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Chapter 11

Answer Key
True or False
1) False- As a rule, personal exemption are deducted first from compensation income.
2) True
3) False-SSS premium is nontaxable.
4) False- Royalty income is subject to final tax; hence, it should not be included in the
computation of income subject to schedular tax.
5) False- In computing the income tax, a fractional part of a peso less than 0.50 shall
be disregarded.
6) False- If the fractional part is 0.50 or more, it should be rounded off to 1.00.
7) True
8) False- The personal exemption is allowed only in his annual income tax return, when
all his income is consolidated in one annual income tax return.
9) False- The withholding tax rate used is 15% because the total professional income
exceeds 720,000 in a year.
10) True
11) False- A citizen of the Philippines residing therein is taxable for all income derived
from sources within and without the Philippines.
12) False- A nonresident citizen is taxable only on income derived from sources within
the Philippines.
13) True
14) True
15) True

Multiple Choice
1) C
Mrs. Lee Mr. Lee Total
Basic Personal Exemption -0- 50,000 50,000
Add: Additional Exemptions (25,000x3) -0- 75,000 75,000
Total personal exemption -0- 125,000 125,000

2) C
Mr. Garcia Mrs. Garcia
Basic Personal Exemption 50,000 50,000
Add: Additional Exemption (25,000x4) 100,000
Total personal exemption 150,000 50,000

3) D
4) B
5) B
6) B

7) C
Basic Personal Exemption 50,000
Add: Additional Exemption (25,000x1) 25,000
Total personal exemption 75,000

8) C
9) D
10) D
11) A
12) A
13) D
14) B
15) B
Problem A
Compensation Income (20,000x12mos.)+ (15,000x12mos.) 300,000
Less: Personal Exemption 50,000
Additional Exemption (25,000x2) 50,000
Total Taxable Income 200,000

Income tax on 140,000 22,500
Income tax on excess (200,000-140,000)x 25% 15,000
Income tax due 37,500
Less: Tax credit-withholding tax 35,000
Income tax still due and payable 2,500

*over 140,000 but not over 250,000 22,500 + 25% excess of 140,000

Problem B
Compensation Income (18,000x12mos.)+ (30,000x12mos.)+120,000 372,000
Less: Personal Exemption 50,000
Additional Exemption (25,000x3) 75,000
Total Taxable Income 247,000




Income tax on 140,000 22,500
Income tax on excess (247,000-140,000) x 25% 26,750
Income tax due 49250
Less: Tax credit-withholding tax 60,000
Income tax still due and payable (10750)

*over 140,000 but not over 250,000 22,500 + 25% excess of 140,000

Problem C
Compensation Income (30,000x12mos.) 360,000
Less: Personal Exemption 50,000
Additional Exemption (25,000x4) 100,000
Total Taxable Income 210,000

Income tax on 140,000 22,500
Income tax on excess (210,000-140,000) x 25% 17,500
Income tax due 40,000
Less: Tax credit-withholding tax (3,350x12) 39,000
Income tax still due and payable 1,000

*over 140,000 but not over 250,000 22,500 + 25% excess of 140,000

Problem D
Compensation Income (40,000x12mos.) 480,000
Less: Personal Exemption 50,000
Additional Exemption (25,000x3) 75,000
Total Taxable Income 355,000

Income tax on 250,000 50,000
Income tax on excess (355,000-250,000) x 30% 31,500
Income tax due 81,500
Less: Tax credit-withholding tax (3500x12) 42,000
Income tax still due and payable 39,500

*over 250,000 but not over 500,000 50,000 + 30% excess o 250,000
Problem E
Mr. Davis Mrs. Davis
Net taxable income, net of withholding tax 190,000 95,000

Tax on 140,000 22,500
Tax on excess (50,000 x 25%) 12,500
Tax on 70,000 8,500
Tax on excess (25,000 x 20%) 5,000
Less: withholding tax 20,000 8,000
Net taxable payable 15,000 5,500

Problem F
1.
Compensation income 400,000
Less:
Personal exemption- basic 50,000
Net taxable compensation income 350,000

