TX 02 | Individual Income Taxpayer and Fringe Benefit

LECTURE NOTES

A. Classification of Individual Taxpayers

1. CITIZEN
i. Those who are citizens of the Philippines at the time of the adoption of the February 2, 1987 Constitution
ii. Those whose fathers or mothers are citizens of the Philippines
iii. Those borne before January 17, 1973, the date of the adoption of the 1973 Constitution of Filipino
mothers, who elect Philippine citizenship upon reaching the age of majority
iv. Those who are naturalized in accordance with law

a. RESIDENT CITIZEN – a Filipino citizen who permanently resides in the Philippines

b. NON-RESIDENT CITIZENS (Section 22 of the NIRC)
b.1 The term “non-resident citizen” means:
1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad either as
an immigrant or for employment on a permanent basis
3. A citizen of the Philippines who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year.
4. A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a
nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income
derived from sources abroad until the date of his arrival in the Philippines.
5. The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to
reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this
Section. c. SPECIAL FILIPINO – Filipinos employed in:
1. Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies (Section
25 (C), RA 8424)
2. Offshore banking units
3. Petroleum service contractors or subcontractors (Section 25 (E), RA 8424)
2. ALIEN
a. RESIDENT ALIEN– a Filipino citizen who permanently resides in the Philippines
b. NON-RESIDENT ALIEN
1. NRA-ETB – the alien is carrying on a business in the Philippines. It connotes more than a single act or
isolated transactions. (continuity of action)
A non-resident alien who has stayed in the Philippines for more than 180 days during the calendar year
shall be deemed doing business in the Philippines
2. NRA-NETB – Not engaged in trade or business
c. SPECIAL ALIEN – Aliens employed in:
1. Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies (Section
25 (C), RA 8424)
2. Offshore banking units
3. Petroleum service contractors or subcontractors (Section 25 (E), RA 8424)

B. Types of Income Tax Applicable to Individual Taxpayers

1. Basic Tax
2. Final Withholding Tax

C. Basic Tax

Formula:
Gross Income Pxx
Less: Deductions (xx)
Taxable Income Pxx
Multiply: Tax Rate xx%
Tax Due xx
Tax Credits (xx)
Tax Payable Pxx

D. Tax Rates of Individuals

1. RC – 20%-35% of net income within & without
2. NRC – 20%-35% on net income within
3. SF- 20%-35% or 15% preferential rate
4. RA – 20%-35% of net income within
5. NRA-ETB – 20%-35% of net income within
TX 02 | Individual Income Taxpayer and Fringe Benefit

6. NRA-NETB – 25% of gross income within

7. SA- 20%-35%*
* The preferential tax treatment shall not be applicable to RHQs, ROHQs, OBUs or Petroleum Service
Contractors and Subcontractors registering with the Securities and Exchange Commission (SEC) after
January 1, 2018. Provided, however, that existing RHQs/ROHQs, OBUs or Petroleum Service Contractors
and Subcontractors presently availing of preferential tax rates for qualified employees shall continue to be
entitled to avail of the preferential tax rate for present and future qualified employees.

TRAIN Law effective January 1, 2018,

For Individual Citizens and Resident Aliens Earning Purely Compensation Income and Individuals
Engaged in Business and Practice of Profession
Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as amended by Republic Act No.
10963

• For Purely Self-Employed Individuals and/or Professionals Whose Gross Sales/Receipts and Other
NonOperating Income Do Not Exceed the VAT Threshold of P3,000,000, the tax shall be, at the taxpayer’s
option:

 8% Income Tax on Gross Sales or Gross Receipts in Excess of P250,000 in Lieu of the Graduated
Income Tax Rates and the Percentage Tax; Or

 Income Tax Based on the Graduated Income Tax Rates

• For Individuals Earning Both Compensation Income and Income from Business and/or Practice of
Profession, their income taxes shall be:

 For Income from Compensation: Based on Graduated Income Tax Rates; and

 For Income from Business and/or Practice of Profession:

If the total Gross Sales/Receipts Do Not Exceed VAT Threshold of P3,000,000, the Individual Taxpayer
May Opt to Avail:

- 8% Income Tax on Gross Sales/Receipts and Other Non-Operating Income in Lieu of the Graduated
Income Tax Rates and the Percentage Tax; Or
- Income Tax Based on Graduated Income Tax Rates

If the total Gross Sales/Receipts Exceed VAT Threshold of P3,000,000

- Income Tax Based on Graduated Income Tax Rates

• Removed personal and additional exemptions

Under the TRAIN law effective January 1,2018, there shall be no basic personal and additional exemptions.

