.Pre-Finals Notes, Taxation 1 2.

A citizen of the Philippines who leaves the Philippines during the

SANS: INCLUSIONS RE: FRINGE BENEFIT TAX (try ko apas) taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis.

AM: For 1 and 2, the common factor is the intention to reside or to be based
permanently abroad for the most time in the year.
I. TAXABLE INDIVIDUALS
3. A citizen of the Philippines who works and derives income from abroad
1) Citizen and whose employment thereat requires him to be physically present
a. Resident abroad most of the time during the taxable year.
b. Non-resident
4. A citizen who has been previously considered as nonresident citizen
2) Alien and who arrives in the Philippines at any time during the taxable year
a. Resident to reside permanently in the Philippines shall likewise be treated as a
b. Non-resident nonresident citizen for the taxable year in which he arrives in the
i. Engaged in Trade or Business Philippines with respect to his income derived from sources abroad
ii. Not Engaged in Trade or Business until the date of his arrival in the Philippines.
3) Estate and Trust
Who are NRCs?
a. Immigrants
AM: Just a recap of the general principles- when we speak of citizens, it can b. Permanent Employees
be divided into resident citizen (RC) and non resident citizens (NRC). So if RC, c. Overseas Contract Worker, employed abroad for not less than 183
they are taxable on all income derived from sources within and without the days.
Philippines. If NRC, taxable only on income derived from sources; Thus, a. If less than 183 days, not considered as NRC because they
Overseas Contract Workers, they are only taxed on income from sources are not considered employed abroad.
within the Philippines.
RESIDENT ALIEN (RA)
W/N you are sourced within and without the Philippines, you check Sec 42. Taxable only for income within the Philippines
The concept of situs of taxation is relevant because it would depend on the a. not a mere transient
kind of income as for you to determine if it’s income earned in the PH or not. b. no definite intention to stay
c. definite purpose for staying requires extended stay and to that end makes
RESIDENT CITIEZN (RC): his home temporarily in the Philippines.
Taxable worldwide.
a. Those who are citizens of the PH at the time of the adoption of the NON-RESIDENT ALIEN (NRA)
Constitution on 02/02/1987 a. ETB (engaged in trade or business in the PH)
b. Those whose fathers or mothers are citizens of the PH b. NETB (not engaged in the trade or business in the PH)
c. Those who are born before 1/17/1973 of Filipino mothers who elect
Philippine citizenship upon reaching the age of majority (18 y.o) d. Naturalized NRA-ETB NRA-NETB
in accordance with the law one who has stayed in the one who has stayed within the
Philippines for an aggregate period Philippines for only 180 days or less
NON-RESIDENT CITIZEN (NRC) of more than 180 days during the and who has no business income in
Taxable only for income within the Philippines. taxable year. the Philippines
subject to 0-35% tax on the net subject to final tax rate of 25% of
1. A citizen of the Philippines who establishes to the satisfaction of the income within the Philippines gross income within the Philippines.
Commissioner the fact of his physical presence abroad with a definite
intention to reside therein
We have this 180-day rule. INCOME TAX RATES FOR INDIVIDUALS
If it’s an alien comes here in the PH and stays for an aggregate period of more
TRAIN 1: Jan. 2018- we now follow the rates that you see on the table in
than 180 days during the calendar year, he will be considered a NRA
yellow:
doing business in the PH.

NRA can be further broken to doing business, or engaged in trade or business

in the PH or not.

TN: “Aggregate Period” dili sumpay sumpay, meaning in total.

Ex: X stayed to PH in Jan. 1-31, (31 days) and then he comes again in March
(62 days), and so on… in that sense, more than 180 days na siya na stay.
Thus, following the 180 day rule, he’s considered a NRA doing business in the
PH.

Must be: 181 days. Not 180.5 days.

The BIR has ruled that there is intention on the part of an alien to stay in the
Philippines indefinitely when the alien:
• Has a special resident retiree’s visa
• Acquired real property and is actually present most of the time in the
PH
• Registered as a taxpayer in the BIR.

ESTATE AND TRUST

Estate under administration or settlement.

Trust TYPES OF INDIVIDUAL TAXPAYERS

A trust is an obligation imposed or a right to administer over a property given 1. Compensation Income Earner (CIE)
to a person for the benefit of another. 2. Purely Self Employed (PSE)
3. Mixed Income Earner (MIE)
TAXABILITY OF INCOME:
1. Determine first the source of the income. COMPENSATION INCOME
• TN: If it’s located in the PH, it will be taxable regardless of the class of  Arises from employment
the taxpayer.  Arises from any form of payment.

