Reflection Paper

Income derived from an employee-employer relationship is called compensation income.

It is composed of the payroll and other benefits provided by the employer. In order to compute
for the income tax, classify the employees first whether they are Minimum wage earner (MWE)
or not. MWE employees are paid with statutory minimum wage rate, and they are exempted
from paying the income tax. While those who are not a minimum wage earner must pay their
income tax based on the graduated tax table below.

To arrive at the net taxable income, determine the compensation income and deduct
mandatory contributions and exempt benefits. Compensation income consists of the salaries and
wages plus other benefits received from the employer. Mandatory contributions includes SSS,
Pag-IBIG, Philhealth and other contributions. While exempt benefits includes 13th month pay and
other benefits not exceeding P90,000.
Those who earn purely compensation must file the BIR Form 1700 or the Annual Income
Tax for Individuals Earning Purely Compensation Income. You may opt to file online thru
Electronic Filing and Payment System (eFPS) and the deadline is every 15 th of April of each
year. But not all who earn purely compensation must file this BIR Form 1700, some are
exempted given that their:

a. Taxable income does not exceed P250,000.00

b. Income tax has been withheld correctly by his employer, provided that such individual
has only one employer for the taxable year.
c. Income has been subjected to final withholding tax or who is exempt from income tax
pursuant to the Tax Code and other special laws.
d. Income is not greater than the statutory minimum wage rate.
e. and they are qualified under substitute filing. An individual may qualify under
substitute filing if:
 employee receives purely compensation income, regardless of amount
 employee has only one employer in the Philippines for the calendar year
 the income tax of which has been withheld correctly by the said employer (tax due
equals tax withheld)
 the employer files the annual information return (BIR Form No. 1604-CF)
 the employer issues BIR Form No. 2316 (Oct 2002 ENCS version) to each
employee.

A qualified employee must express his intention of availing the substitute filing by
signing the 3 copies of BIR Form 2316. The original copy must be returned to the qualified
employee, while the copies must be submitted by the employer to the BIR on or before February
28 of succeeding year. In addition to the BIR Form 2316, the employer must also file BIR Form
1604-CF. BIR Form 1604-CF or the Annual Information Return of Income Taxes Withheld on
Compensation and Final Withholding Taxes is filed on or before January 31 of the year
following the calendar year.
 Tax Rates and deadline of filing were already adjusted based on the Tax Reform for
Acceleration and Inclusion Law or R.A. 10963. TRAIN law is created with the objective to make
the tax system simpler, fairer, and more efficient, and to generate more funds for the government
projects in order to sustain the growth of the country. TRAIN law aims to provide tax reliefs to
individual income tax earners by lowering the personal income tax. This surely benefits
employees because their take home pay will be increase. But on the other side, TRAIN law also
increased excise taxes on fuels, sweetened beverages, automobiles, cigarettes and other goods.
So if we analyzed, the increased in take-home pay will be override by the increase in prices of
goods.