Chapter 14

REGULAR INCOME
TAXATION:
INDIVIDUAL
The Regular Income Tax for Individuals
The income tax of individuals is determined through the following tax table:
Year 2018 to Year 2022
Taxable income
• Php 250,000 and below
• Above Php 250,000 to Php 400,000
• Above Php 400,000 to Php 800,000
• Above Php 800,000 to Php 2,000,000
• Above Php 2,000,000 to Php 8,000,000
• Above Php 8,000,000
Year 2023 Onwards
Taxable income
• Php 250,000 and below
• Above Php 250,000 to Php 400,000
• Above Php 400,000 to Php 800,000
• Above Php 800,000 to Php 2,000,000
• Above Php 2,000,000 to Php 8,000,000
• Above Php 8,000,000
Tax due
-None (0%)
-20% of excess above Php 250,000
-Php 30,000 + 25% of excess over 400,000
-Php 130,000 +30% of excess over Php 800,000
-Php 490,000 +32% of excess over Php 2,000,000
-Php 2,410,000 + 35% of excess over Php 8,000,000
Tax due
-None (0%)
-15% of excess above Php 250,000
-Php 22,500 + 20% of excess over 400,000
-Php 102,500 + 25% of excess over Php 800,000
-Php 402,500 + 30% of excess over Php 2,000,000
-Php 2,205,500 + 35% of excess over Php 8,000,000
 Repeal of the Personal Exemption

THE TAX REFORM FOR ACCELERATION AND INCLUSION (TRAIN) ACT.

President Rodrigo Roa Duterte signed Republic Act No. 10963, otherwise known as
the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the first package of the
Comprehensive Tax Reform Program (CTRP) on December 19, 2017, in Malacanang.
The TRAIN will provide hefty income tax cuts for most Filipino taxpayers while raising
additional funds to help support the government’s accelerated spending on its “Build,
Build, Build” and social services programs. (Department of Finance,2017)
The TRAIN Law repealed the concept of personal exemption to simplify the tax
system. However, the government cannot deny that individuals incur personal expenses
such as living to survive. Theoretically, the law must provide this not to kill the goose
that lays the golden egg.
TAXPAYERS SUBJECT TO PROGRESSIVE
INCOME TAX
1. Citizens
• a. Resident Citizen
• b. Non-resident citizen

2. Aliens
• a. Resident alien
• b. Non-resident alien engaged in business

3. Taxable estate

4. Taxable trust
CLASSIFICATION OF INDIVIDUAL INCOME
TAXPAYERS

1. Pure compensation income earner

2. Pure business or professional income earner
3. Mixed income earner
 CLASSIFICATION OF INDIVIDUAL INCOME
TAXPAYERS

1. Pure compensation income earner

• The compensation income of employees, except minimum wage earners, is

subject to withholding tax on compensation. Every employer is mandatorily
required to deduct the withholding tax from the compensation income of
their employees.
 Treatment of the withholding tax
on compensation
1. Full payment
• if the employee has no other income and tax is correctly withheld.

2. Tax credit
• if the employee has other taxable income or if the tax is not correctly withheld.
 Employees with no
other income

• If the employee has no other taxable income,

he may avail of the substituted filing system.
Under this system, the withholding tax on
compensation is considered enough evidence of
tax compliance of the employee, provided that
the employer withheld the correct tax.
 Conditions of the
Substituted Filing System

1. The employee received purely compensation income during the year.

2. The employee received the income from only one employer in the Philippines during
the taxable 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.
 Conditions of the Note: Employees who do not
meet the conditions of the
substituted filing system shall

Substituted Filing System file the annual or final

adjustment return not later than
April 15 of the following year and
claim Form 2316 as tax credit.

4.The employee’s spouse also complies with all conditions

stated above.

5.The employers file the annual information return (BIR

Form 1604-CF).

6.The employer issues BIR Form No. 2316 to each employee.

 Consolidated or Adjustment Return

1.Correct tax is not

withheld Consolidated or
adjustment return is
needed when:
2.Employee or his spouse has
other income
 1.Concurrent employment

Correct tax
due not 2.Successive employment during the

withheld by year

employer 3.Incurrence of error by the employer

The correct tax due of the

employee will least likely
to be withheld by the Note: An annual return needs to be filed to
employer in the following adjust the tax due to the correct amount of
tax. This is referred to as an adjustment
cases: return. The employee shall claim Form 2316 as
tax credit and pay residual tax due or claim
excess withheld amount as tax credit or tax
refund.
Illustration 1: Concurrent Employment
Mr. Song Joong-Ki is both employed in Yousee Company and Youbee Company. He has the
following income and withheld tax during the year:
Yousee Youbee
Taxable compensation income Php 450,000 Php 350,000
Withheld Tax Php 42,500 Php 20,000
Mr. Song’s consolidated income tax shall be computed as follows:
Taxable compensation income (Php450,000+350,000) Php 800,000
Income tax due, per individual tax table
(Php 800,000-400,000) * 25 % + 30,000 Php 130,000
Less: Tax withheld by the employers
(Php 42,500+20,000) 62,500
Income tax payable or (refundable) Php 67,500
Illustration 2: Successive Employment
In 2021, Mr. Lee Jong Suk resigned from Blue Moon Company and transferred employment to Gagamba Company. He has the
following income:

