Assignment in income taxation:

Objective of this activity: To be able to familiarize yourselves to the application of the scheduler rates
for individual taxpayers earning purely compensation income, mixed income and purely business
income. You will also familiarize yourselves with the application of the OSD and flat rate of 8%.

1. A is the employer of B, C and D whose monthly salaries are P35,000.00, P45,000.00 and
P60,000.00 respectively. They also have 13 th month pay of P50,000.00 each. Suppose you are to
withhold from their salaries their income taxes. How much will you deduct from their salaries
for the year? How much are you going to withhold for every month?

EMPLOYEE B

Annual Salary = (P35,000 x 12)

Tax Due = (P420,000 – P400,000) x 25% tax rate) +30,000
WH Yearly = P35,000
WH Monthly = P2,916.66

EMPLOYEE C

Annual Salary = (P45,000 x 12)

Tax Due = (P540,000 – P400,000) x 25% tax rate) +30,000
WH Yearly = P65,000
WH Monthly = P5,416.66

EMPLOYEE D

Annual Salary = (P60,000 x 12)

Tax Due = (P720,000 – P400,000) x 25% tax rate) +30,000
WH Yearly = P110,000
WH Monthly = P9,166

2. B is an employee of the Commission on Human Rights. He receives a monthly salary of

P52,500.00. He was given 13 th month of P52,500.00 and 14 th month of P52,500.00 How much is
his taxable income? How much is the tax?

Income Tax = ((Total Salary – Deductions) x Tax Rate)

Other Benefits = 105,000 – 90,000 Cap

Included as Taxable Income = 15,000
 Gross Annual Income = 52,500 Monthly x 12 months + 15,000
Gross Annual Income = 639,000

Income Tax = 645,000 - 400,000 x 25% +30,000

Income Tax = 91,250

3. C Company is a corporation engaged in the manufacturing of dynamite. For the year, their gross
sales is P3,500,000.00. The cost of the sales is P1,700,000.00 while the expenses for business is
P1,000,000.00. C also incurred P100,000.00 as expenses for his gambling and P200,000.00 for
his womanizing. How much is the net income subject to tax of C? how much is the tax due?

Net Income =Gross Sales – Business Expenses

=3,500,000 – 1,700,000 + 1,000,000
=800,000

Tax Due = 800,000 x 30% Regular Corporate Income Tax Rate

= 240,000

4. A retired from the service. His employer gave him the following:

a. Salaries for the year P 600,000.00

b. Retirement pay 2,000,000.00
c. 13th and 14th month pay 120,000.00
How much is the taxable income?
How much is the tax due

Taxable Income = Annual Salary + Other Benefits in excess of 90,000

= 600,000 + (120,000 – 90,000)
= 630,000 pesos Taxable Income

Tax Due = ((630,000 – 400,000) x 25%) +30,000

= 87,500 pesos Tax Due

5. A is an employee of Meralco. His annual salary is P850,000.00. He also had a toyo and suka
factory whose information are as follows:

a. Sales P1,000.000
b. Cost of sales 400,000
c. Salaries and wages 250,000

Compute for the net income subject to tax of A.

 Compute for the income tax due of A

Net Compensation Income = P850,000

Net Business Income = P1,000,000 Gross Sales – P650,000 Business Expenses
= P350,000
Net Income Subject to Tax = P1,200,000

Income Tax Due Compensation Income = ((P850,000 – P800,000) x 30% Tax Rate) + P130,000
= P145,000
Income Tax Due Business Income = ((P350,000 – P250,000) x 20% Tax Rate)
= P20,000
Total Income Tax Due = P165,000

6. A is earning purely income from business. His annual sales is P2,995,000.00. Since his son is
studying law in New Era University, he was informed that he can avail of the OSD which is 40%
of the gross receipts as a standard deduction, or the 8% flat rate. Suppose his actual expenses
for business is P1,600,000.00. Compute for the tax due for A under the following circumstances:

a. A avails of the OSD

b. A avails of the 8% flat rate
c. Which of the OSD or 8% flat rate is the better option?

A. TAX DUE = P2,995,000 - P2,995,000 x 40% OSD

= ((P1,797,000– P800,000) x 30% tax rate) + P130,000
= P429,100

B. TAX DUE = (P2,995,000 Gross Sales – P250,000) x 8% Flat Rate

= 219,600

C. In this case, the better option would be the flat rate. Aside from lesser tax due, no more
payment of percentage tax.

7. Explain when you are going to use the following BIR forms:

a. 1700
Is used if there are no other sources of income other than employment income

b. 1701
Is used either by mixed income individuals, employee and also earning income from a
business or side profession or for those who have chosen a Graduated Tax rate with an
Itemized Deduction Method
c. 1701A
For those earning purely business income or income from profession. This is a new form
released by the BIR for those who chose the Optional Standard Deduction Method (OSD) or
opted in for 8% GRT in the previous year

d. 1702
Form used for filing Annual Income Tax Return for Corporation, Partnership and Other Non-
Individual Taxpayers.