• Removed the provision for premium payments on health and/or hospitalization insurance amounting
to Php2,400 per family
E. Inclusions to Gross Income (CARGgDRIPpP)
1. Compensation for services in whatever form
2. Annuities
3. Rents
4. Gross income derived from the conduct of trade or business or the exercise of a profession 5. Gains
derived from dealings in property
6. Dividends
7. Royalties
8. Interests
9. Prizes and winnings
10. Pensions
11. Partner‘s distributive share from the net income of the general professional partnership
F. Exclusions to Gross Income (MAC GIRL)
1. Miscellaneous items
2. Amount received by insured as return of premium
3. Compensation for injuries or sickness
4. Gifts, bequests and devises
5. Income exempt under treaty
6. Retirement benefits, pensions, gratuities, etc.
7. Life Insurance
TX 02 | Individual Income Taxpayer and Fringe Benefit

G. Kinds of Final Withholding Tax

1. Tax on certain passive income
2. Capital Gains Tax
3. Fringe Benefit Tax
H. Final Withholding Tax on Passive Income
• General Principles
1. Applicable only to passive income from sources within the Philippines
2. The payee is not required to file an income tax return for the particular income subjected to final
withholding tax
• Formula
Passive Income Pxx
Multiply by: Rate xx%
Final Withholding Tax Pxx
I. Kinds of Passive Income (RPWID)
1. Royalties
2. Prizes
3. Winnings
4. Interests
5. Dividends

I.1 Royalties
Taxpayer Rate
General Rule 20%
Exc:
a. Books
RC, NRC, RA, NRA-ETB
b. Literary Works 10%
c. Musical compositions

Royalties- without RC 20%-35%1

Royalties- without NRC, RA, NRA-ETB Exempt

I.2 Prizes
Taxpayer Rate
General Rule 20%
Exc:
20%-35%2
< Php10,000.00
Awards given to Religious,
RC, NRC, RA, NRA-ETB
Charitable, Scientific,
Educational, Artistic, Literary, Exempt
Civic achievement
(RCSEALC)

1
Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as amended by Republic Act No. 10963
Effective January 1, 2018 until December 31, 2022

Not over 250,000 0%

Over 250,000 But not over 400,000 20% of the excess over 250,000

30,000 + 25% of the excess over

Over 400,000 But not over 800,000
400,000

Over 800,000 But not over 2,000,000 130,000 + 30% of the excess over

800,000

490,000 + 32% of the excess over

Over 2,000,000 But not over 8,000,000
2,000,000

2,410,000 + 35% of the excess over

Over 8,000,000
8,000,000

2
Refer to Note 1
TX 02 | Individual Income Taxpayer and Fringe Benefit

Sports
- Sanctioned by National
Sports Associations (NSA)
Exempt
- Philippine Olympics
Competition (POC)

Prizes – without RC 20%-35%3

Prizes – without NRC, RA, NRA-ETB Exempt

I.3 Winnings
Taxpayer Rate
General Rule 20%
Exc:
RC, NRC, RA, NRA-ETB
PCSO and lotto winnings Exempt4
< Php10,000.00
Winnings – without RC 20%-35%567
Winnings – without NRC, RA, NRA-ETB Exempt

I.4 Interests
Taxpayer Rate
General Rule RC, NRC, RA, NRA-ETB 20%
Exc: Interest from a depositary RC and RA
bank under Expanded
15%6
Foreign Currency Deposit
(EFCD)
Interest from a depositary NRC, NRA-ETB
bank under Expanded
Exempt
Foreign Currency Deposit
(EFCD)
Interest income from Long RC, NRC, RA, NRA-ETB
Term Deposit or investment
EXEMPT
> 5 years
5%
4-5 years
12%
3-4 years
20%
< 3 years
Interest income from Long NRA-NETB
Term Deposit or investment 25%
Long Term Deposit
Interests – without RC 20%-35%7

Interests – without NRC, RA, NRA-ETB Exempt

I.5 Dividends
Taxpayer Rate
General Rule RC, NRC, RA 10%
Exc:
Dividends actually or
constructively received from:
- Domestic
NRA-ETB NRA- 20%
Corporation
NETB 25%
- Joint Stock Company
- Insurance or Mutual
Fund company and
- Regional operating
headquarters of a multinational
company

3
Refer to Note 1
4
Under the TRAIN Law effective January 1,2018, the exemption of PCSO and lotto winnings shall be retained but only up to the amount of PhP10,000.00
5
Refer to Note 1
6
Under the TRAIN Law effective January 1,2018, the FWT rate of interest income from a depository bank received by an individual taxpayer under the expanded foreign
currency deposit system is changed from 7.5% to 15%.
7
Refer to Note 1
TX 02 | Individual Income Taxpayer and Fringe Benefit

Stock Dividend RC, NRC, RA, NRA-ETB

Provided: no change in the proportionate
interest of the shareholder in the net Exempt
assets of the Corporation

Dividends – without RC 20%-35%8

Dividends – without NRC, RA, NRA-ETB Exempt

Note: For dividends received by individuals from resident foreign corporation, apply the tax situs rule:
i. Income is within - if ratio is more than 85%
ii. Income is without - if ratio is less than 50%
iii. Partly income within & income without if ratio is between 50% and 85%

J. Capital Gains Tax (CGT)

The rules below are applicable to all individual taxpayers.