Blue Moon Gagamba

Taxable compensation income Php 300,000 Php 400,000
Withheld Tax Php 10,000 Php 30,000

Mr. Lee shall file a consolidated return covering his total 2020 income both employment and
pay the residual tax as follows:
Taxable compensation income (Php300,000+400,000) Php 700,000
Income tax due, per individual tax table
(Php 700,000-400,000) * 25 % + 30,000 Php 105,000
Less: Tax withheld by the employers (Php 10,000+30,000) 40,000
Income tax payable or (refundable) Php 65,000
Illustration 3: Employer Error
In 2021, Park Seo Joon’s employer withheld a total Php 56,000 out of his Php 460,000 taxable compensation
income.
Since the tax withheld is erroneous, Mr. Park shall file an annual adjustment return and pay residual tax due
or claim refund or tax credit for excess

Taxable compensation income Php 460,000

Income tax due, per individual tax table
(Php460,000-400,000) * 25 % + 30,000 Php 4 5,000
Less: Tax withheld by the employers 56,000
Income tax payable or (refundable) (Php 11,000)
Note: Mr. Park shall use BIR Form 1700 as an adjustment return.
Employees has other
taxable income
Employees other income subject to
regular tax may come from:
a) Casual sources
b) Engagement in business or
practice of a profession
*If the employee has other taxable
income, the employee is
mandatorily required to file an
annual income tax return to
incorporate other income sources
in his return. This is referred as a
consolidated income tax return.
 The • BIR Form 1700 – if the employee is not engaged in business or
profession
consolidated • BIR Form 1701 for mixed income earners – if the employee is also
engaged in business and or profession
income tax
return may *the withholding tax on compensation
(BIR Form 2316) given by the employer
either be: shall be claimed as tax credit.

*the consolidation procedures of employees

engaged in business or practice of a profession
will be discussed under mixed income earners.
Illustration 4- With other casual income
Mr. Kim Seon Ho is a sales executive. He received the following
compensation and benefits from his employer:

Gross compensation income Php Mr. Kim shall file BIR Form 1700 to include his other
987,000 income subject to regular tax:

Exempt benefits 84,000

Interest income from bonds (Php 76,500/85%) Php 90,000
Fringe benefits (paid personal vacation) 81,000
Gain on sale of arts collection (Php 124,000 *50 % - 62,000
Mandatory deduction for SSS, PhilHealth, HDMF 40,000 long term)

Total withholding tax deducted under Form 2316 145,750 Other Income Php
152,000
He also derived the following other income:

Interest income from corporate bonds, net 15% P76,500

withholding tax

Interest income from bank deposits, net of 20% 16,000 Note: the fringe benefits of an executive- a managerial
final tax employee and the interest income from deposits are
subject to final tax. These are excluded in gross income
Gain on sale of arts collection(held for 3 years) 124,00
subject to regular tax. The associated final taxes are not
Total income Php creditable.
216,500
The tax credits shall be:
Withholding tax on compensation (Form 2316) Php 145,750

Withholding tax on the interest (Php 90K*15% under Form 2307) 13,500

Mr. Kim’s taxable income shall be computed as: *the

Gross income compensation Php 987,000
consolidation
Less: Mandatory deductions Php 40,000 procedures of
Exempt Benefits 84,000 124,000 employees
Taxable compensation Income Php 863,000
engaged in
Add: Other income subject to regular tax 152,000
business or
Taxable income Php 1,015,000 practice of a
profession will
Mr. Kim’s income tax still due shall be computed as: be discussed
Income tax due, per individual tax table under mixed
(Php 1,015,000-800,000) * 30 % + 130,000 Php 194,500 income earners.
Less: Tax credit
Form 2316 Php145,750
Form 2307 13,500 159,250
Income tax payable or (refundable) Php 35,250
 CLASSIFICATION OF INDIVIDUAL INCOME
TAXPAYERS
2.Pure business or professional income earner
• Individual taxpayers engage in business or practice of profession shall file
quarterly income tax return (BIR Form 1701Q) and an annual tax
return.
Quarteryly Tax Returns Deadline
• 1st Quarter ITR - 1701Q -May 15 of the same calendar year
• 2nd Quarter ITR - 1701Q -August 15 of the same calendar year
• 3rd Quarter ITR - 1701Q -November 15 of the same calendar year
• Anual ITR - 1701A -April 15, next year
 CLASSIFICATION OF INDIVIDUAL INCOME
TAXPAYERS
Computation of Taxable Income:
1. Itemized deductions 2. Optional standard deduction
xx Gross receipts Gross receipts
(xx) Less: Cost of sales
xx Gross Income Less: OSD-40%
(xx) Less: Deductions Taxable net income
xx Taxable net income
Income tax due
xx Income tax due Less: Tax credits
(xx) Less: Tax credits -CWT this quarter
(xx) -CWT this quarter -CWT prior quarters
(xx) -CWT prior quarters Total credits
xx Total credits
(xx) Less: Estimated tax paid in prior quarters
Less: Estimated tax paid in prior quarters
xx Income tax still due Income tax still due
 Illustration 1- Itemized deduction Illustration 2- Optional standard deduction