2.
Tax on 250,000 50,000
Tax on excess (100,000 x 30%) 30,000
Total income tax from compensation 80,000
Dividend income tax (120,000 x 10%) 12,000
Interest income tax (500,000 x 7.5%) 37,500
Total income tax due 129,500

Problem G
1.
Compensation income (250,000 + 30,000) 280,000
Less:
Personal exemption (75,000 + 25,000) 100,000
Net taxable compensation 180,000
Business income 150,000
Less: Business income 20,000 30,000
Net taxable income 210,000
2.
Tax on 140,000 22,500
Tax on excess (70,000 x 25%) 17,500
Income tax due 40,000
Less:
Tax credit 30,000
Income tax still due and payable 10,000

Problem H

1. 425,000
Compensation income 300,000
Taxable 13
th
month pay and bonuses (50,000-30,000) 20,000
Net business income (600,000-400,000) 200,000
Capital gain32s- long-term (60,000 x 50%) 30,000
Less:
Personal exemptions (50,000 + 75,000) 125,000
Net taxable income 425,000

2. 32,500
Tax on 250,000 50,000
Tax on excess (175,000 x 30%) 52,500
Total income tax due 102,500
Less:
Income tax paid on:
Compensation 50,000
Quarterly business income 20,000 70,000
Income tax refund 32,500







Problem Solving

Problem A
Ms. Herrera is unmarried with two legal dependents. The following information is used to
determine his income tax.
Monthly salary 20,000
Monthly overtime pay 1,500
Monthly gas and food allowance 3,500
Withholding tax 35,000

Problem B
Mrs. Jolie Sy is employed as a sales manager. Her husband is unemployed for three years
now. They have four children, the eldest is 25 years old, the second is 20 years old, the
third is 18 years old and the youngest is 15 years old. For the additional information:
Monthly salary 18,000
Monthly allowance 3,000
Annual Commission 120,000
Withholding tax 60,000

Problem C
Mr. Salazar is married with five legal dependents, His salary is 30,000 per month. Tax
withheld per month 3,250.

Problem D
Ms. Santiago is head of the family with three legal dependent. Her monthly salary is
40,000. Tax withheld per month is 3,500.

Problem E
The net taxable income of Mr. Davis and Mrs. Davis are 190,000 and 95,000, respectively.
These incomes are net of withholding taxes amounting to 20,000 and 8,000, respectively.
Their respective income tax still due and payable would be:

Problem F
Mr. Craige, a married indian national, stays in the Philippines with no definite intention. He
received 400,000 compensation as a researcher of Blue Good Ocean, a domestic
corporation. In addition, he invested in the Philippines some of his savings earning
dividend income and interest income of 120,000 and 500,000, respectively.

Required:
a. Net taxable compensation income
b. Total income tax due

Problem G
Mrs. Quin Davis, single with a qualified dependent child, has the following income and
expenses during the year:

Compensation Income, net of WTW 30,000 250,000
13
th
month pay 15,000
Personal expenses 60,000
Business income 150,000
Business expenses allowed 20,000
Premium on health/hospitalization insurance paid 5,000

Required:
a. Taxable income
b. Income tax still due and payable per ITR

Problem H
An individual taxpayer, married with 3 qualified dependent children, reported the following:

Compensation income 300,000
13
th
month pay 50,000
Business income 600,000
Business expenses allowed 400,000
Dividend income 60,000
Royalty income- literature 70,000
Capital gains- long-term 60,000
Withholding income taxes paid on:
Compensation 50,000
Quarterly business income 20,000
Dividend 5,000
Royalty 8,000


Required:
a. taxable income subject to normal tax.
b. income tax still due and payable or tax refund reportable in ITR.
