COMPENSATION INCOME:
• All remuneration for services, regardless of how these are called,
performed by an employee for his employer, under an EE-ER
relationship, unless specifically excluded under the NIRC.
• The basis upon which remuneration is paid is immaterial. It may be
paid on the basis of piece-work, percentage of profits, hourly, weekly,
monthly or annually.
• As long as what you get is in relation to EE-ER, it is CI.
Compensation Income
1. Arises from an Employee-Employer (EE-ER hereinafter) Relationship
CIE is the usual way most Filipinos earn income from the wage or salaries.
• Refer to the EE-ER relationship under the Labor Code on the 4 Fold
Test, as well as the Two Tiered Test (Control Test + Economic
Realities test)
2. Arises from any form of payment, whether in cash or in kind.
ER may pay in form of: [Inexclusive List]
✓ Cash- actual value
✓ Promissory Note – cash discounted value
✓ Stock Options – difference between exercise price and
✓ book value/ FMV, whichever is higher (RMC 79 – 2014)
✓ Cancellation of Debt – amount of debt cancelled
✓ Shouldered Tax Liability – amount of tax liability
GETTING THE VALUE OF COMPENSATION OF ANY FORM, EARNED
FROM EMPLOYMENT
1. Compensation paid in kind.
This is how you value in the instance of CI paid in kind:
Valued at the FMV or the Fair Market Value of the thing taken in payment is
the amount to be included as CI subject to withholding.
For services at a stipulated price, in the absence of evidence to the contrary,
such price stipulated will be presumed to be the FMV of the remuneration
received.
2. Living Quarters or Meals: (Note: Labor; Facilities vs Equipment)
General Rule: the value of the employee’s Living Quarters or Meals given by
the ER shall be added to the EE’s compensation subject to withholding.
Exception: Convenience of the Employer Rule
If the benefits were furnished to an EE for the convenience of the ER- the
value need not be included as part of the CI.
• This is now considered as a legitimate business expense of ER. ER
benefits from this.
• Ex: 2020. Covid. Your business is manufacturing so you have a
factory. You have EEs, who prior to the pandemic, went to work
normally. But now, since transportation is quite challenging, you
provided them for transportation and accommodation. Housing
accommodation so that work shall not be hampered. This is an
example of Convenience of ER.
3. Facilities and Privileges of a relatively small value.
We discussed a Sound Tax System which should be FAT. Sometimes, the
gov’t di na mudaginot ug tax aning relatively small valued items ka yang part
sa compliance of paying it is costly than the tax itself.
Ex: De Minimis benefit.
They are not considered Compensation subject to income tax and WHT
because these are facilities furnished by ER as a means of promoting the
health, goodwill, contentment or efficient of the EEs.
Q: WHAT ARE THE BENEFITS CLASSIFIED AS DE MINIMIS BENEFITS?
A: RMC No. 50-2018 which clarifies RR 8-2018 and 11-2018.
1. Monetized unused vacation leave credits of employees not exceeding ten
(10) days during the year. a. 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 P125 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.
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.
9. Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum. a. 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.
This list is exclusive! All other benefits given by employers which are not
included in the above enumeration shall not be considered as “de minimis”
benefits, and hence, shall be subject to income tax as well as withholding tax 1. Always note that your computation should be on an annual basis. Let’s say,
on compensation income. ER gives you 10,000 for Uniform and clothing allowance for 2020. Your 13th
month pay is at 100,000. What do u do with 4,000? So you now have 104,000
The benefits given in the excess of the maximum amount allowed as de as benefits, LESS 90,000 (Ceiling): 14,000 taxable amount.
minimis benefits shall be included as part of the “other benefits” subject to the
90,000 ceiling. Any amount in excess of 90,000 shall be subject to income tax Benefits (13th month pay) P100,000
and consequently, on the withholding tax on compensation.
Uniform Allowance P10,000
General Rule: If wala ani, taxable. LESS: De Minimis Benefit Threshold P6,000
Except: If the benefit is furnished for the convenience of the employer EXCESS: P4,000
(Remember the example: COVID Manufacturer-Free accommodation or
transportation). Benefits (13Month) 100,000
Excess of De Minimis 4,000
REVISED THRESHOLD OF DE MINIMIS BENEFITS Total Benefits after Excess 104,000
Di rasad maghatag2 ka maskin unsa regardless of amount. Gov’t fixed LESS: Other Benefits Ceiling 90,000
threshold in RR. 11-2018- published on March 19, 2018: Taxable Amount 14,000
De Minimis Old Threshold New Threshold
2. Instead of P100,000 as 13th month pay, ang imong 13th Month Pay kay
Medical Cash P750 per P1,500 per 20,000. Just the same, you got 4k excess clothing allowance. So all in all, you
Allowance to employee per employee per have P24,000 total benefits. Less Ceiling.
dependents of semester or semester or
employees P125/month. P250/month
Benefits (13Month) 20,000
P1,500 or one
P2,000 or one Excess of De Minimis 4,000
sack of 50kg
sack of 50kg Total Benefits after Excess 24,000
rice/month
Rice subsidy rice/month LESS: Other Benefits Ceiling 90,000
amounting to not
amounting to not Taxable Amount ?
more than
more than P2,000
P1.5,000.
Uniform and Q: Dako ra kaayo ang 90k threshold. Negative ang mogawas. Utangan
P6,000 per ang gov’t nimo?
clothing P5,000 per annum
annum.
allowance
A: NO! You consider the entire 24,000 as exempt. Way utang ang gobyerno
nimo. Pasalamat nalang ka na-exempt ka, kay if sobra sad, taxan na unta pod
 Amount in excess of the threshold will be considered as taxable.
Pero kadtong excess, I-subject pani sa exempt amount sa ka.
P90,000.00.
4. Tips and Gratuities
TG is considered as compensation income but it’s not subject to withholding
RMC No. 50-2018
tax.
De Minimis in Excess of Prescribed Ceiling → Other Benefits Subject to the
P90,000 ceiling.
5. Retirement Benefits
Requisites (for the retirement benefit to be excluded from gross income):
Aggregate:
< 90,000 = EXEMPT.
✓ The private employee or official must be at least 50years of age at the
> 90,000= TAXABLE (Excess over 90,000)
time of his retirement;
✓ He must have rendered at least 10years of service to the employer at
Illustrations:
the time of retirement;
✓ There must be reasonable private benefit plan;
 ✓ Reasonable private benefit plan may be in the nature of pension plan,
profit sharing plan, stock bonus plan or gratuity;
✓ The reasonable private benefit plan must be approved by the BIR;
✓ The employer must give contribution and no amount shall inure to the
benefit of a particular employee or officials;
✓ This can be availed of once.
The subsequent retirement benefits received from another private employer is
no longer exempt but subject to tax. However, if the second employer is a
government entity or institution, still you can avail of the exemption of the
retirement benefit.
TN- The requisites enumerated will only be used when the private employer
does not have a collective bargaining agreement which specifies the
retirement requirements of its employees.
6. Fixed or variable transportation, representation and other allowances
General Rule: Considered as taxable compensation subject to WTW
(Withholding Tax on Wages).
Exception: NOT taxable if paid specifically, either as advances or
reimbursements for traveling, representation or other bona fide ordinary and
necessary expenses, incurred or reasonably expected to be incurred by
employee in performance of his duties, subject to the following conditions —
• These are ordinary and necessary traveling and representation or
entertainment expenses, paid or incurred by the employee in the
pursuit of the employer's trade, business or profession; and
• These expenses are liquidated/substantiated by receipts or other
adequate documentation.
But if there is a portion of it that’s unliquidated, taxable.
TN: If the amount of reimbursement is pre-computed→ not subject to WRW.
Reasonable amounts of reimbursements/advances for traveling and
entertainment expenses which are pre-computed on a daily basis and are paid
to an employee while he is on an assignment or duty. — NOT subject to WTW
and substantiation requirements
In case of advances extended by the employer to the employee: Any excess
of the advances over the actual expenses liquidated by the employee shall
constitute taxable income if such amount is not returned to the employer.
7. Vacation and Sick leave Allowances.
You determine if the EE is a gov’t employee or a private one because if it’s a
gov’t employee, regardless of the number of days whether for sick leave, or
vacation leave, it will always be not taxable. But with private emloyees, sick
leave will always be considered as taxable; while in the case of vacation leave,
it will only be exempt if less than 10 days.
8. Deductions made by employer from compensation of employee
Any amount which is required by law to be deducted by the employer from the
compensation of an employee including the withheld tax is considered as part
of the employee's compensation and is deemed to be paid to the employee
as compensation at the time the deduction is made.
But for deductions mandated by law, these are exempt from WT.
Note: Also applies to deductions not required by law.
Q: Employee contributes to SSS. The share of employee is deducted from his
compensation. Will he be considered as taxable compensation?
A: GSIS, SSS, Medicare and Pag-Ibig contributions are mandatory benefits,
and thus, are exempt from WT on compensation.
TN: The amount of the contribution is what is mandated under the law. What
does this mean? BC there are some EEs who would, for mandatory
contributions, the amount of deduction would depend on your basic pay. Let’s
say, your BP is 30,000. For that amount, in SSS deduction is P500. If you want
to have a bigger receivable when you retire, can you demand SSS that 2,000
instead ang I deduct? Is the 2,000 considered as exempt?
A: No. BIR said that deduction is limited under the law. The law says that
deduction will depend on your basic pay. In this case, the exempt amount will
only be up to 500. Kay 2,000 man imo contribution, the excess of it- 1,500 will
be considered as taxable compensation.
FILING OF INCOME TAX RETURN (ITR)
WHO ARE REQUIRED TO FILE?
1. Resident citizens for income both sourced w/in and w/o of the PH
2. Non-resident citizens, Resident aliens, and Non Resident Aliens Not
Engaged in Trade or Business, ONLY for income sourced w/in the Phil
(Form 1701).
WHO ARE NOT REQUIRED TO FILE?
1. Those whose taxable income is not more than P250K
2. Those whose compensation income derived from one employer
and the income tax on which has been correctly withheld
3. Those whose sole income has been subjected to final withholding
tax and it was correctly withheld by the employer
4. A minimum wage earner.
NOT REQUIRED TO FILE ITR:
1. Those whose taxable income is not more than P250K
But there are instances where you are still required to file an income tax return
in order to substantiate your claim, like if you are a business income earner.
This is just a general rule.
2. Those whose compensation income derived from one employer and
the income tax on which has been correctly withheld
If an employment relation exists, then EE is considered as CIE, qualified for
substituted filing.
Q: What is this Substituted Filing of Tax Return?
No individual income tax return for the year will be filed by the employee
concerned, and the employer is the one that files the return for him.
Thus, we can infer that Substituted Filing of ITR:
– Applies only to individuals
– With only one (1) employer
– Who correctly withholds the income tax on compensation income paid to the
employee and remits the same to the BIR.
It is the ER who will substitute EE to file tax returns. But the taxed is the EE.
That’s why, even if your salary is 30k/month, you don’t get the entire 30k if
that’s the gross bc you still have deductions. One of these is the income tax
on wages. But the thing is, you don’t go to the BIR and file if sweldo ra imo
source.
It is your ER who will comply with the Withholding Tax on the Wages from his
employees and then, your ER will remit the amount withheld to the BIR.
REQUIREMENT OF WITHHOLDING
SEC. 79. Income Tax Collected at Source. –
(A) Requirement of Withholding. - Except in the case of a minimum wage
earner as defined in Section 22(HH) of this Code, every employer making
payment of wages shall deduct and withhold upon such wages a tax
determined in accordance with the rules and regulations to be prescribed by
the Secretary of Finance, upon recommendation of the Commissioner.
Options in Case of Excessive Withholding (from Mamalateo)
Taxpayer has 3 options: refund, tax credit, or carry over excess withholding
tax or payment.
However, once taxpayer exercises option to carry over, such option is
irrevocable for that taxable period and no application for refund or tax credit
shall be allowed (Paseo Realty v CA, GR 119286, Oct 13, 2004).
While a taxpayer is given the choice to claim refund or tax credit, such election
is not final. Prior verification and approval by CIR is required. Such remedy is
not absolute and mandatory (ibid).
Conditions for grant of refund or tax credit:
(1) claim was filed within 2 years from date of payment;
(2) income payment was declared in tax return; and
(3) fact of withholding is established by copy of BIR Form 2307.
3. Those whose sole income has been subjected to final withholding tax
and it was correctly withheld by the employer
EXAMPLE: You are not employed but you are earning interest from your
deposits in the bank, so you won’t have to file income tax return anymore
because the final tax was already withheld by the bank.
4. A minimum wage earner
There is no need because they are not subjected to tax. This is true only if they
are earning purely compensation income.
2. BUSINESS AND PROFESSIONAL INCOME
The difference between this income from compensation income is that this will
allow deductions as long as you are really engaged into business. The primary
requirement for any allowable deduction is that it must be related to trade or
business. it is only this income that is subject to allowable deductions.
0-35% tax rate & the 8% gross income tax option
Now take note that, under the train law, there is this new regime presented.
Where instead of the 0-35%, if you’re earner business or professional income
you can actually avail of the 8% gross income tax.
8% GROSS INCOME TAX OPTION
• Not available for purely compensation earners •
Can only be availed by those
o Solely earning business or professional income OR
o Mixed income earner (compensation + business/professional income)