1st Qtr. 2nd Qtr. 3rd Qtr. Annual ITR 1st Qtr. 2nd Qtr. 3rd Qtr. Annual ITR
Gross receipts P 500,000 P 1,020,000 P 1,570,000 P 2,150,000
Less: Cost of 120,000 320,000 570,000 840,000 Gross receipts P 500,000 P 1,020,000 1,570,000 2,150,000
sales
Gross Income 380,000 700,000 1,000,000 1,310,000 Less: OSD-40% 200,000 408,000 628,000 860,000
Less: 100,000 230,000 350,000 490,000
Deductions Taxable net 300,000 612,000 942,000 1,290,000
Taxable net 280,000 470,000 650,000 820,000 income
income

Income tax P 6,000 P 47,500 P 92,500 P 136,000 Income tax P 10,000 P 83,000 P 172,600 P 277,000
due due
Less: Tax Less: Tax
credits credits
-CWT this 4,000 10,000 15,000 14,000 -CWT this 4,000 10,000 15,000 14,000
quarter quarter
-CWT prior 0 4,000 14,000 29,000 -CWT prior 0 4,000 14,000 29,000
quarters quarters
Total credits 4,000 14,000 29,000 43,000 Total credits 4,000 14,000 29,000 43,000
2,000 33,500 63,500 93,000 6,000 69,000 143,600 234,000
Less: 0 2,000 33,500 63,500 Less: 0 6,000 69,000 143,600
Estimated tax Estimated tax
paid in prior paid in prior
quarters quarters
Income tax 2,000 31,500 30,000 29,500 Income tax still 6,000 63,000 74,600 90,400
still due due
Excess quarterly estimated tax/Option to carry-over
• Excess quarterly payments over quarterly tax due may be carried forward
to quarters of succeeding taxable year or claimed through tax refund
• Option to carry-over is indicated in the annual adjustment return
• Irrevocable once the option to carry-over is made

Option to refund
• May be in form of cash or tax credit certificate
• If option to refund is selected, excess refundable amount should not be
carried over to succeeding quarters
 CLASSIFICATION OF INDIVIDUAL INCOME
TAXPAYERS
3. MIXED INCOME EARNER

• Compensation income will be subjected to withholding tax by their

employers
• Should report their businesses or professional income on a quarterly basis
under Form 1701Q
• Compensation income shall be included only in the annual consolidated
return and shall not be reported in the quarterly return.
 Quarterly tax Jan-Mar Apr-Jun Jul-Sept Oct-Dec
Employment Jan-Mar Apr-Jun Jul-Sept Oct-Dec
Quarterly P 2,000 P 31,500 P 30,000 ?
Taxable P 250,000 P 260,500 P P income tax
compensation 245,250 231,250 due

Annual income tax/k

Withholding (Form 2316) 93,750 Taxable compensation income P 987,000
tax on Gross income P 1,310,000
compensation
Less: Deductions 490,000
Net income 820,000

Taxable income 1,807,000

Business
Gross P 380,000 P 320,000 P 300,000 P 310,000 Annual income tax due
income Income tax due P 432,100
Less: Tax credit
Itemized 100,000 130,000 120,000 140,000 WH tax on compensation P 93,750
deductions (Form 2316)
Expanded withholding tax 43,000
Net income 280,000 190,000 180,000 170,000
(Form 2307s)
Estimated tax payments 63,500 200,250
From 2307s P 4,000 P 10,000 P 15,000 P 14,000 (Form 1701Qs)
Income tax still due P 231,850
 The 8% INCOME TAX OPTION /
8% OPTIONAL INCOME TAX

• Introduced by TRAIN law, a new tax scheme for individual taxpayers

• The option must be indicated in the first quarter income tax return or in the
first quarter percentage tax return.
• The option is irrevocable for the calendar year
 The 8% INCOME TAX OPTION /
8% OPTIONAL INCOME TAX
Nature:

1. A bundled tax- it is in lieu of:

• a. Regular income tax (income tax table)
• b. 3% general percentage tax (1% during pandemic)

2. An annual option
• - Valid as long as taxpayer remained as a non-VAT taxpayer during the year
• - Invalidated in favor of regular income tax once the taxpayer becomes a VAT taxpayer
during the year.

3. Paid quarterly and annually

BASIC OVERVIEW OF BUSINESS TAX

• Business or exercise of a profession are also required to pay business tax

• Either a 3% percentage tax (1% during pandemic) or a 12% value added tax
(VAT)
 1.Exempt Businesses
- not subject to VAT or percentage tax (ex.
Business selling agricultural products in original
state, agricultural contract growers, bookstores)

TYPES OF
BUSINESS 2.Business specifically subject to
other percentage taxes
TAXPAYERS: -.not subject to VAT but subject to percentage
tax or various rates (ex. Common carriers of
land, taxi, jeepney, operators of cockpits,
cabarets, clubs, or horse racetrack)
 3.Vatable businesses – other businesses
-Either pay:

TYPES OF a. 12% value added tax (VAT)

BUSINESS
if annual sales exceed P 3,000,000 or when they
registered as VAT taxpayers

TAXPAYERS:
b. 3% general percentage tax
if their annual sales do not exceed the P
3,000,000 and did not opt to voluntarily register
as VAT taxpayers
 Covered Businesses:
- Vatable businesses who are below P 3,000,000 annual VAT threshold and did
not register as VAT taxpayer can opt to be taxed under the 8% income tax
• Option is not available to:
1. VAT-registered business taxpayers