K. Kinds of Capital Gains Tax

1. CGT on sale of shares of stock not traded in the local stock exchange
2. CGT on the sale of real property classified as capital asset

L. CGT on sale of shares of stocks Requisites:

1. The shares of stock sold, bartered, exchanged or disposed must be in a domestic corporation; and
2. The transaction must be not through the stock exchange

Formula:
Selling Price Pxx
Cost (xx)
Selling Expense (xx)
Net gain Pxx
Rate 15%
CGT Pxx

RATE:
15% on net capital gains9

M. CGT on real property classified as capital asset

1. Real property must be a capital asset; AND
2. It must be located in the Philippines

Formula:
Tax Base PXX
Rate 6%
CGT PXX

TAX BASE:
1. Selling Price
2. Fair Market Value
3. Zonal Value

OPTIONS OF THE SELLER IN CASE OF SALE TO GOVERNMENT

1. Pay 6% CGT
2. Basic Tax

Requisites for Exemption

1. The property sold must be the principal residence of the seller
2. Proceeds is fully utilized in acquiring or constructing a new principal residence
3. Utilization must be made within 18 calendar months from the date of sale or disposition
4. Notify the BIR commissioner within 30 days from the date of sale or disposition of the intention to avail the
exemption
5. The said exemption can be availed once every 10 years

N. Fringe Benefits Tax

8
Refer to Note 1
9
Under TRAIN Law effective January 1,2018,the CGT rate is increased to a uniform rate of 15% on net capital gains
TX 02 | Individual Income Taxpayer and Fringe Benefit

Any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual
employee (except rank and file employees) such as, but not limited to, the following:
[HEV-HIM-HELF]
1. Housing
2. Expense account
3. Vehicle of any kind
4. Household personnel, such as maid, driver and others
5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual
rate granted
6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs
or other similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the
law allows

Note: The list under Sec. 33 (B) of the NIRC is not exclusive. These items are also found in Revenue Regulation
0398 which talks about fringe benefits.

Important: Fringe benefits refer to benefits given to an employee other than a rank and file employee.

Managerial employee
He is one who is vested with powers and prerogatives to lay down and execute management policies and or
fire, transfer, suspend, layoff, discharge, assign or fire employees. He is the employee vested with the power
to determine the employer-employee relationship because of his powers. He has the power to execute
management policies which can include salaries and wages. All aspects of EE relationship are within his
control.

Supervisory employee
He recommends managerial action but it should not be considered as merely routinary or clerical in nature, but
which requires use of independent judgment.

Rank and file employee

Those who are neither managerial nor supervisory employees

VALUATION OF FRINGE BENEFITS

Fringe Benefit Valuation
In money or directly paid for by the employer Amount granted or paid for
In property other than money and ownership
is transferred to the employee Fair market value of the property

Other than money but there is no transfer of Depreciated value of the property
ownership

COMPUTATION O FFRINGE BENEFITS

Fringe benefit tax (FBT) is computed by multiplying the grossed-up monetary value (GUMV) by 35%. GUMV is
determined by dividing the monetary value by 65%.

In other words, FBT is computed by first determining the GUMV and then, multiplying the GUMV by the tax rate.

Another way to determine FBT is to deduct the net monetary value from the GUMV. The difference will be the
FBT.

Either way, the GUMV is to be computed first.

FORMULA:
GUMV Pxx
Less: FBT 35%10
Monetary Value Pxx

10
Under the TRAIN Law effective January 1, 2018, fringe benefits given to non-rank and file employees are subject to 35% final tax rate.
TX 02 | Individual Income Taxpayer and Fringe Benefit

NRA-NETB & Special Employees

NRA-NETB is subject to FBT of 25% while special employees are subject to 15%. Consequently, 75% will be used
for determining the GUMV of NRA-NETB and 85% will be used in the case of special employees.

FBT CONCEPT SUMMARY

Taxable amount is the GUMV of the fringe benefit granted/furnished.

The FBT is 35% of the GUMV of the benefit
The GUMV is the benefit expense of the employer which is also the income of the employee.
The liability of the employer is to withhold the corresponding income tax from the fringe benefit earned by the
employee.
The fringe benefit income tax is a final tax on gross taxable income.

i. HOUSING PRIVILEGE
Guidelines in the valuation of the Housing Privilege
Monetary Value of Benefit
Case Annual Value of Benefit (Monthly)

Employer leases residential 50% x Monthly rental paid by the

property for use of the employee - employer

5% of FMV of land and 50% x Monthly value of the

improvements or zonal value, benefit*
Employer owns residential property which was whichever is higher
assigned to an officer for his use as residence *Monthly value =
Annual value/2

Employer purchases residential property on

installment basis and allows the employee to use 5% of acquisition cost excluding 50% x Monthly value of the benefit
the same as his residence interest

Purchases residential property and transfers the Acquisition cost or FMV, whichever
ownership to the employee - is higher

Purchases residential property and transfers

ownership thereof to his employee for the FMV of CIR and FMV of Assessor,
latter‘s residential use at a price less than the - whichever is higher minus the cost
employer‘s acquisition cost to the employee

General Rule: Housing privileges are taxable as fringe benefits.