If you’re subject to the 8% gross income tax, you don’t have to pay other
percentage tax. This other percentage tax is normally paid whenever you’re
engaged in business and your gross sales is not subjected to the 12% VAT.
That 8% is even not imposed directly on your gross income, it’s your gross
income less 250,000 which is very favorable on the part of the individual.
REQUISITES FOR 8% OPTION TO BE APPLICABLE
1. You have to be earning business or professional income
2. Your gross sales or gross receipts for the year should not exceed 3 million
pesos
3. You must not have registered as a VAT taxpayer
4. Your business is not a business which is subject to any other special rate of
other percentage tax but just the 3% other percentage tax.
What is the tax basis of the 8% option?
Its gross sales or gross receipts less 250,000. That’s the basis.
Taxable income for compensation earners is the gross compensation income
less nontaxable income or benefits such as but not limited to the:
• 13th month pay and other benefits (subject to limitations, see Section
6(G)(e) of these Regulations),
• de minimis benefits, and
• employee's share in the SSS, GSIS, PHIC, Pag-ibig contributions and
union dues.
TAX EXEMPTION OF SEPARATION BENEFITS
You get here not just your separation benefits, but also the amount you will
actually receive will involve your salary, 13th MP.
Exempt: if beyond control of EE (redundancy, etc)
What if 15 days is monetized? Excess of 5 days is taxable falling under 13 th
month pay and OTHER BENEFITS. Imo nadayon apply if nay mi excess sa
90k bc taxable ang excess.

Can we use the 8% income tax rate or the optional standard?

This is actually mutually exclusive. When we use the 8% income tax rate, that
means you cannot have any other deduction. So the optional standard
deduction is actually in lieu only of the allowable deduction. Only if you’re
allowed to make those allowable deductions. Since you avail of the 8% you
cannot anymore avail of the optional standard deduction.

Is it wrong to consider gross income the same?

Technically, yes. Gross sales less cost of sales is supposed to be gross
income. It’s best to make use of gross sales or gross receipts for purposes of
the exam.

1. PURELY COMPENSATION INCOME EARNER

Computation:

You lump together all your GI.

1. Deduct all the non-taxable income (13th MP, OB, DMB, and mandatory
contribution, and union dues) [and also the 90k threshold]
2. You will now arrive at your taxable income.
Taxable Income= Gross Income - Non Taxable Income/Benefits
Note: Husband and wife shall compute their IT separately based on their
respective TI.