2. VAT-exempt business taxpayers such as

• a. Exempt businesses
• b. Business specifically subject to other percentage taxes

3.Individuals receiving income not subject to business tax, such as:

• a.Partners receiving share in net income of a general professional partnership
• b.Co-owners receiving share of income in co-owned properties
• c.Venturers receiving share in net income of an exempt joint venture
• d.Heirs or beneficiaries of trust receiving income distribution from estates or trusts
 Tax obligations of individual non-VAT
taxpayers:
*Vat-registered taxpayers pay VAT and regular income
tax.
• Regular tax option 8% Income tax option
• Regular income tax 3 qaurterly 1701Qs and 1 annual 1701 3 quarterly 1701Qs and 1 annual 1701A
• Percentage tax 4 quarterly 1551Q None

Tax basis:
The 8% optional income tax shall be based upon the gross sales or gross
receipt of the individual taxpayer that is subject to 3% percentage tax. Other
income to regular tax is added to the basis.
 The 8% INCOME TAX OPTION /
8% OPTIONAL INCOME TAX
I.Pure business or professional income earner

• The use of 8% income tax would effectively deny the individual taxpayer of
his P 250,000 annual income exemption, the same being embedded in the
regular tax table.
• The 8% income tax shall be computed from the basis net of P 250,000.
Illustration: (Individual)
Assume a taxpayer who is purely engaged in business had sales of P 2,000,000, P
100,000 other income subject to regular tax and expenses of P 840,000.
The 8% income tax would be computed as:
Gross sales or gross receipts P 2,000,000
Add: Other taxable income 100,000
subject to regular tax
Total P 2,100,000
Less: Annual exempt income (250,000)
Net total P 1,850,000
Multiply by: Optional income 8%
tax rate
8% income tax 148,000
 The 8% INCOME TAX OPTION /
8% OPTIONAL INCOME TAX
II. Mixed income earner
• Compensation income is not subject to business tax, it cannot be subjected to the 8%
income tax
• Income tax due from compensation shall be determined separately using the income tax
table while the 8% income tax from the business or profession shall be separately
computed. The classification rule must be observed

• *The P 250,000 is no longer deducted against the basis of the 8% income tax when it is
used in computing the tax due from compensation.
• *If the amount did not exceed P 250,000, the unutilized deduction cannot be deducted
against business income (prohibited by TRAIN law
Illustration 1
Illustration 2
A mixed income earner realized P 920,000 from compensation, P
A mixed income earner realized P 2,000,000 in sales, P 100,000 in
2,000,000 in sales, P 100,000 other income subject to regular tax
other income subject to regular tax and earned P 150,000
and incurred P 480,000 expenses.
compensation from part-time employment.
Computation of income tax due under the 8% income tax option:

