LPU MANILA

Department of Accountancy and Management Accounting

Income Tax

Lecture 3 - INCOME TAX OF INDIVIDUAL (PART 2)

CASES
1. EARNING PURELY COMPENSATION INCOME

The following are the employees of Hendricks Salon and their PAYROLL details:
MAHALIMUYAK, CHU LEE NAH, Jason MENDOZA, Robert SALAZAR, Delo
Hendricks
Position: Manager, Haircutter Position: Stylist, Consultant Position: Senior Hair Stylist Position: Junior Stylist
TIN: 000-069-000 TIN: 000-696-000 TIN: 000-010-666 TIN: 000-111-000
Resident Citizen Resident Alien Resident Citizen Resident Citizen

Basic Salary: P30,000 Basic Salary: P50,000 Basic Salary: P18,000 Minimum Wage Earner,
De Minimis: P2,000 De Minimis: 0 De Minimis: P2,000 working 22 days a month,
Other Allowance: P5,000 Other Allowance: P10,000 Other Allowance: P5,000 receiving salaries on a monthly
Performance Bonus: P5,000 Performance Bonus: P5,000 basis.

Prepare for the following:

1. Monthly Withholding Tax on Compensation
2. Monthly Net Pay
3. Annual Income Tax (Over/under payment)
4. Journal Entries

2. EARNING PURELY BUSINESS INCOME

Choco Martin, proprietor, involves in buying and selling of various merchandise. The following is his income statement for the year
2019:

Sales – Philippines P1,500,000

Sales - Abroad 500,000
Deductible Expense (900,000)
Profit 1,100,000

 Compute for his annual income tax (using the default tax rates) assuming Choco Martin is a:
1. Resident Citizen
2. Non-Resident Citizen
3. Resident Alien
4. Non-Resident Alien ETB
5. Non-Resident Alien NETB
 Can he apply for the tax of 8% of gross receipts? If so, how much is his savings/spending using the 8% tax rate? Compute if
he is a:
1. Resident Citizen
2. Non-Resident Citizen
3. Resident Alien
4. Non-Resident Alien ETB
5. Non-Resident Alien NETB

EARNING PURELY INCOME FROM PRACTICE OF PROFESSION

Ms. You, a resident citizen and a Certified Public Accountant, has the following information for the year 2018:
1st QTR 2nd QTR 3rd QTR 4th QTR ANNUAL
Gross Revenues 200,000 400,000 500,000 300,000 1,400,000
Deductible Expenses 100,000 200,000 100,000 200,000 600,000
Profit 100,000 200,000 400,000 100,000 800,000

TAXATION ON INDIVIDUALS
Prepared by: Eureze Lhoed Tabar, CPA,MBA,CrFA
 1. Compute for her quarterly and annual income tax, assuming she opts to be taxed at 8% of gross receipts.
2. Using the same information and assuming that for the 3 rd QTR of 2018, her gross receipts is P3M, compute for her quarterly
and annual income tax.

3. EARNING INCOME FROM MULTIPLE SOURCES (MIXED INCOME EARNERS)

Mr. X, a resident citizen, was an employee receiving a basic salary of P81,000 monthly as a manager in a food company. Also, he has
his own Gym, which he earns a total gross income of P2,000,000 (deductible expense of P500,000) for the taxable year 2018.
1. How much is his total tax payable for the year 2018?
2. How much is his tax still due for 2018?
3. Assuming he opts to be taxed at 8% of gross income, how much is his total tax obligation and total tax still due for 2018?

4. EARNINGS ON PASSIVE INCOME

Mrs. U, has the following earnings for the taxable year 2018:
Interest income from bank deposit P10,000
Royalties, in general P100,000
Royalties from books P20,000
Prizes from a raffle draw P15,000
Winnings from PCSO P1,000
Interest from bank under the EFCDS P10,000
Interest from long term (5 years) investment P90,000
Cash dividend from a domestic corporation P100,000
Income from business in the PH, net of deductible expenses P2,000,000 (deductible expenses totaled P1,200,000)

1. How much is her taxable passive income and final tax on passive income if Mrs. U is a:
a. RC
b. NRC
c. RA
d. NRA-ETB
e. NRA-NETB
2. How much is her income tax for the taxable year, assuming that she is a:
a. RC
b. NRC
c. RA
d. NRA-ETB
e. NRA-NETB