Husband and wife shall compute their individual income tax separately based
on their respective taxable income; if any income cannot be definitely
attributed to or identified as income exclusively earned or realized by either of
the spouses, the same shall be divided equally between the spouses for the
purpose of determining their respective taxable income.
WHY? Prior to TRAIN 1, we had this concept of additional exemption of 25,000
per child or descendant. If silent, husband ang mo-claim. Mao na sauna.
Sauna pod, single ka, lahi imo amount of exemption, if head of the fam, lahi
pod. Pero karon because of TRAIN Law, masayon na kay regardless of your
status, regardless if naa ba or wala kay dependents, tanan, 90,000 na ang
uniform exempt na amount.
TN: personal and addition exemptions are removed under TRAIN.
MINIMUM WAGE EARNER
Minimum wage earners shall be exempt from
• the payment of income tax based on their statutory minimum wage rates
• holiday pay
• overtime pay
• night shift differential pay and
• hazard pay received
Q: Mr. X, a minimum wage earner, works for GOD Inc. he is not engaged in
business nor has any other source of income other than his employment. For
2018, Mr. X earned a total compensation income of P135,000. His contribution
to SSS, Philhealth, and HDMF amounts to P5,000 and receives 13th month
pay of P11,000. How is his income tax liability computed
A: Total Compensation of P135,000 minus Mandatory Contributions of
P5,000, and 13th month pay of P11,000. Thus:
TC: 135,000
LESS:
Manadatory Cont. 5,000
Non-Taxable Benefits 11,000
16,000
TAXABLE INCOME: P119,000
Mr. X is exempted from taxes since he is a minimum wage earner as
provided in Section 24(A) of the NIRC.
2. The following year, Mr. X earned, aside from his basic wage, additional pay
of P140,000.00 which consists of the overtime pay - P80,000.00, night shift
differential- F30,000'00, hazard payP15.000.00 and holiday pay- Pl5,000.00.
He has the same benefits and contributions as above. Is he still exempted?
A: Yes. because under the same provision it clearly indicates that
notwithstanding the holiday pay, the overtime pay, hazard pay, nightshift
differential pay for as long as the employee is a MWE, he is exempt.
TN: This MWE is very hardworking. Mo work siya during holiday, overtime,
nightshift pajud. So naa gyuy mga percentage of increases. Let’s say, X’s MW
is 400/day. For his nightshift, nay differential. So here, mi exceed
naiyangnadawatsa MWR. Is he still a MWE?
A: YES. It is clear under RR No. 8-2018 that he is. Minimum wage earners
shall be exempt from the payment of Income Tax based on their statutory
minimum wage rates. The holiday pay, overtime pay, night shift differential pay
and hazard pay received by such earner are likewise exempt.
2. PURELY SELF-EMPLOYED and/or PROFESSIONAL
It can either be practice of profession, or doing business.
These are Individuals earning income purely from self-employment and/or
practice of profession whose gross sales/receipts and other nonoperating
income does not exceed the value-added tax (VAT) threshold [P3M] as
provided under Section 109 (BB) of the Tax Code, as amended, shall have the
option to avail of:
1. The GRADUATED RATES under Section 24(A)(2)(a) of the Tax Code, as
amended; OR
2. An EIGHT PERCENT (8%) TAX ON GROSS SALES OR RECEIPTS and
other nonoperating income in excess of P250,000 in lieu of the graduated
income tax rates under Section 24(A) and the percentage tax under Section 1
all under the Tax Code, as amended
. o Why? You cannot invoke double exemption.
THE OPTION IS NOT AVAILABLE TO:
1. A VAT-registered taxpayer, regardless of the amount of gross sales
receipts;
2. A Taxpayer who is subject to Other Percentage Taxes under Title
V of the Tax Code, as amended, except those subject under Section
116 of the same Title.
3. Partners of a General Professional Partnership (GPP) by virtue of
their distributive share from GPP which is already net of cost and
expenses.

A taxpayer subject to the graduated income tax rates (either selected this as
the income tax regime or failed to signify chosen intention or failed to qualify
to be taxed at the 8% income tax rate) is also subject to the applicable
business tax.

WHEN TO ELECT OPTIONS

The election of the 8% TR should be elected at the beginning of each taxable
year.

TN: Unless the taxpayer signifies the intention to elect the 8% income tax rate
in the 1st Quarter Percentage and/or lncome Tax Return, or on the initial
quarter return of the taxable year after the commencement of a new
business/practice of profession, the taxpayer shall be considered as having
availed of the graduated rates under Section Section 24(A) of the Tax Code,
as amended. Such election shall be irrevocable and no amendment of option
shall be made for the said taxable year.
Those who’d avail of 8% would be effective only in the current taxable year.
For the next year, you’d have to signify at the beginning of such year that you
wish you avail that 8% rate. Once elected, the income tax rate shall be
irrevocable for that taxable year it has been made.
But TN, the moment you exceed 3Million threshold, maskin 8% pana imo gipili
for the year, you will be subjected to the graduated ITR.
If you’re Self-Employed, you shall file the quarterly income tax returns, and
you’re required to file said annual ITR, but you’re not required to attach any
financial statement.

You’re required to signify at the beginning of such year that you wish you avail
CRITERIA TO QUALIFY AND AVAIL OF THE 8% INCOME TAX RATE (RMO that 8% rate.
NO. 23-2018)
Tax Base
Graduated Income TR NET Taxable Income
has deductions of
Self-Employed
250k
w/o 250k deductions
8% Tax Rate already availed of
Mixed Income Earner from the
compensation
income tax.
Above table’s Summary: 3. Where Gross Receipts exceed 3M threshold:
If Graduated imong tax rate= tax base is the net taxable income; Ms. R is a prominent independent contractor who offers architectural and
If 8% ang GR= it would depend if SE or MIE. engineering services. Since her career flourished, her total gross receipts
SE= has deductions of 250k amounted to P4,250,000.00 for taxable year 2018. Her recorded cost of
MIE= w/o 250k deductions already availed of from the compensation income service and operating expenses were P2,150,000.00 and P1,000,000.00,
tax. respectively.

What if you chose 8% initially but within the year, you exceeded the 3M Gross Receipts 4,250,000
threshold? LESS: Cost of Service 2,150,000
A: In this case, the moment you exceed, you, as taxpayer, shall automatically GROSS INCOME 2,100,000
be subjected to the GITR, even if 8% ITR was initially selected. LESS: OPERATING EXPENSE 1,000,000
TAX DUE: 220,000
What if taxpayer already paid for the 8%? On P800,000
A: The previous quarter’s payment will be considered as a tax credit or On Excess of P1.1M-800k) x 30%
advanced payment. I adjust nalang ang amount due now that you’re subjected
to GITR. Here, the gross receipts exceeded the VAT threshold of P3M. Thus, it cannot
avail of the 8% tax rate option. It is subject therefore to graduated income tax
Illustrations: rates and is also liable for business tax.
1. Opting for 8% tax option
Ms. Z operates a convenience store while she offers bookkeeping services to 4. Where taxpayer is subject to other percentage tax
her clients. In 2018, her gross sales amounted to P800,000.00, in addition to Q: In 2019, Mr. A owns a nightclub and videoke bar, with gross sales/receipts
her receipts from bookkeeping services of P300,000.00. She already signified of P2,500,000. His cost of sales and operating expenses were P1,000,000 and
her intention to be taxed at 8% income tax rate in her 1st quarter return. Thus: P600,000, respectively, and with nonoperating income of P100,000. How is
Gross Sales 800,000 his income tax liability determined?
Gross Receipts 300,000
Total Sales/Receipts 1,100,000 Gross Sales 2,500,000
LESS: Deductions under Section 250,000 LESS: Cost of Service 1,000,000
24(A)(2)(b) GROSS INCOME 1,500,000
Taxable Income 850,000 LESS: OPERATING EXPENSE 600,000
TAX DUE: 8% 68,000 NET Income from Operation 900,000
Add: Non Operating Income 100,000
NOTE: Total Sales/Receipts did not exceed P3M. TAXABLE INCOME 1,000,000
NOTE: P250K deduction is automatic if you avail of the 8% option. TAX DUE: On P800,000 130,000
On Excess of P1.1M-800k) x 30% 60,000
2. If she did not or failed to avail of the 8% tax rate option, her income tax Income tax Due 190,000
liability for the year will be computed as follows:
While the gross sales did not exceed P3M BUT because it is night club and
Gross Sales 800,000 videoke bar, it is subject to other rate of percentage tax. Thus, the 8% gross
Gross Receipts 300,000 income cannot be availed of. The taxpayer has no option to avail of the 8%
Total Sales/Receipts 1,100,000 income tax rate on his income from business since his business income is
LESS: Cost of Sales 600,000 subject to Other Percentage Tax under Section 125 of the Tax Code, as
GROSS INCOME 500,000 amended. Aside from income tax, taxpayer is liable to pay the prescribed
LESS: OPERATING EXPENSE 200,000 business tax, which in this case is percentage tax of 18% on the gross receipts
Taxable Income 350,000 as prescribed under Sec. 125 of the Tax Code, as amended.
TAX DUE: (300K-250K) X 20% 10,000
 3. MIXED INCOME EARNERS
The combination of the two. Naa kay sweldo, naa sad kay side hustle.
In Compensation Income, wala jud ko nag mention aning 8% because it only
applies to Mixed Income Earners (MIE) for the part of his Self Employment or
Practice of Profession. But if di siya MIE, pero nag earn lang gyud siya either
from Self Employment or Practice of Profession, the 8% rate may apply to him,
provided that his income doesn’t exceed P3 Million.