Exceptions:
1. Housing privilege of AFP, Philippine Navy and Philippine Air Force
2. Housing unit situated inside or within the maximum of 50 meters from the perimeter of the business or
factory
3. Temporary housing for an employee who stays in a housing unit for 3 months or less
4. Housing privilege granted to rank-and-file employees

Note: The housing privilege given to rank-and-file employees is not a fringe benefit but form part of
compensation income.

ii. EXPENSE ACCOUNT

(a) In general, expenses incurred by the employee but which are paid by his employer shall be treated as
taxable fringe benefits, except when the expenditures are duly receipted for and in the name of the
employer and the expenditures do not partake the nature of a personal expense attributable to the
employee.
(b) Expenses paid for by the employee but reimbursed by his employer shall be treated as taxable benefits
except only when the expenditures are duly receipted for and in the name of the employer and the
expenditures do not partake the nature of a personal expense attributable to the said employee.
(c) Personal expenses of the employee (like purchases of groceries for the personal consumption of the
employee and his family members) paid for or reimbursed by the employer to the employee shall be
treated as taxable fringe benefits of the employee whether or not the same are duly receipted for in the
name of the employer.

Previously, 32% was the and 68% was used for determining GUMV
(d) Representation and transportation allowances which are fixed in amounts and are regular received by the
employees as part of their monthly compensation income shall not be treated as taxable fringe benefits
TX 02 | Individual Income Taxpayer and Fringe Benefit

but the same shall be considered as taxable compensation income subject to the tax imposed under Sec.
24 of the Code.

iii. MOTOR VEHICLE OF ANY KIND

Guidelines in the Valuation of Motor Vehicles
Case Monetary Value of the Benefit

Purchases the motor vehicle in the name of the Acquisition cost

employee
Provides the employee with cash for the purchase of a Amount of cash received by the employee
motor vehicle in the name of the employee

Shoulders a portion of the amount of the purchase price Amount shouldered by the employee
of a motor vehicle in the name of the employee

Purchase the car on instalment in the name of the Acquisition cost (exclusive of interest) divided by
employee 5 years

Owns and maintains a fleet of motor vehicles for the use Acquisition cost of all motor vehicles not normally
of the business and the employees used in
business divided by 5 years x
50%

Leases and maintains a fleet of motor vehicles for the Amount of rental payment for motor vehicles not
use of the business and the employees normally used in business x 50%

Use of yacht whether owned and maintained or leased Depreciation of yacht at an estimated useful life
by the employer of
20
years

iv. HOUSEHOLD EXPENSES

Expenses of the employee which are borne by the employer for household personnel, such as salaries of
household help, personal driver of the employee, or other similar personal expenses (like payment for
homeowners association dues, garbage dues, etc.) shall be treated as taxable fringe benefits.

v. INTEREST ON LOAN AT LESS THAN MARKET RATE

1. If the employer lends money to his employee free of interest or at a rate lower than twelve per cent
(12%), such interest foregone by the employer or the difference of the interest assumed by the employee
and the rate of twelve per cent (12%) shall be treated as a taxable fringe benefit.
2. The benchmark interest rate of twelve per cent (12%) shall remain in effect until revised by a subsequent
regulation.
3. This regulation shall apply to installment payments or loans with interest rate lower than twelve per cent
(12%) starting January 1, 1998.
12% interest for fringe benefit
The current market rate is 6% but the revenue regulation has not yet been changed, so we will use 12% for
fringe benefits.

vi. MEMBERSHIP FEES

Membership fees, dues, and other expenses borne by the employer for his employee, in social and
athletic clubs or other similar organizations.

These expenditures shall be treated as taxable fringe benefits of the employee in full.
Membership fee contemplates that you become a member of a sports gym for your health. There are
some companies that instead of doing that, they just put up a gym in their own building.

vii. EXPENSES FOR FOREIGN TRAVEL

(a) Reasonable business expenses which are paid for by the employer for the foreign travel of his employee
for the purpose of attending business meetings or conventions shall not be treated as taxable fringe
benefits. In this instance, inland travel expenses (such as expenses for food, beverages and local
transportation) except lodging cost in a hotel (or similar establishments) amounting to an average of
US$300.00 or less per day,
shall not be subject to a fringe benefit tax. The expenses should be supported by documents proving the
actual occurrences of the meetings or conventions.
(b) The cost of economy and business class airplane ticket shall not be subject to a fringe benefit tax.
However, 30 percent of the cost of firstclass airplane ticket shall be subject to a fringe benefit tax.
TX 02 | Individual Income Taxpayer and Fringe Benefit