INCOME TAX DUE INCOME TAX DUE

TAXABLE COMPENSATION P 920,000 TAXABLE NET INCOME P 150,000
INCOME LESS: LOWER TAX 250,000 P0
LESS: LOWER TAX 800,000 P 130,000 BRACKET IN TAX TABLE
BRACKET IN TAX TABLE EXCESS (100,000)
RESIDUAL INCOME P 120,000 INCOME TAX DUE FROM P0
COMPENSATION
MULTIPLY BY: 30% 36,000 GROSS SALES OR GROSS P 2,000,000
INCREMENTAL TAX RATE RECEIPTS
INCOME TAX DUE ON P 166,000 ADD: OTHER INCOME 100,000
COMPENSATION INCOME SUBJECT TO REGULAR TAX
TOTAL P 2,100,000
MULTIPLY BY: OPTIONAL 8% 168,000
INCOME TAX RATE
GROSS SALES OR GROSS P 2,000,000
INCOME TAX DUE P 168,000
RECEIPTS
ADD: OTHER INCOME 100,000
SUBJECT TO REGULAR TAX
*The 100,000 excess of 250,000 over the compensation
TOTAL P 2,100,000 income cannot be deducted against the basis of the 8%.
MULTIPLY BY: OPTIONAL 8% 168,000 No deduction cross-over allowed (TRAIN law).
INCOME TAX RATE
INCOME TAX DUE P 334,000
Integrated Illustration on pg. 611
Pure business or professional income earner
Given data:
Net sales of finished goods, net of P P 2,382,000
18,000 CWTs
Sales of scraps and trimmings 200,000
Total Sales/Revenues/Receipts/Fees P 2,582,000
Less: Cost of sales or services 1,200,000
Gross income from P 1,382,000
business/profession
Add: Other income
Dividend income P 12,000
Gain from sale of stocks, net of capital 68,000
gains tax
Interest income from deposits 16,000
Gain on sale of machinery held for 6 40,000
years
Gain on sale of machinery held for 2 20,000
years
Interest income from bonds 14,000 170,000
Total Income P 1,552,000
Less: Administrative and selling 600,000
expenses
Net income P 952,000
Regular Tax Option
Computation of taxable net income: Computation of Taxes under the Regular Tax Option:
Net
Sales/Revenue/Receipts/F P 2,400,000
ees (2,382,000 + 18,000)
Add: Other taxable 200,000 A. REGULAR INCOME
income from operations - TAX
TAXABLE NET INCOME P 864,000
Scrap sales
LESS: LOWER TAX 800,000 P 130,000
Total P 2,600,000
BRACKET IN TAX TABLE
Sales/Revenues/Receipts/
EXCESS P 64,000
Fees
MULTIPLY BY BRACKET 30% 19,200
Less: Cost of sales or 1,200,000
MARGINAL RATE
services
INCOME TAX DUE P 149,200
Gross income from P 1,400,000
business/profession A. 3% BUSINESS TAX
Add: Non-operating NET P 2,600,000
income subject to regular SALES/REVENUES/RECEIP
tax TS/FEES
Gain on sale of machinery P 40,000 MULTIPLY BY: 3%
Gain on sale of bonds(20k- 10,000 PERCENTAGE TAX RATE
50%) TOTAL PERCENTAGE TAX P 78,000
Interest income from 14,000 64,000 DUE
bonds TOTAL TAXES UNDER THE P 227,200
Total Gross Income P 1,464,000 REGULAR TAX OPTION
Less: Allowable 600,000
deductions (Business
expenses)
Taxable net income P 864,000
Computation of Taxes under the 8% Income Tax
Illustration 2- Mixed income earner
Option: Assume the data in the 1st Illustration except Mr. Cardenas also
Total P 2,600,000
Sales/Revenues/Receipts/
earned P 1,200,000 in compensation income.
Fees Computation of Taxes under the Regular Tax Option:
Add: Non-operating
income subject to regular A. REGULAR INCOME TAX
tax TAXABLE COMPENSATION INCOME P 1,200,000
Gain on sale of machinery P 40,000 TAXABLE NET INCOME 864,000
Gain on sale of 10,000 TAXABLE INCOME P 2,064,000
bonds(20k-50%) LESS: LOWER TAX BRACKET IN TAX 2,000,000 P 490,000
Interest income from 14,000 64,000 TABLE
bonds EXCESS P 64,000
Total Gross Income P 2,664,000 MULTIPLY BY BRACKET MARGINAL 32% 20,480
Less: Individual income 250,000 RATE
exemption on income tax INCOME TAX DUE FROM P 510,480
Total P 2,414,000 COMPENSATION
Multiply by: Optional 8% A. 3% BUSINESS TAX
income tax rate NET P 2,600,000
Income tax due P 193,120 SALES/REVENUES/RECEIPTS/FEES
MULTIPLY BY: PERCENTAGE TAX RATE 3%
TOTAL PERCENTAGE TAX DUE P 78,000
*We could not tell which option will yield to lesser tax TOTAL TAXES UNDER THE REGULAR P 588,480
except only if we have accurate information systems that TAX OPTION
enables accurate forecasting of future performance.
Computation of Taxes under the 8% Income Tax Option:

A. REGULAR INCOME TAX

TAXABLE COMPENSATION INCOME P 1,200,000
LESS: LOWER TAX BRACKET IN TAX TABLE 800,000 P 130,000
EXCESS P 400,000
MULTIPLY BY BRACKET MARGINAL RATE 30% 120,000
INCOME TAX DUE P 250,000
A. 3% BUSINESS TAX
NET SALES/REVENUES/RECEIPTS/FEES P 2,600,000
ADD: OTHER INCOME SUBJECT TO REGULAR
TAX
GAIN ON SALE OF MACHINERY P 40,000
GAIN ON SALE OF BONDS 10,000
INTEREST INCOME FROM BONDS 14,000
TOTAL P 2,664,000
MULTIPLY BY: PERCENTAGE TAX RATE 8% 213,120
TOTAL TAXES UNDER THE 8% INCOME TAX P 463,120
OPTION
 INTERIM TRANSITION TO THE VALUE
ADDED TAX
• Individuals exceeding the P3M Vat threshold during the year are mandatorily
required to change registration from non-VAT to a VAT taxpayer before the end
of the month following the month the taxpayer exceeded the P 3,000,000
threshold.

• Taxpayer shall pay regular income tax for his income during the year and pay
VAT prospectively starting the month he became a VAT taxpayer.

• The 8% income tax payments shall be considered as tax credit against the
regular income tax due

• Taxpayer is required to pay the 3% percentage tax for sales or receipts

generated before becoming a VAT taxpayer
Illustration: 1st Quarter (January to March)
A pure business income earner opted to 8% income tax Under the 8% income tax:
in the 1st quarter. In June, he exceeded the P3M Sales P 1,200,000
threshold. Less: 250,000
Jan.-March April-June July-Sept. Total P 950,000
Sales P 1,200,000 P 2,000,000 P 1,000,000 Multiply by: Optional income 8%
Cost of sales 600,000 1,000,000 500,000 tax rate
Total income tax due P 76,000
Gross profit P 600,000 P 1,000,000 P 500,000
Gain on sale 20,000 30,000 2nd Quarter (April to June)
of domestic - He exceeded P3M threshold. He shall be subject to
stocks regular tax and required to pay percentage tax on sales
Gain on sale 40,000 or receipts made since January 1.
of used Computation of percentage tax due:
equipment Total sales from January to P 3,200,000
Total Income P 620,000 P 1,040,000 P 530,000 June
Less: 320,000 450,000 300,000 Multiply by: Percentage tax 3%
Expenses rate
Net Income P 300,000 P 590,000 P 230,000 Total percentage tax due P 96,000
Computation of taxable income:
Sales P 3,200,000
Less: Cost of sales 1,600,000 P 1,600,000
Gross income from operations 40,000
Gross income subject to regular tax P 1,640,000