If his income does not exceed 3m, he has two options:

1. Graduated Income Tax Rates based on Net Taxable Income
2. 8% tax on GS/R and other operating income in excess of P250,000.

If the income does exceed 3M VAT threshold, then, he will be subjected

to the Graduated Income TR only.

If you’re a MIE, for your CI, it shall be subjected to GTR.

For mixed income earners, the income tax rates applicable are:
1. The compensation income shall be subject to the tax rates prescribed under
Section 24(A)(2)(a)of the Tax Code, as amended; AND
For your Income from Business or Profession:
• For your GS/R not exceeding 3M threshold, options:
o GITR
o 8% income TR, but NO LESS 250,000. (Mao ni difference-
kay if di ka MIE, if you’re purely Self Employed, naa kay
250,000 exemption amount)
▪ Reason: Sa imong compensation income, following
the GTR, you already benefited therein for the 250k
exemption.
▪ How can you say naka-benefit na ang MIE?
▪ Refer to GIT on the left.
This is actually the 250k benefit enjoyed by the MIE: (See laser pointer)

2. The income from business or practice of profession shall be subject to the

following:
a. If the gross sales/receipts and other non-operating income do not
exceed the VAT threshold, the individual has the option to be taxed at:
i. Graduated income tax rates prescribed under Section
24(A)(2)(a) of the Tax Code, as amended; OR

ii. 8% income tax rate based on gross sales/receipts and other

non-operating income in lieu of the graduated income tax
rates and percentage tax under Section 116 of the Tax code,
as amended;

b. If the gross sales/receipts and other non-operating income exceeds

the VAT threshold, the individual shall be subject to the graduated
income tax rates prescribed under 24(A)(2)(a) of the Tax code, as
amended.

We discussed that the VAT threshold is 3 Million. This is impt because if your
income exceeds 3M, this concept of 8% tax on GS/R will no longer apply.
Mao nang if MIE ka, ang imong 8% wala nay additional exemption anang
250,000 kay you already deducted said 250k as to your Compensation
Income.

If More than 3Million, youdont have 8% option anymore, you just have the
GITR option.
 FRINGE BENEFIT TAX & INDIVIDUAL ITR FILING COMPUTATION
Fringe Benefits Granted to the EE
WHAT IS A FRINGE BENEFIT? RR No. 8-2018, RR No. 11-2018
It refers to goods, services and other benefits, which can be in cash or in
kind, given to managerial and supervisory employees.

 It is a final income tax

 Imposed on the managerial/supervisory employee
 Withheld by the employer who files the return and remits the tax
within 25 days from close of each calendar quarter.

MANAGERIAL EMPLOYEES lay down and execute management policies.

They can hire, transfer, suspend, lay-off, recall, discharge, assign or
discipline employees.

SUPERVISORY EMPLOYEES are those who in the interest of the employer,

recommend managerial actions using independent judgment, but such
authority cannot be considered routinary or clerical.
Formula:
The fringe benefits tax may be the following (Inexclusive list) which will be
discussed in detail later. FBT / 65%
GUMV X 35%
FRINGE BENEFITS: [Key: HEV HIM EHEL] FRINGE BENEFIT TAX PAYABLE
(1) Housing;
(2) Expense account; Sample Problem:
(3) Vehicle of any kind; Mr. X, a finance manager, received P13,600 as fringe benefit from his
(4) Household personnel, such as maid, driver and others; employer. How much is the fringe benefit tax payable?
(5) Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted; Step 1: Get the GUMV
Divide first whichever the value that was received as fringe benefit by 65%
(6) Membership fees, dues and other expenses borne by the employer
for the employee in social and athletic clubs or other similar organizations; and then that becomes the GUMV.
(7) Expenses for foreign travel;
FBT 13600
(8) Holiday and vacation expenses;
/ 65%
(9) Educational assistance to the employee or his dependents; and
GUMV: 20,923.0769
(10) Life or health insurance and other non-life insurance premiums or
similar amounts in excess of what the law allows.
Step 2: Multiply GUMV to Tax Rate applicable
FRINGE BENEFIT TAX RATES Since the rate of Mr. X, (not being a NRA-NETB) is 35% percent, You
multiply that 35% to the GUMV. And that is how to arrive with the Fringe
35% (Regular) Benefit Tax.
Rate 25% of GI (NRA not
GUMV 20,923.0769
engaged in T/B)
X 35%
Grossed Up Monetary Value
Base FBT Payable: 7,323. 0769
(GUMV)
Taxpayer Employer
FRINGE BENEFITS TAX VS. WITHHOLDING TAX ON WAGES FRINGE BENEFIT #1
Housing Privilege

Monetary Value
If ER LEASES a residential property
(RP) for the use of the EE, and the
50% of the monthly rental paid
propery is the usual place of
residence of the EE
If ER PURCHASES and Acquisition cost or Zonal Value,
TRANSFERS OWNERSHIP to EE whichever is higher
If ER PURCHASES W/O
Acquisition cost, w/o interes
TRANSFER OF OWNERSHIP
Market Value or Zonal Value,
If ER OWNS the property
whichever is higher
Temporary Housing for EE who
stays not more than 3 mos
Housing adjacent to business Exempt
premises (within 50meters)
Housing of Military officials
1. When you see a FBT problem, determine first w/n the EE is a
Rank and File (RF) employee. EXAMPLE: LEASED BY ER FOR THE EE
a. For a RF employee, may it be compensation tax or FBT, it The company leased on your behalf a condominium unit because you are not
will be subject to withholding tax on wages (WTW) from the place of your employer, only 50% there is considered for the benefit
of the employee because no matter what he really needs to find a place
b. For NRF or Managerial/Supervisory EE, it depends: where he can stay. Otherwise, it will be very inconvenient on his part.
i. Compensation-> Subject to WTW
ii. FRINGE BENEFITS-> Subject to FBT For example, if he is from Manila and he is working here in Cebu, then he
better finds a place here in Cebu if he wanted to continue working.
TYPES OF FRINGE BENEFITS In this case, if the employer leases on his behalf a condominium unit then
Key: HEV HIM EHEL [ INEXCLUSIVE] only 50% of that is considered for his own benefit. Part of it is also for the
convenience of the employer.
1. Housing Privilege
2. Expense Account
If Lease is Php 20,000.00, then only Php 10,000.00 is considered a fringe
3. Vehicle of any kind
benefit. The other Php 10,000.00 is not subject to fringe benefit tax.
4. Household Personnel
5. Interest on Loan at less than the Market Rate
6. Membership fees, Dues and Other Expenses in Social and Athletic Clubs EXAMPLE: PURCHASE W/ TRANSFER OF OWNERSHIP
7. Expenses for Foreign Travel It will be the acquisition cost or the zonal value, whichever is higher. If you
8. Holiday and vacation expenses notice, if there is transfer of property, and it involves real property, it’s always
9. Educational Assistance to the Employee or to his dependents whichever is higher, between the gross selling price, the fair market value
10. Life or health insurance and other non-life insurance premiums or similar determined by the assessor or the FMV as determined by the BIR.
amounts in excess of what the law allows
EXAMPLE: PURCHASE W/O TRANSFER OF OWNERSHIP When we speak of expenses to be reimbursed by the ER, this is your
The acquisition cost becomes the basis of depreciation. If ownership is not decision map:
transferred, the benefit will be accounted for using the depreciation. Only the
acquisition cost will be considered as fringe benefit. But that acquisition cost
will have to be divided by whatever is the useful life of that property because
only the depreciation is considered as fringe benefit.