RELATED BIR FORMS FOR TAXES ON INDIVIDUALS

ANNUAL RETURNS
1. BIR FORM 1700 – ANNUAL INCOME TAX RETURN FOR INDIVIDUALS EARNING PURELY COMPENSATION
INCOME
- This return shall be filed by every resident citizen deriving compensation income from all sources, or resident alien
and non-resident citizen with respect to compensation income from within the Philippines, except the following:
i. An individual whose gross compensation income does not exceed his total personal and additional
exemptions.
ii. An individual with respect to pure compensation income, as defined in Section 32(A)(1) derived from
sources within the Philippines, the income tax on which has been correctly withheld (tax due equals tax
withheld) under the provisions of Section 79 of the 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.
iii. An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino
employee occupying the same position as that of the alien employee of regional or area headquarters and
regional operating headquarters of multinational companies, petroleum service contractors and sub-
contractors, and offshore banking units; non-resident alien not engaged in trade or business).
iv. A minimum wage earner or an individual who is exempt from income tax.
- Filing Date: April 15 of each year covering income for the preceding year
- Other related BIR Forms: 2316 and 1604C (Annual Returns)

TAXATION ON INDIVIDUALS
Prepared by: Eureze Lhoed Tabar, CPA,MBA,CrFA
 2. BIR FORM 1701 – ANNUAL INCOME TAX RETURN FOR INDIVIDUALS (INCLUDING MIXED INCOME
EARNER, ESTATES AND TRUSTS)
- BIR Form No. 1701 shall be filed by individuals who are engaged in trade/business or the practice of profession
including those with mixed income (i.e., those engaged in the trade/business or profession who are also earning
compensation income) in accordance with Sec. 51 of the Code, as amended. The annual income tax return
summarizes all the transactions covering the calendar year of the taxpayer. This return shall be filed by the following
individuals regardless of amount of gross income:
i. A resident citizen engaged in trade, business, or practice of profession within and without the Philippines.
ii. A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice
of profession within the Philippines.
iii. A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in any
fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or business.
iv. An individual engaged in trade or business or in the exercise of their profession and receiving compensation
income as well.
- Filing Date: April 15 of each year covering income for the preceding year
3. BIR FORM 1701A – ANNUAL INCOME TAX RETURN FOR INDIVIDUALS EARNING INCOME PURELY FROM
BUSINESS/ PROFESSION (THOSE UNDE THE GRADUATED INCOME TAX RATES WITH OSD AS MODE OF
DEDUCTION OR THOSE WHO OPTED TO AVAIL OF THE 8% FLAT INCOME TAX RATE)
- The return shall be filed by individuals earning income PURELY from trade/business or from the practice of
profession, to wit:
i. A resident citizen (within and without the Philippines);
ii. A resident alien, non-resident citizen or non-resident alien (within the Philippines).
- The return shall only be used by said individuals as follows:
i. Those subject to graduated income tax rates and availed of the optional standard deduction as method of
deduction, regardless of the amount of sales/receipts and other non-operating income; OR
ii. Those who availed of the 8% flat income tax rate whose sales/receipts and other non-operating income do
not exceed P3M
- Filing Date: April 15 of each year covering income for the preceding year

QUARTERLY AND MONTHLY RETURNS

1. BIR FORM 1701Q – QUARTERLY INCOME TAX RETURN FOR SELF-EMPLOYED INDIVIDUALS, ESTATES AND
TRUSTS
- This return shall be filed in triplicate by the following individuals regardless of amount of gross income:
i. A resident citizen engaged in trade, business, or practice of profession within and without the Philippines.
ii. A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice
of profession within the Philippines.
iii. A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in any
fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or business.
- Deadline: 45 days after the end of each quarter. (May 15 (1 st qtr), August 15 (2nd qtr) and November 15 (3rd qtr)
2. BIR FORM 1601C – MONTHLY REMITTANCE RETURN OF INCOME TAXES WITHHELD ON COMPENSATION
- This return shall be filed in triplicate by every Withholding Agent (WA)/payor required to deduct and withhold taxes
on compensation paid to employees.
- Deadline (Manual): 10th day of the following month; January 15th of the following year for December filing.
- Related to BIR Forms: 1604C, 2316 and 1700
3. BIR FORM 0619F – MONTHLY REMITTANCE FORM FOR FINAL INCOME TAXES WITHHELD
- This monthly remittance form shall be filed in triplicate by every withholding agent/payor required to deduct and
withhold taxes on income payments subject to Final Withholding Taxes.
- Deadline (Manual): 10th day of the following month
- BIR Form 1601FQ – Quarterly Remittance Return of Final Income Taxes Withheld
- Deadline (Manual): last day of the month following the close of the quarter.

SOURCES:
Income Taxation - Tabag and Garcia
Philippine Income Tax, Vol. 1 – Llamado, De Vera
National Internal Revenue Code, as amended by TRAIN Law
ww.bir.gov.ph

TAXATION ON INDIVIDUALS
Prepared by: Eureze Lhoed Tabar, CPA,MBA,CrFA