(c) In the absence of documentary evidence showing that the employee's travel abroad was in connection
with
business meetings or conventions, the entire cost of the ticket, including cost of hotel accommodations
and other expenses incident thereto shouldered by the employer, shall be treated as taxable fringe
benefits. The business meetings shall be evidenced by official communications from business associates
abroad indicating the purpose of the meetings. Business conventions shall be evidenced by official
invitations/communications from the host organization or entity abroad. Otherwise, the entire cost
thereof shouldered by the employer shall be treated as taxable fringe benefits of the employee.
(d) Travelling expenses which are paid by the employer for the travel of the family members of the employee
shall be treated as taxable fringe benefits of the employee.
(e) The expenses for travel contemplate a situation where you are being sent by employer for a business
convention. The reason is because you are pursuing the business of the employer.

viii. HOLIDAY AND VACATION EXPENSES

Holiday and vacation expenses of the employee borne by his employer shall be treated as taxable fringe
benefits.
Note: Everything is considered as fringe benefit since it is not pursuant to the purpose of the business of
the employer
ix. EDUCATIONAL ASSISTANCE TO THE EMPLOYEE ORHIS DEPENDENTS

(a) The cost of the educational assistance to the employee which are borne by the employer shall, in general,
be treatedas taxable fringe benefit. However, a scholarship grant to the employee by the employer shall
not be treated as taxable fringe benefit if the education or study involved is directly connected with the
employer's trade, business or profession, and there is a written contract between them that the employee
is under obligation to remain in the employ of the employer for period of time that they have mutually
agreed upon. In this case, the expenditure shall be treated as incurred for the convenience and
furtherance of the employer's trade or business.
(b) The cost of educational assistance extended by an employer to the dependents of an employee shall be
treated as taxable fringe benefits of the employee unless the assistance was provided through a
competitive scheme under the scholarship program of the company.
Note: It is a Fringe benefit since it is for the benefit of the employee.

Educational assistance to employee

GR: Cost of the educational assistance to the employee borne by the employer is taxable fringe benefit.
EXC: Scholarship granted to the employee by the employer, provided the following conditions are met:
1. The education or study involved is directly connected with the employer‘s trade, business or profession;
and
2. There is a written contract between them to the effect that the employee is under obligation to remain in
the employ of the employer for the period that they have mutually agreed upon.
In this case, the expenditure shall be treated as incurred for the convenience and furtherance of the employer‘s
trade or business.
Educational assistance to dependents
GR: Cost of Educational assistance extended by an employer to the dependents of an employee is taxable fringe
benefit.
EXC: The assistance was provided through a competitive scheme under the scholarship program of the company.
x. HEALTH OR LIFE INSURANCE

Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law
allows — The cost of life or health insurance and other non-life insurance premiums borne by the employer for his
employee shall be treated as taxable fringe benefit, except the following:
(a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law,
such as under the Social Security System (SSS), (R.A. No. 8282, as amended) or under the Government
Service Insurance System (GSIS) (R.A. No. 8291), or similar contributions arising from the provisions of
any other existing law; and
(b) the cost of premiums borne by the employer for the group insurance of his employees.

Beneficiary
If beneficiary is the heir, it is considered income of the employee because he clearly benefits from it.
If employee is managerial or supervisory, fringe benefit subject to tax.
But if beneficiary is the company, then it is not considered as fringe benefit since employee does not benefit from
it.
If for group of employees, not a fringe benefit subject to tax because it is not personal to each of the employees.

SSS contributions not subject to FBT

Not subject to Fringe benefit tax because it is statutorily mandated.

FRINGE BENEFITS NOT SUBJECT TO TAX

(1) Fringe benefits which are authorized and exempted from income tax under the code or any special laws.
TX 02 | Individual Income Taxpayer and Fringe Benefit

• Retirement benefits granted to managerial employees are considered fringe benefit, but prior to
retirement, there is still employer-employee relationship.
• Granting that you are able to comply with all the requirements, it is not subject to Fringe benefit tax
because it is already excluded in income tax law.
(2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization
benefit plans.
• This applies to a group of employees.
(3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement
or not.
• They are not fringe benefits in the first place as they are given to rank and file employees.
(4) Benefits granted to employee as required by the nature of, or necessary to the trade, business or
profession of the employer.
(5) Benefits granted for the convenience of the employer.
(6) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.
The Secretary of Finance is authorized to promulgate, upon recommendation of the Commissioner, such rules and
regulations as are necessary to carry out efficiently and fairly the provisions of this Section, taking into account
the peculiar nature and special need of the trade, business or profession of the employer.

DE MINIMIS BENEFITS

De minimis benefits, in a form of facilities or privileges, are furnished or offered by the employer to its employees
that are of relatively small value and are offered or furnished merely as a means of promoting goodwill,
contentment or efficiency of his employees. These benefits are not subject to fringe benefit tax.