Property worth 10M Good for 10 years

10M divided by 10 years = 1M

Every year, you receive a fringe benefit equivalent to 1M pesos.

VALUATION OF FRINGE BENEFITS

Monetary Value
Money Amount Granted or Paid
Property WITH ownership Fair Market Value
Property WITHOUT ownership Depreciation Value

EXAMPLE: ER IS OWNER
If the company owns a condominium unit and it will transfer ownership to the
employee, then whatever is the market value or zonal value at the time the Is it a personal expense of the EE?
condominium unit is given will be the basis of fringe benefit tax. This one you If yes, it’s subject to FBT.
will not multiply 50%. There is no 50%. If the zonal value is Php 1,000,000.00 If very generous ang imong ER, like, ang monthly groceries of iyang i-
and it is higher than the market value, then such will be the basis of fringe reimburse then this Personal Expense is subject to FBT.
benefit tax. So 1M divided by 65% times 35%, that’s how you supposed
to determine the tax due on that. If your answer is NO, or dili siya personal expense and the documentation or
receipt is in the name of the employer, if YES Exempt or No FBT. Your
justification for this is that this is same as de minimis where the expense is
FRINGE BENEFIT #2 furnished for the convenience of the employer or a legitimate business
Expense Account- Company pays for the personal expenses (meals, expense of the ER.
groceries)
But even if it’s personal expense not a personal expense unta, but it’s not
properly substantiated or liquidated by the managerial EE, then it is now
Subject subject to FBT.
Expense Account to FBT
or not? TN: IF THE REASON FOR GIVING OF SUCH FB IS NECESSARY TO THE
If the expense was duly receipted for and in the name of the TRADE BUSINESS OR PROFESSION OF THE EMPLOYER, IT’S NOT
employer, and the expense is not a personal expense of the No SUBJECT TO FBT AND COMPENSATION TAX.
employee.
When you’re met with the question, and then your position is that, it’s not
If these are personal expenses, such as groceries, paid for or
taxable, it’s not a FB subject to FBT – the usual reason why it is opined in
reimbursed by the employer evenif these are duly receipted for in Yes
cases that it’s not subject to FBT is that it is…
the name of the employer
 NECESSARY TO THE TRADE BUSINESS OR PROFESSION OF
THE EMPLOYER; or
 BENEFIT IS GRANTED FOR THE CONVENIENCE OR
ADVANTAGE OF THE ER.

Kaning two reasons- it would show nga it’s being given because it’s a
legitimate business expense of the employer. (But you don’t end there.) [In
answering the question, butangi sad ninyo ug application: ana ka, in this
case, it appears that the giving of the benefit to ensure that the EE will be
able to go to the plant…
FRINGE BENEFIT #3
Vehicle of any kind- Car, helicopter, etc.
Company pays for membership in a country club, maybe for the reason that
an employee is able to get clients by playing golf.
FRINGE BENEFIT #7
Expenses for Foreign Travel-
Employee is sent to attend a seminar abroad. Since the expenses there is
actually related to the business and trade of the employer, it should not be
considered as a benefit since you are still considered working.

Monetary Value But say for example, instead of flying economy class, you are given a 1st
Purchased in the name of the EE Acquisition Cost class seat accommodation, the 30% of the supposed fare will be considered
Cash is given for the purchase of Cash received as fringe benefit. If that happens, expenses for foreign travel may be paid for
vehicle by the employer, a portion of it will be considered as fringe benefit.
Purchased in the name of the EE by Acquisition Cost/5 years
installment FRINGE BENEFIT #8
Partially shouldered price Amount Shouldered Holiday and Vacation Expenses –
Fleet of motor vehicles maintained 50% (Acquisition Cost/5 years) Some companies treat their employees to Boracay, to Hongkong etc., these
by ER for the use of the business maybe considered a fringe benefit.
and EE
FRINGE BENEFIT #9
How about those setup where the car goes to the employee after x number Educational Assistance to the Employee or to his dependents
of years? The basis is whatever the fair market value at the time the
ownership of the motor vehicle is transferred to the employee. A. Educational Assistance to the Employee
GR: Cost of educational assistance given to NRF-EE is treated as a taxable
EXAMPLE: FB.
The cost of the vehicle is 1 million and has a depreciation value of 100k
every year. If the car’s ownership is given to you after 6 years, so only 400k EXC: However, those extended under a scholarship grant to the EE by the
then will be subject to fringe benefit tax. The employer is the one to pay the ER shall not be treated as taxable FB subject to the ff:
tax, so that is good. 1. Education is directly connected to the ER’s business; and
2. With written contract that EE shall remain employed with ER for a
FRINGE BENEFIT #4 period of time agreed upon or one which requires him to do a return
Household Personnel- maid or driver is paid for by the employer service.