Chapter 11


True or False
1. As a rule, personal exemption are added first from compensation income.
2. Income earned outside the Philippines by a nonresident alien is not subject to tax in the
Philippines.
3. SSS Premium is taxable.
4. Royalty income is subject to final tax; hence, it should be included in the computation of
income subject to schedular tax.
5. In computing the income tax, a fractional part of a peso less than 0.50 shall be
regarded.
6. If the fractional part is 0.50 or more, it should not be rounded off to 1.00.
7. For a self-employed taxpayer, his quarterly ITR (Income Tax Return) is not be reduced by
personal exemption.
8. The self-employed taxpayer is allowed only in his annual income tax return, when all his
income is consolidated in one annual income tax return.
9. The withholding tax rate used is 20% because the total professional income exceeds
720,000 in a year.
10. A foreigner who shall live in the Philippines with no definite intention as to his stay is a
resident.
11. A citizen of the Philippines residing therein is not taxable for all income derived from
sources within and without the Philippines.
12. A nonresident citizen is nontaxable only on income derived from sources within the
Philippines.
13. Personal exemptions of nonresident alien engaged in trade or business in the
Philippines shall be subject to reciprocity.
14. Withholding tax on salaries are income taxes that are temporarily based on estimate.
15. Self-employed individual is an individual taxpayer whose income is derived solely from
his own business.








Multiple Choice

1. Mr. Lee is married and his wife is a plain housewife. He has three legal dependent with a
compensation income of 150,000. How much is the personal exemption of the couple?
a. 130,000 c. 125,000
b. 126,000 d. 124,500
2. Mr. and Mrs. Garcia, both Filipinos and legally separated, with four legal dependent
under the custody of Mrs. Garcia, have compensation income during the year amounting to
500,000.
The personal exemption of Mr. and Mrs. Garcia would be:
a. 50,000; 150,000 c. 150,000; 50,000
b. 50,000; 125,000 d. 125,000; 50,000
3. It is one who conceived and born outside marriage.
a. legitimate child c. legally adopted child
b. natural child d. illegitimate child
4. Mr. Tan, a Filipino citizen with income within, married to Miss Taylor, an American citizen
residing in USA, has a compensation income of 200,000 in the Philippines. He would like
to know their personal exemption.
The personal exemption of Mr. Tan is:
a. 75,000 c. 100,000
b. 50,000 d. 25,000
5. It is the arbitrary amounts allowed by law as a deduction from the gross
compensation income and/or net business income and/or professional income as
the case may be, for personal, or family expenses.
a. additional exemption c. special taxpayer
b. personal exemption d. individual taxpayer
6. A Filipino Citizen who stayed permanently in the Philippines or stayed outside the
Philippines for less than 183 days during the taxable year.
a. nonresident citizen c. seaman
b. resident citizen d. resident alien
7. Ms. Liza is a single mother with one legal dependent. She has a compensation income
amounting to 300,000. How much is her personal exemption?
a. 50,000 c. 75,000
b. 25,000 d. 80,000
8. It is an income earned from allowing other use one’s rights, or game of chance or
investment, which the taxpayer merely awaits for the income to come in.
a. Capital gain tax c. passive income
b. income tax due d. taxable income


9. How many percent if the annual income exceeds 720,000?
a. 20% c. 30%
b. 10% d. 15%
10. These are those alien individuals or Filipino citizens who are taxed with a fifteen
percent tax based on their gross compensation income.
a. seaman c. alien
b. individual taxpayer d. special taxpayer
11. Deductible allowance in addition to the basic personal exemption allowance for
qualified dependent children of an individual taxpayer.
a. additional exemption c. special taxpayer
b. personal exemption d. dependent
12. Natural person with income derived within the territorial jurisdiction of a taxing
authority.
a. individual taxpayer c. alien individual
b. special taxpayer d. resident citizen
13. Foreign-born person who is not qualified to acquire Philippine citizenship by birth or
after birth.
a. resident alien c. nonresident alien
b. resident citizen d. alien
14. One conceived of parents who, at the time of conception, without being married, were
qualified to marry.
a. legitimate child c. dependent
b. natural child d. illegitimate child
15. An individual taxpayer whose income is derived solely from his own business.
a. special taxpayer c. alien individual
b. self-employed individual d. individual taxpayer