CHARACTERISTICS OF THE REGULAR INCOME TAX

General coverage
The regular income tax applies to all items of taxable income except those that are
Subject to final tax, capital gains tax, and special tax regimes.

Net income taxation

The regular tax is an imposition onrresiaual profits-or-gains after deduction for
expensens of business or practice of profession.

Annual income tax

The regular income tax applies. on:yearly profits or gains. The gross income and
expenses of the taxpayer are measured using the accounting methods adopteq by the
taxpayer and are reported to the government over the accounting period selected by
the taxpayer.

Creditable withholding taxes

Most items of regular income are subject to creditable withholding tax (CWT), These
creditable withholding taxes are advanced taxes that must be deducted against regular
tax due in computing the tax still due to the government.

Progressive or proportional tax

The NIRC imposes a progressive tax on the. taxable income of individuals while it
imposes a flat or proportional tax of 25% upon the taxable income of corporations.

GROSS INCOME
Gross income constitutes all items of income that are neither excluded in gross
income nor subjected to final tax or capital gains tax.

Exclusions from gross income – are income which will not be subject to income tax.
They are not included in gross income subject to regular tax, capital gains tax, or final
tax.

Under Section 32B of the NIRC, the following items shall not be included in gross
income and shall be exempt from taxation.
A. Proceeds of life insurance policy paid to the heirs, or beneficiaries upon the death
of the insured, whether in a single sum or otherwise. However, if such amounts are
held by the insurer under an agreement to pay interest thereon, the interest payments
shall be included in gross income.

B. Amount received by the insured as a return of premium – The amount received by

the insured as a return of premium on any insurance contract (even property insurance
contracts) is a return of capital.

C. Gifts, bequests, and devices or descent – The value of property acquired—this is

subject to transfer tax. However, the income therefrom after the perfection of the
donation is an item of gross income.
 Gifts are given without any consideration while exchange always involves
consideration.
 D. Compensation for injuries and sickness – amounts received through accident or
health insurance, plus any damages received whether by suit or agreement, on account
of such injuries or sickness.

E. Income exempt under treaty – Treaty agreements override provisions of our

revenue tax laws in case of conflict under the exemption doctrine of international
comity.

F. Retirement benefits, pensions, gratuities, and other benefits

1. Retirement benefit under RA 7641 endows received by officials and employees of
private firms in accordance with a reasonable benefit plan maintained by the
employer.
 Requisites for exemption:
a. First-time availment of retirement benefit exemption
b. The retiring official or employee has been in the services of the same employer for
at least 10 years (10 years cumulative not continuous)
c. At least 15 years of age at the time of retirement
d. The employee maintains a reasonable private benefit plan (must be a trusted plan
where the fund is held under the management of a trustee free from both employer
and employee control)
2. Separation or termination
 Requisites of exemption
a. The separation or termination must be due to job threatening sickness, death or
other physical disability
b. The same must be due to any cause beyond the control of the employee or official
such as redundancy, retrenchment, closure of employer’s business, employee layoff,
downsizing of employer’s business, and sickness or death of employee (connotes
involuntariness on the part of employee)
 The exemption does not extend to
1. Back wages or illegal deductions repaid by the employer upon termination
2. Terminal leave pay or the commutation of accumulated unused leave credits To
avail, the employee or his heirs shall request for Certificate of Exemption (CTE)
3. Social Security Benefits, Retirement Gratuities, and other similar benefits from
foreign government agencies and other institutions, private or public, received by
resident or non resident citizens or aliens who come to settle permanently in the
Philippines
4. United States Veterans Administration (USVA) - administered benefits under the
laws of the US received by any person residing in the PhilippinesEven the benefits for
beneficiaries of Filipino veterans
5. Social Security System (SSS) benefits under RA 8282
6. GSIS Benefits under RA 8291 including retirement gratuity received by
government officials and employees

Prizes and awards in sports competitions granted to athletes--in local or international

competitions and tournaments whether held in the Philippines or abroad sanction by
their national sports association
5. Contributions for GSIS, SSS, PhilHealth, Pag-Ibig, and Union dues of individuals
These pertain to the employee share in the premium contributions. The exclusion
pertains only to the mandatory or compulsory monthly contributions. Voluntary
contributions in excess of mandatory contributions are taxable.
 13th Month Pay and Other Benefits received by officials and employees of
public/private
entities not exceeding 90,000.

INCLUSION IN GROSS INCOME

ITEMS OF GROSS INCOME OR INCLUSION IN GROSS INCOME
Gross income includes, but is not limited to, the following items:
1. Compensation for services in whatever form paid
2. Gross income from the conduct of trade, business, or exercise of a profession
3. Gains derived from dealings in properties
4. Interest
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10.Pensions

De Minimis Benefits – are facilities or privileges such as entertainment, medical

services,or courtesy discounts on purchases that are of relatively small value and are
furnished by the employer merely as a means of promoting the health, goodwill,
contentment, or efficiency of his/her employees.
RR5 – 2011 De Minimis Benefits was restricted to mean only the following:
1. Monetized unused vacation leave credits of private employees not exceeding 10
days during the year
2. Monetized unused vacation and sick leave credits paid to government officials and
employees
3. Medical cash allowance to dependents of employees not exceeding 1,500/semester
per employee, or 250 per month
4. Rice subsidy not exceeding 2000 or 1 sack of 50 kg rice/month not exceeding 2000
5. Uniform and clothing allowance not exceeding 6,000/annum
6. Actual medical assistance not exceeding 10,000/annum
7. Laundry allowance not exceeding 300/month
8. Employee achievement reward – must be in form of tangible personal property
not exceeding 10,000/annum, under an established written plan, does not
discriminate in favor of highly paid employees
9. Gifts given during Christmas and major anniversary celebrations not
exceeding5,000/annum per employee
10. Daily meal allowance for overtime work and night or graveyard shift not
exceeding 25% of the basic minimum wage on a per-region basis
11. Benefits received by an employee by virtue of a collective bargaining agreement
(CBA) and productivity incentive schemes provided that the total annual monetary
value received from both CBA and productivity incentive schemes combined do not
exceed 10,000 per employee taxable year
Note: if the amount exceeds 10,000, the entire amount is a taxable “other benefits”.

13th Month Pay and Other Benefits include:

1. 13th-month pay
For government employees – consists of Christmas bonus equivalent to one-month
salary plus a 5000 cash gift.
For private employees – equivalent to one-month salary.
2. Other benefits
a. Christmas bonus of private employees
b. Cash gifts other than Christmas or anniversary gifts of private employees
c. Additional compensation allowance (ACA) of government personnel
d. 14th-month pay, 15th-month pay, etc.
e. Other fringe benefits of rank-and-file employees

Taxability of Minimum Wage Earners (MWEs)

Minimum wage earners are exempt from income tax on the following:
1. Basic minimum wage
2. Other benefits
a. Holiday pay
b. Hazard pay
c. Overtime pay
d. Night shift differential pay
presented as non-taxable compensation income and deducted in the amount of
taxable compensation income.

Receipt of Other Taxable Income by Minimum Wage Earners

The MWEs are still exempt from income tax from the foregoing benefits even if they
receive other taxable compensation. However, they may be subjected to tax if their
other taxable income exceeds the 250,000 for the year