FRINGE BENEFIT #5 EXAMPLES

Interest on Loan at less than the Market Rate-
The current market rate is 6%, then if granted with an interest of 5%, then
there is a benefit of 1%. So if granted by the employer a loan not even
subject to interest, it can be considered as a fringe benefit.
FRINGE BENEFIT #6
Membership fees, Dues and Other Expenses in Social and Athletic
Clubs-
FRINGE BENEFIT
Your biz is manufacture of perfumes and flavors. You’re a chemical engineer.
You availed of educational assistance from your ER. Ana ka you wanna
study more (to obtain a Masters Degree) kay you wanna further hone your
skills on chemistry. Because your study is in relation to your function as a
chemist- check nakas first condition.
After graduating, there must be a written contract between you and your
employer na you will remain in the company for a period of time. Should you
abide to these terms, that educational assistance is NOT considered as a
Fringe Benefit. If there is NO contract, such that, pwede raka mobalhin ug
company after obtaining that masters degree, then considered taxable Fringe
Benefit natong educational assistance.
NOT FRINGE BENEFIT
Obviously,if lahi imo gi-pursue na educational assistance- fashion design na
for example- ka di man siya directly connected sa imo work as a chemist,
then it’s considered taxable FB na.
B. EDUCATIONAL ASSISTANCE GRANTED TO EE’S DEPENDENTS
EXAMPLES
FRINGE BENEFIT
The dependents of regular employees (maximum of 3) of the USC are
granted with scholarship. Say for example, if it is a different company and a
dependent of the employee of that company will be granted a scholarship
then that will also be considered as a fringe benefit on the part of the
employee.
NOT CONSIDERED A FRINGE BENEFIT
If these dependents are required to take an exam just so they can avail the
scholarship and it is on competitive basis, meaning you have to outwit all the
other applicants then it will not be considered a fringe benefit on the part of
the employee. In fact there is one ruling issued by the BIR years ago where if
the student-dependent of the employee is required to maintain a particular
grade the it will not be considered a fringe benefit because it would still fall
under a competitive scheme.
Granting of scholarship to the dependents of an employee through a
competitive scheme is not considered a fringe benefit.
FRINGE BENEFIT #10
Life or Health insurance and other non-life insurance premiums
If it is related only to an individual, meaning it is only granted to a particular
employee then it becomes fringe benefit but if it is granted to all employees
that will not considered as fringe benefit.
If it is a group life or health insurance, it is considered for the convenience of
the employer which is exempted from fringe benefit tax but if it is granted
only to special types of employees then it becomes fringe benefit. Group life
or health insurance is considered for the convenience of the employer and
you would realize class that the exemption to fringe benefit includes
convenience of the employer.
General Rule: Life or health insurance and other non life insurance premiums
are taxable FB.
Exceptions:
 Cost of premiums borne by the ER for group insurance of his NRF
EEs;
 Contributions of the ER for the benefit of his NRF EEs to the SSS,
GSIS, etc.
BENEFITS EXEMPTED FROM FRINGE BENEFITS TAX
1. Necessary and ordinary business expenses
2. For the convenience of ER
3. De minimis benefit
1. Necessary and ordinary business expenses
It will be inequitable if the employee to be subjected to FBT if it will be
incurred for the benefit of the employer pursuant to its trade or business
2. For the convenience of the employer
It is interchangeable with number 1, but this usually refers to housing
privilege. If you are housed within 50 meters from the premises of the
employer, it will be considered as for the convenience of the employer.
There was this one case involving a power plant, the employee is living 3
kms away in one of the bunk houses of the employer. It was still considered
FBT. The reason is because it is not healthy to house them near the power
plant.
Would a condo unit rent in Manila for purposes of training be considered
ordinary expense? YES.
3. De minimis benefits
Exempted from FBT as well as income tax up to a certain extent
Q: WHAT ARE THE BENEFITS CLASSIFIED AS DE MINIMIS BENEFITS?
A: RMC No. 50-2018 which clarifies RR 8-2018 and 11-2018.
1. Monetized unused vacation leave credits of employees not exceeding
ten (10) days during the year. a. 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 DE MINIMIS OLD THRESHOLD NEW THRESHOLD
P1,500 per employee per semester or P125 per month. 1. Monetized unused
≤ (not exceeding) 10 days during the year.
4. Rice subsidy of P2,000 or one (1) sack of 50 kg. rice per month vacation leave credits
amounting to not more than P2,000. 2. Monetized value of vacation and sick leave credits paid to
5. Uniform and Clothing allowance not exceeding P6,000 per annum. government officials and EEs.
6. Actual medical assistance, e.g. medical allowance to cover medical 3. Medical Cash Allowance P750 per employee P1,500 per employee
and healthcare needs, annual medical/executive checkup, maternity to dependents of per semester or per semester or
assistance, and routine consultations, not exceeding P10,000.00 per employees P125/month. P250/month
annum. P1,500 or one sack
7. Laundry allowance not exceeding P300 per month. P2,000 or one sack
of 50kg rice/month
8. Employees achievement awards, e.g., for length of service or safety of 50kg rice/month
4. Rice subsidy amounting to not
achievement, which must be in the form of a tangible personal property other amounting to not
more than
than cash or gift certificate, with an annual monetary value not exceeding more than P2,000
P1.5,000.
P10,000 received by the employee under an established written plan which 5. Uniform and clothing
does not discriminate in favor of highly paid employees. P5,000 per annum P6,000 per year.
allowance
9. Gifts given during Christmas and major anniversary celebrations not 6. Actual medical assistance <10,000/per year
exceeding P5,000 per employee per annum. a. Christmas gifts and not 7. Laundry Allowance ≤ P300/month OR ≤ P3,600/year
Christmas bonus. 8. Employees achievement
10. Daily meal allowance for overtime work and night/graveyard shift not awards (tangible property
exceeding twenty-five percent (25%) of the basic minimum wage on a per ≤ P10,000/year
other than cash/ gift
region basis. certificate)
11. Benefits received by an employee by virtue of a collective bargaining Christmas or anniversary
agreement (CBA) and productivity incentive schemes provided that the total ≤ P5,000/year
gifts
monetary value received from both CBA and productivity incentive schemes Daily meal allowance for
combined do not exceed P10,000.00 per employee per taxable year. overtime work and ≤ 25% of basic MW
night/graveyard shift
This list is exclusive! All other benefits given by employers which are not Benefits received by EE by
included in the above enumeration shall not be considered as “de minimis” virtue of CBA & productivity ≤ P10,000/year
benefits, and hence, shall be subject to income tax as well as withholding tax schemes
on compensation income.
 Amount in excess of the threshold will be considered as
The benefits given in the excess of the maximum amount allowed as de taxable. Pero kadtong excess, I-subject pani sa exempt amount sa
minimis benefits shall be included as part of the “other benefits” subject to P90,000.00.
the 90,000 ceiling. Any amount in excess of 90,000 shall be subject to
income tax and consequently, on the withholding tax on compensation. RMC No. 50-2018
De Minimis in Excess of Prescribed Ceiling  Other Benefits Subject to the
General Rule: If wala ani, taxable. P90,000 ceiling.
Except: If the benefit is furnished for the convenience of the employer
Aggregate:
REVISED THRESHOLD OF DE MINIMIS BENEFITS < 90,000 = EXEMPT.
> 90,000= TAXABLE (Excess over 90,000)
Di rasad maghatag2 ka maskin unsa regardless of amount. Gov’t fixed
threshold in RR. 11-2018- published on March 19, 2018: (Nos 1-6 below in
orange highlight: Amended by RR 11-2018):
Illustrations: FILING OF INCOME TAX RETURNS (ITR)
1. Always note that your computation should be on an annual basis. Let’s
WHO ARE REQUIRED TO FILE?
say, ER gives you 10,000 for Uniform and clothing allowance for 2020. Your
1. Resident citizens for income both sourced w/in and w/o of the PH
13th month pay is at 100,000. What do u do with 4,000? So you now have
2. Non-resident citizens, Resident aliens, and Non Resident Aliens Not
104,000 as benefits, LESS 90,000 (Ceiling): 14,000 taxable amount.
Engaged in Trade or Business, ONLY for income sourced w/in the
Phil (Form 1701).
Benefits (13th month pay) P100,000
WHO ARE NOT REQUIRED TO FILE?
Uniform Allowance P10,000 1. Those whose taxable income is not more than P250K
LESS: De Minimis Benefit Threshold P6,000
2. Those whose compensation income derived from one
EXCESS: P4,000
employer and the income tax on which has been correctly
withheld
Benefits (13Month) 100,000
3. Those whose sole income has been subjected to final withholding
Excess of De Minimis 4,000
Total Benefits after Excess 104,000 tax and it was correctly withheld by the employer
LESS: Other Benefits Ceiling 90,000 4. A minimum wage earner.
Taxable Amount 14,000
NOT REQUIRED TO FILE ITR:
th th
2. Instead of P100,000 as 13 month pay, ang imong 13 Month Pay kay
20,000. Just the same, you got 4k excess clothing allowance. So all in all, 1. Those whose taxable income is not more than P250K
you have P24,000 total benefits. Less Ceiling. But there are instances where you are still required to file an income tax
return in order to substantiate your claim, like if you are a business income
earner. This is just a general rule.
Benefits (13Month) 20,000
Excess of De Minimis 4,000
2. Those whose compensation income derived from one employer and
Total Benefits after Excess 24,000
the income tax on which has been correctly withheld
LESS: Other Benefits Ceiling 90,000
Taxable Amount ?
If an employment relation exists, then EE is considered as CIE, qualified for
substituted filing.
Q: Dako ra kaayo ang 90k threshold. Negative ang mogawas. Utangan
ang gov’t nimo? Q: What is this Substituted Filing of Tax Return?
A: NO! You consider the entire 24,000 as exempt. Way utang ang gobyerno No individual income tax return for the year will be filed by the
nimo. Pasalamat nalang ka na-exempt ka, kay if sobra sad, taxan na unta employee concerned, and the employer is the one that files the return
pod ka. for him.