Sec. 33 of NIRC, RR 5-2011, 8-2012 and 1-2015

1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year.
• It only refers to unused vacation leave credits and not sick leave credits.
2. Monetized value of vacation and sick leave credits paid to government officials and employees.
3. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per semester or
P250 per month.
4. Rice subsidy of P2,000 or one (1) sack of 50 kg. rice per month amounting to not more than P2,000.
5. Uniform and Clothing allowance not exceeding P6,000 per annum.
6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual
medical/executive checkup, maternity assistance, and routine consultations, not exceeding P10,000.00
per annum.
• When the employer pays for maternity check-up of the employee, it is considered as de minimis benefits,
provided that there is actual medical assistance.
7. Laundry allowance not exceeding P300 per month.
8. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the
form of a tangible personal property other than cash or gift certificate, with an annual monetary value not
exceeding P10,000 received by the employee under an established written plan which does not
discriminate in favor of highly paid employees.
• Because you are very efficient in your work the company decided to give you a gift certificate of Shangri-
la good for 1 day, P10,000, it does not form part of de minimis since it is provided that it must be a
tangible personal property other than cash or gift certificate.
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per
annum.
• Christmas gifts and not Christmas bonus.
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent
(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 monetary value received from both CBA and productivity
incentive schemes combined do not exceed P10,000.00 per employee per taxable year.

Threshold of P90,000 11

O. TAXATION AT SOURCE

1. Final Withholding Tax

2. Creditable Withholding Tax
a. Withholding Tax On Compensation
b. Expanded Withholding Tax
c. Withholding Tax on Government Money Payments
(GMP) – Percentage Taxes
d. Withholding tax on GMP – Value Added Tax (GVAT)

11
The list of de minimis benefits is exclusive. The threshold now under the TRAIN Law is P90,000. The amount in excess of P90,000 will be subject to the normal income tax
rate or fringe benefit tax, as the case may be.
TX 02 | Individual Income Taxpayer and Fringe Benefit

P. KINDS OF WITHHOLDING TAX

Withholding Tax on Compensation - is the tax withheld from income payments to individuals arising from an
employer-employee relationship.

Expanded Withholding Tax- is a kind of withholding tax which is prescribed on certain income payments
and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular
income was earned.

Final Withholding Tax- is a kind of withholding tax which is prescribed on certain income payments and is not
creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable
year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the
particular income subjected to final withholding tax.

Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the tax withheld by
National
Government Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations
(GOCCs) and local government units (LGUs), before making any payments to non-VAT registered
taxpayers/suppliers/payees

Withholding Tax on GMP - Value Added Taxes (GVAT) - is the tax withheld by National Government
Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations (GOCCs) and
local government units (LGUs), before making any payments to VAT registered taxpayers/suppliers/payees on
account of their purchases of goods and services.

Q. PROCEDURE FOR FILING INCOME TAX RETURN

INDIVIDUALS REQUIRED TO FILE ITR

Sec. 51 (A) (1) of the NIRC
Except as provided in paragraph (2) of this Subsection, the following individuals are required to file an income tax
return:
(a) Every Filipino citizen residing in the Philippines;
(b) Every Filipino citizen residing outside the Philippines, on his income from sources within the Philippines;
(c) Every alien residing in the Philippines, on income derived from sources within the Philippines; and
(d) Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines.

Who are required to file Tax Returns?

All individual taxpayers are required to file income tax return, except NRA NETB since the final tax is withheld at
source.

INDIVIDUALS NOT REQUIRED TO FILE ITR

Sec. 51 (A) (2) of the NIRC
The following individuals shall not be required to file an income tax return:
(a) An individual whose taxable income does not exceed P250,000: Provided that a citizen of the Philippines and
any alien individual engaged in business or practice of profession within the Philippines shall file an income tax
return regardless of the amount of the gross income;
(b) An individual with respect to pure compensation income, as defined in Section 32(A)(1), derived from such
sources within the Philippines, the income tax on which has been correctly withheld under the provisions of Section
79 of this Code: Provided, That an individual deriving compensation concurrently from two or more employers at
any time during the taxable year shall file an income tax return;
(c) An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A) of this
Code; and
(d) A minimum wage earner as defined in Section 22(HH) of this Code or an individual who is exempt from income
tax pursuant to the provisions of this Code and other laws, general or special.

Sec. 51 (A) (3) of the NIRC

The forgoing notwithstanding, any individual not required to file an income tax return may nevertheless be required
to file an information return pursuant to rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.

INDIVIDUALS NOT REQUIRED TO FILE ITR

1. An individual who is a minimum wage earner.

2. An individual whose taxable income does not exceed P250,000, provided that a citizen of the Philippines and any
alien individual engaged in business or practice of profession within the Philippines shall file an income tax return
regardless of the amount of the gross income
3. An individual whose income has been subjected to final withholding tax
4. Those who are qualified under ―substituted filing.

