your taxable
income so he/she should check the Certificate of Registration to confirm which one applies to
him/her

Steps in calculating tax payable for Graduated Income Tax Rate:

1. Compute the taxable income and
2. Based on the taxable income, refer to the tax table for how much tax you will need to
pay

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B. Based on Preferential Tax Rate of 8%
i. Taxpayers source of income is purely from self-employment

Gross Sales/Receipts P ____________

Add: Non-operating Income ____________
Gross Taxable Income P ____________
Less: Amount allowed as deduction under Sec. 24 (A)(2)(b) of 250,000.00___
NIRC, as amended
Net Taxable Income P ____________
Multiply by Tax Rate __________8%
Income Tax Due P ____________
Tax Withheld (per BIR Form 2307) ____________
Income Tax Payable P ____________

ii. Mixed Income Earner

On Compensation
Total Compensation Income P ____________
Less: Non-taxable Income ____________
13th month pay and other benefits (max) ____90,000.00
Taxable Compensation Income P ____________
Multiply by Tax Rate (0% to 35%) ____________
Tax Due on Compensation P ____________

On Business Income
Gross Sales/Receipts P ____________
Add: Non-operating Income ____________
Taxable Business Income P ____________
Multiply by Tax Rate _________8%
Tax Due on Business Income P ____________

Total Income Tax Due (Compensation + Business) P ____________

Tax Withheld (per BIR Form 2316/2307) ____________
Income Tax Payable P ____________
In 8% Income Tax Rate, the first thing we have to consider is to know whether the
individual earnings come solely from business or profession, or if it comes from
compensation (basically if the individual has an employer) and business/ profession. After
which, an individual can apply the formula table which is applicable to him/her.

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 As you can see, the 250,000.00 deduction is NOT applied for Mixed-Income
Earners. The reason for this is because the 250,000.00 has already been deducted from the
tax due based on compensation so it no longer applies to the tax from your business.

We have to note that the 13th month pay and other equivalent benefits shall not be
subject to tax for a maximum of 90,000.00. This new amount is relative increase from the
previous tax exclusion rate of 82,000.00. Anything beyond the maximum exclusion rate of
90,000.00 must be in
taxable year. This was amended by Republic Act No. 10963 or the TRAIN law on January
2018.

Source:https://www.kcrecruitment.com/hr-consulting/labor-and-employment/13th-month-pay
Example:
Ms. Leia is employed in LAQ Corporation and is also a part-time real estate agent for

year 2018.
Compute for the tax due.

Illustration: Computation
The amount subject to income tax and withholding tax shall be computed depending on the
income tax regime selected by Ms. Leia, since she is qualified to avail of such option (income
option was

agent-real estate broker, as follows:

1. Under the graduate income tax (IT) regime:

Total Income received 255,000.00

Less: Income exempt from income tax SMW 180,000.00
Taxable Income- Commission 75,000.00
Tax Due
On not %) 0.00
*Taxpayer subject to PT
2. Under the 8% IT regime:

Total Income received 255,000.00

Less: Income exempt from income tax SMW 180,000.00
Taxable Income- Commission 75,000.00
Tax Due
On not %)
6,000.00
*In lieu of graduated rates & PT

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Withholding of Taxes on Compensation
Withholding Tax on Compensation is the tax withheld from income payments to
individuals arising from an employer-employee relationship. Employers are basically
required to deduct and withhold tax from the compensation or salary paid to employees.

Below is a table showing the new matrix for computing withholding tax:

REVISED WITHOLDING TAX TABLE

Effective January 1,2018 to Dec. 31,2022
DAILY 1 2 3 4 5 6
Compensation 685 and 685 1,096 2,192 5,479 21,918
Level (CL) below

Prescribed 0.00 0.00 82.19 356.16 1,342.47 6,602.74

Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

WEEKLY 1 2 3 4 5 6
Compensation 4,808 4,808 7,692 15,385 38,462 153,846
Level (CL) And below
Prescribed 0.00 0.00 576.92 2,500.00 9,423.08 46,346.15
Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

SEMI- 1 2 3 4 5 6
MONTHLY
Compensation 10,417 10,417 16,667 33,333 83,333 333,333
Level (CL) and below
Prescribed 0.00 0.00 1,250.00 5,416.67 20,416.67 100,416.67
Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

MONTHLY 1 2 3 4 5 6
Compensation 20,833 and 20,833 33,333 66,667 166,667 666,667
Level (CL) below
Prescribed 0.00 0.00 2,500.00 10,833.33 40,833.33 200,833.33
Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

(https://governmentph.com/revised-withholding-tax/)
The computation of the deductible tax depends on whether an employee is paid daily,
weekly, semi-monthly, or monthly. It is given by the following formula:

Taxable Income = Taxable Earnings Nontaxable Deductions

Taxable earnings include the following:

o Basic Pay + Overtime Pay + Night Differential Late and Undertime
Absences + Taxable Allowances +/- Salary Adjustments
Nontaxable Deductions are comprised of the following:
o SSS or GSIS Contribution + Philhealth contribution + Pag-ibig Contribution
(mandatory amount only for HDMF contribution)

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 Once the taxable income is already known, you can now compute the withholding tax
based on the table above.

Example:

100,000.00. The
nontaxable deductions would be SSS ( 581.30), Philhealth ( 550.00), and HDMF (
100.00). Hence the total nontaxable income will amount to 1,231.30.

Solution:
Taxable Earnings 100,000.00
Less: non-taxable deductions 1,231.30
Total Taxable Compensation 98,768.70
Less: Compensation Range under Column 4 66,667.00
Excess 32,101.70
Multiply by rate 0.30
9,630.51

Tax on 66,667.00 10,833.33

Tax on excess ( 32,101.70 x 30%) __9,630.51
Total Withholding Tax 20,463.84

Source: https://tinyurl.com/4uhxm4rh

Task 2
Direction: Compute for the withholding tax for weekly wage earners. Write your
computation in your activity notebook.

are
10,000.00. The non-taxable deductions would amount to the following:

SSS 363.30; PhilHealth 125.00; HDMF 100.00

Task 3
Requirement: Compute for Net Tax Due. Write your answer in your activity notebook.
Assumptions:

Resident alien husband and wife with two dependent children.

Salary and allowances of husband arising from employment: Salary of 652,000,
living allowances of 100,000.00 and housing benefits (100%) of 300,000.

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 Teaching salary of wife: 68,000.00
Gross dividend income from investment in shares of stock of a domestic corporation
of 10,000.00.
Interest of 20,000.00 on peso bank account.
Capital gain on sale of shares of 5,000.00.
Taxes withheld by employer of husband at 118,000.00 and by employer of wife at
nil.
Husband is occupying a managerial position in the company.

I Have Learned

Task 4
Complete the following statements. Write your statements in your activity notebook.
1. I have learned that __________________________________________________.
2. I have realized that __________________________________________________.
3. I will apply ________________________________________________________.

I Can Do

Task 5
Ms. Alona is employed in LMN Corporation. She received the SMW for 2018 in the total

- 000. She also received

Compute for the withholding tax due.

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