Thus, we can infer that Substituted Filing of ITR:

– Applies only to individuals
– With only one (1) employer
– Who correctly withholds the income tax on compensation income paid to
the employee and remits the same to the BIR.

It is the ER who will substitute EE to file tax returns. But the taxed is the EE.
That’s why, even if your salary is 30k/month, you don’t get the entire 30k if
that’s the gross bc you still have deductions. One of these is the income tax
on wages. But the thing is, you don’t go to the BIR and file if sweldo ra imo
source.
It is your ER who will comply with the Withholding Tax on the Wages from his
employees and then, your ER will remit the amount withheld to the BIR.
REQUIREMENT OF WITHHOLDING
SEC. 79. Income Tax Collected at Source. –
(A) Requirement of Withholding. - Except in the case of a minimum wage
earner as defined in Section 22(HH) of this Code, every employer making
payment of wages shall deduct and withhold upon such wages a tax
determined in accordance with the rules and regulations to be prescribed by
the Secretary of Finance, upon recommendation of the Commissioner.
Options in Case of Excessive Withholding (from Mamalateo)
Taxpayer has 3 options: refund, tax credit, or carry over excess withholding
tax or payment.
However, once taxpayer exercises option to carry over, such option is
irrevocable for that taxable period and no application for refund or tax credit
shall be allowed (Paseo Realty v CA, GR 119286, Oct 13, 2004).
While a taxpayer is given the choice to claim refund or tax credit, such
election is not final. Prior verification and approval by CIR is required. Such
remedy is not absolute and mandatory (ibid).
Conditions for grant of refund or tax credit:
(1) claim was filed within 2 years from date of payment;
(2) income payment was declared in tax return; and
(3) fact of withholding is established by copy of BIR Form 2307.
3. Those whose sole income has been subjected to final withholding
tax and it was correctly withheld by the employer
EXAMPLE: You are not employed but you are earning interest from your
deposits in the bank, so you won’t have to file income tax return anymore
because the final tax was already withheld by the bank.
4. A minimum wage earner
There is no need because they are not subjected to tax. This is true only if
they are earning purely compensation income.
REQUISITES OF SUBSTITUTED FILING
1. The employee received purely compensation income (regardless of
amount) during the taxable year.
 Because here, it is the employer who will file the ITR.
2. The employee received the income from only one employer in the
Phil. during the taxable year
 If you had more than 1 employer during the taxable year, then you
are required to file a tax return. This is because they no longer know
exactly how much you earned during the year. There is a need to
add up all the income from both employers during the year.
 Even if you have more than one employer within the year but the
supposed tax did not exceed the threshold, then there is still a need
to file ITR.
 If the employers do not know that the employee has two employers
during the year, it is no longer the burden of the employer, it is the
obligation of the employee to file ITR. But be mindful because there
may be provisions in employment contract that prevents
moonlighting (more than 1 employer during a year).
3. The amount of tax due from the employee at the end of the year
equals the amount of tax withheld by the employer
4. The employee’s spouse also complies with all 3 conditions stated
above.
5. The employer files the annual information return (BIR form No. 1604-
CF)
6. The employer issues BIR Form No. 2316 to each employee.
WHERE TO FILE THE ITR- WITH PAYMENT
GR: Pay as you file- pay taxes wherever you file your ITR. Do not pay
directly to BIR.
1. Go to an authorized agent bank (AAB)within the place where you are
registered as a taxpayer.
2. In places where there are no AABs:
 The return will be filed directly with the Revenue Collection Officer or
duly Authorized Treasurer of the city or municipality in which such
 person has his legal residence or principal place of business in the WHEN TO FILE INDIVIDUAL ITR:
Philippines, OR
 If there is none, filing of the return will be at the Office of the 1ST Quarter Return 2nd Quarter Return 3rd Quarter Return
Commissioner. May 15 August 15 November 15
o This is normally true when you don’t have a particular
residence like a non-resident alien engaged in trade or The annual ITR shall be filed not later than the 15 th day of the 4th month
business (NRA-ETB). He would have to file it in Quezon City following the close of the calendar year or April.
where the Office of the Commissioner is.

WHERE TO FILE THE ITR- WITHOUT PAYMENT INCOME TAX RETURN- FILING AND PAYMENT
A: Revenue District Officer (RDO) where the taxpayer is registered.
Particulars Old Rule TRAIN
In actual practice, you file it online. Once you get the email confirming that Persons exempt from GI does not exceed Taxable Income does
you have filed your income tax return, you will just have to go to the BIR and filing Individual ITR personal and additional nto exceed P250,000
have it stamped received by the BIR, along with the email confirming the exemptions
filing of your form online. Persons qualified for
substituted filing.
INSTALLMENT PAYMENT For Notes and Comments on Gross Income’s Inclusions, Exclusions, and
Deductions, please refer to the Income Tax Notes.
When a tax dues is in excess of P2,000.00, the individual may elect to pay in
2 installments:

1st Installment 2nd Installment

At the time the annual ITR is filed On or before OCT. 15 following the
(April 15) close of the calendar year

Sometime in 2015, I have decided to pay my taxes in installment. When I did

that, I needed to establish that my income tax is in excess 2,000.00. I first
filed it in April 15 and subsequently, I filed it sometime in July. Under the law,
you have to file the return on April 15 but the payment would have to happen
twice. One on April 15 and the other on October 15.

Is it advisable to do an installment payment?

Supposedly, yes. What if you will die in between April 15 and October 15?
Then you don’t have to worry paying half of you taxes. That seems to be
practical. However, it doesn’t mean that you no longer have the liability
because the BIR would have to go after your estate in that case and your
heirs would have to worry about paying your taxes but at least you did not
have to do it yourself.

NOTE: You can only do two installment payments, there cannot be more
than that.