Does not exceed P250,000

The taxpayer whose income does not exceed P250,000 is not required to file since is exempted.
TX 02 | Individual Income Taxpayer and Fringe Benefit

Professional & Business Income Earner

An individual engaged in business or the practice of profession is required to file ITR regardless of the amount of
gross income so that the government can verify if they are claiming the proper deductions.

Pure Compensation Income Earner

General Rule: An individual earning pure compensation income is required to file ITR, regardless of the amount of
income, since he is qualified under substituted filing. It is the employer who files.

The TRAIN Law added an additional section for substituted filing. It wanted to clarify that the certificate of
withholding filed by the employer duly stamped received by the BIR is tantamount to the filing of an ITR by the
employee. The taxpayer can therefore present it as proof of payment of tax.

Exception: When the employee has two or more employers during the taxable year, he is required to file an ITR. This
is because of the possibility that he might be earning total income of more than P250,000 from his employers.
When BPE existed, the income earned by the taxpayer might be claimed by each employer and such BPE can only
be claimed once.
Now, it is to ensure that the 250,000 exemption is only claimed once as it can happen that both employers can
separately claim. The BIR must make sure that he is taxed according to the correct tax bracket.

Subject to FWT
Those earning income solely subject to final withholding tax are not required to file ITR.

Minimum wage earner

Minimum wage earners are not required to file an ITR because they are exempt from taxes. However, they are
required to file an information return.

R. WHERE TO FILE

1. Authorized Agent Bank (AAB)

2. Revenue District Officer (RDO)
3. Treasurer
4. Office of the Commissioner

Authorized Agent Bank (AAB)

AAB has jurisdiction over the RDO. BIR is prohibited from accepting cash/ check payments in order to prevent or
minimize opportunities for corruption. At least with AABs, the funds are directly deposited to the government
coffers.

Revenue District Officer (RDO)

The ITR is filed with the RDO where your principal place of business is located. You can go to the RDO if you don‘t
have payment.

Treasurer
Municipal and city treasurers can be deputized to receive income tax returns and payments.

Office of the Commissioner

The ITR can be filed with the Office of the Commissioner in Quezon City when there is no principal place of
business in the Philippines.

S. WHEN TO FILE
1. Individual
a. On or before May 15 starting 2019
b. On or before April 15 until 2018
2. Corporation
a. On the 15th day of the 4th month
3. Capital Gains
a. Sale or exchange of shares of stock not traded thru a local stock exchange
i. Within 30 days after each transaction ii. Final consolidated return on
or before April 15
b. Sale or disposition of real property
i. Within 30 days following each sale or other disposition
4. Taxes withheld at source
a. Not later than the last day of the month following the close of the quarter

Under the TRAIN law, the ITR must be filed on or before May 15. Although the date of April 15 in Sec. 51 has
not been amended, when you file under Sec. 74, you are supposed to make an estimate declaration of your
estimated income on or before May 15 of the taxable year starting 2019.
TX 02 | Individual Income Taxpayer and Fringe Benefit

T. OTHER PROVISIONS
Husband and Wife
GR: Joint filing
EXC: Where it is impracticable

Minors
GR: Income included in return of parent
EXC: For property where
1. Donor‘s tax has been paid on the property or
2. Transfer of the property is exempt from donor‘s tax

Minors can file separately since there is no age requirement in the tax code. However, the BIR will not issue a
Tax Identification Number (TIN) to a minor which is necessary for filing an income tax return. So, their income is
added to the parents.

Persons under Disability

GR: Taxpayer can file his own ITR
EXC: When he is unable to make his own return
1. Duly authorized agent or representative
2. Guardian or other person charged with the care of his person or property

Pay-as-you-file system
Taxes are paid when you file.

Installment payments
When a tax due is in excess of P2,000, the taxpayer other than a corporation can pay in 2 equal installments on
May 15 and October 15.

Frequency of filing
The ITR is filed quarterly for business or professional income earners and annually for compensation income
earners.

Number of Copies
The ITR is filed in triplicate, two copies for the BIR and one copy for the taxpayer. The tax code only requires
duplicate copies but for regulation purposes, triplicate copies have been required.

QUIZZER

Mr. Richter, married, supporting his 10 minor children (7 of which are gainfully employed) had the following
data for the taxable year 2017:

Philippines Abroad
Business Income P1,000,000.00 $20,000.00
Professional Income, (net 400,000.00 10,000.00
of 10% withholding tax)
Rental income, (net of 5% 50,000.00 75,000.00
withholding tax)
Interest on expanded 25,000.00 20,000.00
foreign currency deposit
Salaries 200,000.00
Bonus (13th month pay) 24,000.00
Business and professional 250,000.00 8,000.00
expenses
Rental Expense 15,000.00 30,000.00
Income tax paid 4,000.00

NOTE: $1 – P50

1. If Mr. Richter is a resident citizen, his income tax due is:

2. If Mr. Richter is a resident alien, his income tax due is:
3. If Mr. Richter is a non-resident citizen not engaged in trade or business:

