FORMS OF NOTE WHEN TAXABLE WHEN NOT TAXABLE

COMPENSATION INCOME

1. Basic Salary or
Wages
2. Honoraria
3. Commission
4. Fees
5. Hazard Pay or
Emergency Pay
6. Overtime Pay
7. Profit Sharing
8. Awards for Special
Services
9. Beneficial
Payments
10. Fixed or Variable WHEN NOT CONSIDERED
Allowances AS COMPENSATION:

1. If the reimbursements
and/or advances is
necessary and ordinary
expenses incurred by the
employee in the pursuit of
employer’s business.

2. If the employee is
required to
accounting/liquidate for
the transportation and
representation expenses.
The excess of the actual
expenses over advances
made is considered taxable
income if not returned to
the employer.

Examples:
Transportation,
Representation, Other
Allowances such as cost of
living allowance.

11. Tips and Gratuities 1. Paid directly to an

employee;
2. By a customer of the
employer which are;
3. Not accounted for by the
employee to the employer;
4. Are considered TAXABLE
INCOME, but not subject to
 withholding tax.

12. Thirteenth (13th) Except: Amount in excess General Rule: If total

Month Pay and of P90,000
other Benefits
13. Vacation and Sick If paid or availed of as
Leave salary of an employee who
is on vacation or on sick
leave notwithstanding his
absence from work, it
constitutes taxable
compensation income.
amount is P90,000 or less
Monetized value of
unutilized vacation leave
credits of ten (10) days or
less which were paid to
private employees.
Monetized value of leave
credits of government
employees during the year.

Terminal Leave (Money of

14. Retirement Pay Generally, TAXABLE.
Lumps sum payment
received by an employee
who has served a company
for a considerable period of
time and has decided to
withdraw from work into
privacy.
value accumulated
vacation and sick leave)
Payments received by
Government Employees
and Private Employees or
their heirs upon death of
the employees.
NOT TAXABLE in the
following instances:
a. SSS or GSIS
retirement pays;
b. Retirement Pay
due to OLD AGE,
provided the
following requisites
are met:

1. Private
retirement
plan
maintained by
the employer
approved by
the BIR for the
exclusive
benefit of all
the employees;
2. Retiring official
or employee
who has
rendered at
least 10 years
of service;
3. At least 50
years of age at
the time of the
retirement for

15. Pension Generally, TAXABLE.
Allowance paid regularly to
a person on his retirement
or to his dependents on his
death, in consideration of
past services, meritorious
work, age, loss, or injury.
the first time.
NOT TAXABLE in the
following instances:
1. When the LAW
provides;
2. When BIR approves
a pension plan of a
private company,
provided the
following requisites
are met:

a. Private
retirement
plan
maintained by
the employer
approved by
the BIR for the
exclusive
benefit of all
the employee;
b. Retiring official
or employee
who has
rendered at
least 10 years
of service;
c. At least 50
years of age at
the time of
retirement and
availed of
retirement for
the first time.
16. Separation Pay TAXABLE, if voluntarily NOT TAXABLE if voluntarily
availed of. availed of due to death,
sickness or other physical
disability or any causes
beyond the control of the
said official or employee.

OTHER FORMS OF NOTES WHEN TAXABLE WHEN NOT TAXABLE

COMPENSATION

1. Insurance premium paid If the BENEFICIARY

by the employer designated:

1. Family, Executor, or
administrator, heirs:

-EMPLOYEE can claim as a

COMPENSATION INCOME.
(If the employee is RANK
and FILE)

-If the employee is a

MANAGER or
SUPERVISOR, such
insurance premium paid
by the employer will be
treated as FRINGE
BENEFIT (Sec. 33 (B) (10)

If the BENEFICIARY
designated:

2. EMPLOYER

-EMPLOYEE cannot claim

as COMPENSATION
INCOME.
-EMPLOYEE cannot claim
as an EXPENSE.

2. Cancellation/Condonation
or forgiveness of debt TAXABLE COMPENSATION
INCOME

Employer- Deductible as
expense

Employee- Compensation
Income

Consideration- Service
rendered/performed.

TAXABLE DONATION

Creditor:
(Employer or other
person)
-DONOR; subject to
Donor’s Tax
 Debtor:
Employee or other
person)
-DONEE, neither subject
to donee’s tax. EXCLUDED
FROM GROSS INCOME

TAXABLE CAPITAL
TRANSACTION:

Creditor:

Corporation
-Expense- Reduction in
capital

Debtor:

Stockholder
-subject to final tax

Consideration:
-Indirect Dividend

3. Shares of Stock received BASIS OF VALUATION:

as compensation -fair market value of the
shares of stock at the time
the service is rendered.

STOCK OPTION:
-privilege granted to key
employees of a
corporation to avail of the
corporation’s share in the
future for a certain price.

MARKET PRICE- OPTION

PRICE= COMPENSATION
INCOME

e.g. P20- P15=

4. Living quarters// lodging
and meals
P5(multiplied by the no.
of shares.
If living quarters are
furnished to the employee
NOT for the benefit of the
employer,
The RENTAL VALUE of the
living quarters SHOULD BE
REPORTED AS INCOME to
the extent of the
reasonable needs of the
TAXABLE NOT TAXABLE
If living quarters are If living quarters
furnished to the furnished to the
employee IN ADDITION employee FOR THE
to cash salary, EXCLUSIVE BENEFIT OF
THE EMPLOYER,
The rental value should Not part of the
be reported as income. compensation income.
employee.

The EXCESS as expense of

the employer.

GENERAL RULE: TAXABLE

EXCEPTION:

If the employee accepts

the lodging as condition of
his employment in order
to perform his duties
properly.