Less:
Deductions (business expenses) P 770,000
Percentage tax expense 96,000 866,000
Taxable income P 774,000
Computation of 2nd quarter income tax due:
Income Tax due
Taxable income P 774,000
Less: Lower tax bracket 400,000 P 30,000
Excess P 374,000
Multiply by: Incremental tax rate 25% 93,500
Total tax due P 123,500
Less: Total due in 1st Quarter 76,000
Income tax still due P 47,500
*He shall pay the P 96,000 percentage tax which shall be assessed upon VAT registration with the P 47,500
income tax.
3rd Quarter (July to September) Computation of 3rd quarter income tax due:
Computation of taxable income:
Income Tax due
Sales P 4,200,000
Less: Cost of 2,100,000 Taxable income P 974,000
sales
Less: Lower tax 800,000 P 130,000
Gross income P 2,100,000
bracket
from operations
Excess P 174,000
Gross income P 40,000 Multiply by: 30% 52,200
subject to Incremental tax
regular tax rate
Taxable income P 2,140,000 Total tax due P 182,200
subject to
regular tax Less: Total due in 123,500
Less:
1st Quarter
Deductions P Income tax still P 58,700
(business 1,070,000 due
expenses) *He will separately pay quarterly VAT aside from P
Percentage tax 96,000 1,166,0000 58,700 income tax. The same process will be followed
expense until the annual income tax return.
Taxable income P 974,000
 TAXABLE ESTATES AND TRUSTS
Taxable Estates

• If an estate is under judicial settlement or administration, it is an income

taxpayer.

• An estate that has reached an extra-judicial settlement is not a taxpayer. And

the heirs must pay taxes on the estate's income under an extra-judicial
settlement.
Example:
The estate of Mr. Barbel has P850,000 gross income before business expenses of
P200,000. The estate administrator distributed P300,000 to the heirs in
accordance with the of Mr. Barbel.
The taxable income of the estate will be computed as follows:
Gross Income P850,000
Less: Regular allowable deductions P200,000
Special allowable deduction
Income distribution to heirs 300,000 (500,000)
Taxable net income P350,000
 TAXABLE ESTATES AND TRUSTS

Taxable Trust

• A revocable trust is not a taxpayer; instead it is treated as a pass-through

entity, with income taxed to the grantor-trustor.

• An irrevocable trust is a distinct and separate taxable entity (BIR Ruling 003-
05, Julu 22, 2005). A taxable trust is treated as an individual taxpayer and is
entitled to a personal exemption of P20,000.
Example:
Mr. Batman designated an irrevocable trust a property in favor of Robin and
appointed Superman as trustee. The property earned P720,000 income before
expenses of P200,000 and trust fees of P50,000. In accordance with the trust
indenture, Superman distributed P100,000 to Robin.
The taxable income of the trust shall be computed as follows:
Gross Income P720,000
Less: Regular allowable deductions P250,000
Special allowable deduction
Income distribution to beneficiaries 100,000 (350,000)
Taxable net income P370,000
1. Income accumulated in trust for the benefit of The ff. are the
an unborn or unknown person or persons with
contingent interests, as well as income income taxable to
accumulated or held for future distribution
under the terms of a will or trust an estate or trust
under the NIRC.
2. Income that is currently to be distributed
to the beneficiaries by the fiduciary and
income collected by a guardian of an infant
that is to be held or distributed as the court
may direct.
 3. Income received by estates of
deceased individuals during the
The ff. are the
administration or settlement of the income taxable to
state.
an estate or trust
under the NIRC.
4. Income that, at the fiduciary's
discretion, may be distributed to
the beneficiaries or accumulated.
 Taxable income of the deceased taxpayers

• In the event of a taxpayer's death, amounts accrued up to the date of his death shall be
included in computing taxable income for the taxable period in which the date of his death falls,
if not otherwise properly includible in respect of such period or a prior period. (NIRC Section 44)
Example:
Miss X died on July 15, 2021. Her state underwent judicial settlement. She had the following income in 2021:
Compensation income P320,000
Rental income 960,000
Total P1,280,000
The decedent leases a property which earns P80,900 monthly rental.
The accounting period of the decedent shall be terminated at the date of death. Since the estate is under judicial
administration, the estate of the decedent shall be registered as an individual taxpayer.
Thus, the following income shall be reported to the income tax return of the:
Decedent Estate of Decedent
Compensation income P320,000 -
Rental income(6.5 months x P80,000) 520,000 -
Rental income(5.5months xP80,000) P440,000
Taxable Income P840,000 P440,000
Consolidation of two
or more trusts
• Multiple irrevocable trusts established by the same grantor for the benefit of the same
beneficiary must be consolidated for income tax purposes.