Mr. Katakutan had the following data for the taxable year 2018: (Exchange rate $1 – P40)

Philippines Abroad
Salaries P165,000.00 $2,000.00
Business Income 450,000.00 6,000.00
Business Expenses 120,000.00 1,500.00
Interest Income:
TX 02 | Individual Income Taxpayer and Fringe Benefit

Personal receivable 10,000.00

FCDU $2,500.00
On bank deposits (20% 25,000.00 3,000.00
long-term)
Royalty Income (20% from 22,000.00 1,000.00
books)
Prize won in contest 10,000.00
Dividend income:
From domestic corporation 7,000.00
From resident corporation 5,000.00
From non-resident 8,000.00
Winnings from PCSO 80,000.00
Sale of share of stocks of a 30,000.00
domestic corp. directly to
the buyer (cost
P10,000.00)

Mr. Katakutan is married with the following children as dependents:

- Haze, born March 15, 1991
- Diane, born April 5,1992
- Christine, born May 6,1993
- Batman, born on February 27,1994

He also sold a condominium unit in Manila (residential) for P2,000,000.00 although its FMV is P3,000,000.00
but with a zonal value of P4,000,000.00.

4. The taxable income of Mr. Katakutan is:

5. His total final taxes on his passive income is:
6. His total capital gain’s taxes is:
7. If he is a non-resident citizen, his total final tax on passive income is:
8. If he is a non-resident alien not engaged in trade or business, his total combined taxes on all income from
Philippines is: (excluding business income)

MonpaneevongSunantha, resident citizen of Thailand, who is an employee in the regional area headquarter of a
multinational corporation had following data for taxable year 2018.

Salaries received P120,000.00

Other emoluments 50,000.00
Interest income from Philippine Bank Deposit 20,000.00
Winnings from Lotto 50,000.00
Winnings from Tournament 50,000.00
Gain from sale of shares of stock sold directly to
175,000.00
a buyer (stocks of a domestic corporation)

9. The capital gain’s tax is:

10. The total combined taxes on all income from Philippines is:

Mr. Pura, married, left Philippines in the middle of the year on July 1,2018 to go abroad and work there for two
years, the following data were provided as of December 31,2018: (Assume all data from abroad only)

Gross Income Expenses

January 1 to June 30 P300,000.00 P100,000.00
July 1 to December 31 1,000,000.00 125,000.00

11. His taxable income is: ($1 – P50):

12. Based on the above problem, but assuming he arrived from abroad on July 1,2018 to permanently resettle
in the Philippines, after working abroad for 2 years, his taxable income as of December 31,2018 is:
13. If he did not leave Philippines at all, how much is Mr. Pura’s taxable income:

14. How much is the allowable deduction from business income of a domestic corporation which granted and
paid P102,000.00 fringe benefits to its key officers in 2018?

In 2017, Galisod Co. gave the following fringe benefits to its employees with the following functions:

- vested with powers and prerogatives to lay down and execute management policies and or fire, transfer, suspend,
layoff, discharge, assign or fire employees, P1,100,000.00
- recommends managerial action which is not merely routinary or clerical in nature, P260,000.00
- other than those performing the functions mentioned above, P5,000,000.00

15. The allowable deduction from the gross income of the corporation for the fringe benefits given to employees
is:
TX 02 | Individual Income Taxpayer and Fringe Benefit

The following information are presented to you in connection with the determination of the fringe benefits tax of
Mr. Swerte, Vice-President of Hayahay Corporation:

Paid by the company with official receipts in the name of Hayahay Corporation:
- Laptop computer for office use, P80,000.00
- Air-conditioning unit for office use, P45,000.00
- Groceries for Mr. Swerte’s family consumption, P50,000.00
- Plumbing materials for use in the repair of Mr. Swerte’s residential house, P40,000.00
- Purchase of clothes and shoes for Mr. Swerte’s only daughter, P20,000.00
- Samples of merchandise sold in the competitor’s stor for marketing study, P15,000.00

16. How much is the fringe benefit tax due?

The following fringe benefits were given by an employer to its employees for the quarter ending March
31,2018:

Housing benefits to managerial employees (representing total rents)

Reimbursed expenses of rank and file employees
De minimis benefits (not exceeding the maximum)

17. How much was the fringe benefit tax payable for the quarter:
18. Based on the above information, how much would be the total deductions from gross incom which may be
claimed by the employer?

Pablo Diego Francisco de Paula Juan Nepomuceno de los Remedios, resident citizen, single supporting three
minor illegitimate children, one of them living abroad, has the following data for taxable year 2017:

Salary from Makapasar Co. (net of withholding tax)

Professional fee (net of 10% withholding tax)
Expenses incurred (25% pertains to living expenses)
Health and/or hospitalization insurance premium paid

19. The income tax due is:

20. Based on the above problem, assuming his salary from Makapasar Co. is P80,000.00 (gross of withholding
tax), how much is the income tax due:

*** END ***