• Consolidation of irrevocable trusts is required to eliminate tax savings obtained by the grantor
by purposefully splitting the corpus of the trusts into several trusts.
Illustration 1
Don Ambrocio designated three trust all in favor of his daughter, Cindy:

Trust Designation Trustee Operating Distribution to

income Cindy
Trust 1 Irrevocable AJ P 400,000 P 40,000
Trust 2 Irrevocable BJ 600,000 60,000
Trust 3 Revocable CJ 400,000 80,000

The trustees of Trust 1 and Trust 2 shall prepare tax returns covering the income of the property held
under their control as follows:

Trust 1 Trust 2
Operating income P 400,000 P 600,000
Less: Special itemized deduction 40,000 60,000
Income distribution to P 360,000 P 540,000
beneficiary
Taxable income P 22,000 P 65,000
 For purposes of income taxation, the income of Trust 1 and Trust 2 will be consolidated as
follows:
Trust 1 Trust 2 Consolidated Trust
Taxable net income P 360,000 P 540,000 P 900,000
Income tax due P 160,000
Allocated tax due P 64,000 P 96,000
Less: Income tax paid 22,000 65,000 87,000
Income tax still due P 42,000 P 31,000 P 73,000

The consolidated tax due is allocated to Trust 1 and Trust 2 as follows:

- Trust 1 = P 360,000/P 900,000 x P 160,000 = P 64,000
- Trust 2 = P 540,000/P 900,000 x P 160,000 = P 96,000

Trust 3 is not taxable as it is revocable. The entire P 400,000 income of Trust 3 including the P
80,000 income distribution to Cindy will be included in the taxable income of Don Ambrocio.
Illustration 2: Trusts with retention of certain rights
Mr. Masagana designated two trust as follows: Trust 1 and Trust 2 earned P
200,000 and P 300,000 during the
Trust Beneficiary Designation year. Both trusts made
Trust 1 Cassandra (daughter) Irrevocable as to corpus distributions to their respective
beneficiaries amounting to P
and income, however, Mr.
50,000 and P 100,000,
Masagana reserves the
respectively.
power to revest to
himself ¼ of the corpus The two trusts will not be
upon the happening of consolidated because they
some specified involved separate beneficiaries.
contingencies. However, the grantor shall include
in his taxable income any income
Trust 2 Alexander (son) Irrevocable as to corpus pertaining to that part of the
and income except that P corpus over which the grantor has
30,000 of the annual reserved power to revoke. Any
income will be used to income of trusts reserved for the
pay the life insurance benefit of the grantor shall
premium of Mr. likewise be included in the taxable
Masagana. income of the grantor.
The taxable income of Trust 1 and Trust 2 shall be computed as follows:

Trust 1 Trust 2
Operating income P 200,000 P 300,000
Less: Special regular
itemized deductions
Income pertaining to *50,000 30,000
grantor
Distribution to 50,000 100,000
beneficiaries
Taxable net income P 100,000 P 170,000
 Employee Trust Funds
• An employees' trust is exempt from NIRC income taxes (section 60(B), NIRC).

• It should be noted that this exemption applies to final tax, capital gains tax, and regular
income tax.
 Requisite of Exemption of
Employee's Trust
1. Contributions are made to the trust by the employer, employees, or both in order for the trust
to distribute to such employees the earnings and principal of the fund accumulated by the trust
in accordance with the plan.

2. Under the trust instrument, it is prohibited at any time prior to the satisfaction of all
liabilities with respect to employees under the trust for any part of the corpus or income to be
used for or diverted to purposes other than the exclusive benefit of his employees (during the
taxable year or thereafter).

3. Any amount actually distributed to any employee or distributee is taxable to him in the year
in which it is distributed if it exceeds the amount contributed by such employee or distributee.
 Return of Married Taxpayers
• Married individuals must file a return for the taxable year that includes both spouses' income,
computing their individual income tax separately based on their respective total taxable
income.
Income of unmarried
minors from property On such property, the donor's tax
1
received from parents has been paid.

• The income of unmarried

minors derived from property
received from a living parent 2 The transfer of such property is
tax-free for the donor.
must be included in the
parent's return, unless
INDIVIDUALS WITH
PERSONAL EQUITY
RETIREMENT • individuals which contributes to
a PERA account is exempt from

ACCOUNTS (PERA) income tax on said contribution

and are entitled to a tax credit
equivalent to 5% of said
contributions.
Illustration:
Mr. and Mrs. Black have four qualified dependents. The spouses had the following data during 2021:
Mr. Black Mrs. Black
Gross compensation, net SSS, Philhealth & HDMF P 500,000 P 420,000
Withholding tax on compensation income 23,000 13,000
Contributions to PERA account 120,000 80,000
Payments for health insurance 5,000 3,000

The taxable income and tax due of Mr. and Mrs. Black shall be computed as follows:
Mr. Black Mrs. Black
Gross compensation, net SSS, Philhealth & HDMF P 500,000 P 420,000

Less: Exempt Qualified PERA contribution 100,000 80,000

Taxable compensation income P 400,000 P 340,000

Income tax due, per tax table P 30,000 P 18,000

Less: Tax credits
CWT on compensation P 23,000 13,000
5% on Qualified PERA contribution 5,000 4,000
Total tax credits P 28,000 P 17,000
Tax still due and payable P 2,000 P 1,000
*Only P 100,000 maximum allowable contributions for year could qualify as PERA contributions.
*The 5% credit must be supported by certificate from the PERA account administrator
 Return of Persons under Disability

• If the taxpayer is unable to make his own return, the return may be made by his duly
authorized agent or representative or by the guardian or other person charged with the
care of his person or property. The principal and his representative or guardian assuming
the responsibility of making the return shall be responsible for penalties provided for
erroneous, false, or fraudulent returns.
Signature in the return is presumed correct

• The fact that an individual's name is signed to a filed return shall be prima facie evidence for
all purposes that the return was actually signed by him.
 ATTACHMENT To THE
ANNUAL INCOME TAX RETURN
01
The attachment form
shows the composition of the itemized
deductions in the annual income tax
returns plus required disclosures by law
or regulations.
02
For taxpayers claiming the itemized
deduction,
taxpayers shall fill-up an attachment
form. This is mandatory and shall be filed
together with the income tax return.
WHEN AND WHERE TO FILE AND PAY TAX
1.For Electronic Filing and Payment System (eFPS) taxpayers

• The return shall be e-filed and the tax e-paid on or before

the 15th day of April of each year covering the income for
the preceding year using the eFPS facilities through the
BIR website.
WHEN AND WHERE TO FILE AND PAY TAX

2.For Non-Electronic Filing and Payment System
(non-eFPS) taxpayerS
The return shall be filed and the tax paid
on or before the 15th day of April Of each
year covering the income for the
• a.Any authorized agent banks (AAB)
located within the jurisdiction of the
Revenue District Officer (RDO) where the
taxpayer is registered
• b.Revenue Collection Officer (RCO) under the jurisdiction of the RDO where the taxpayer is

preceding year with: registered, if there is no AAB

-In case of "no payment returns," the same shall be filed with the RDO where the taxpayer is
registered or has his legal residence or place of business in the philippines or with the
concerned RCO under the same RDO.
 3. For non-resident taxpayers

-In case the taxpayer has no legal residence or place of business in the philippines,
the return shall be filed with the Office of the Commissioner or Revenue District
Office No. 39, South Quezon City.
 INSTALLMENT PAYMENT OF THE
REGULAR INCOME TAX
When the tax due is in excess of P2,OOO, individual taxpayers (except corporations) may elect
to pay the tax in two equal installments:

The first installment shall be paid at the

time the return is filed. The second installment is due on or
before October 15 following the close
of the calendar year.

If any installment is not paid on or before the date fixed for its payment, the whole amount of
the tax unpaid becomes due and payable together with the delinquency penalties.
Illustration 1
An individual taxpayer availing of the installment payment of his income tax had a tax due of P10,000 in 2021. He made quarterly
estimated tax payments of P2,400 and was withheld with P2,000 in creditable withholding taxes.
The first installment which shall be due upon filing of the annual income tax return on or before April 15, 2002 shall be:
Tax due on first installment (P10,000/2) P5,000
Less:
Creditable withholding taxes P2,000
Quarterly estimated tax payments 2,400 4,400
Tax payable P600
The second installment which shall be due on or before October 15, 2022 shall be: P5,000
Tax due on first installment (P10,000/2)

Illustration 2
An individual taxpayer availing of the installment payment of his 2022 income tax had a tax due of P7,000 and was subjected to creditable
withholding tax of P4,000.
The first installment is nil. The taxpayer shall fill a return, but with no payment.

Tax due on first installment (P7,000/2) P3,500

Less: Creditable withholding tax 4,000
Tax payable (P500)
The second installment due on or before October 15, 2022 shall be:
Tax due on first installment (P7,000/2) P3,500
Less: Excess withholding tax in first installment (500)
Tax payable P3,000
Illustration 3- Late Payment
Assume the same facts in the preceding illustration, except that the second installment was payed
on November 15, 2022.

The delay in payment shall result in the imposition of the penalties discussed in chapter 4. The
taxpayer shall pay the following before compromise penalties:

Tax still due P3,000

Add surcharge (25% * P3,000) 750
Interest (12% * 31/365 * P3,000) 31

Total amount due P3,781

 WHO SHALL FILE THE INCOME TAX
RETURN?
1 2 3 4
• A trustee of a trust,
• A resident citizen • A resident alien, non- guardian of a minor, • An individual
engaged in trade, resident citizen, or executor/administrat engaged in trade
business, or non-resident alien or of an estate, or any or business or in
practice of individual engaged in person acting in any the exercise of
profession within trade, business, or fiduciary capacity for their profession
and without the practice of profession any person where and receiving
Philippines. within the Philippines. such trust, estate, compensation
minor, or person is income as well.
engaged in trade or
business.
 WHO ARE NOT REQUIRED TO FILE
INCOME TAX RETURN?
• An individual whose
• Minimum wage • An individual whose compensation income
earners gross income does not derived from one employer
exceed P250,000 does not exceed P60,000
and the income tax on
which has been correctly
withheld
• Individuals whose income has
been subjected to final
withholding tax such as in the • Pure compensation earners
case of non-resident aliens not qualified under the substituted
engaged in trade or business filing system
 AMENDMENT OF INCOME TAX
RETURN
• -The amounts indicated by the taxpayer in the income tax return are his
assertions. The same are deemed final unless amended by the taxpayer.
Within three years from the required date of filing of the return, the
taxpayer can amend the same so long as no Letter of Authority for
investigation is issued by the BIR for the examination of his tax return.

Amended returns shall not be subject to surcharges for

late filing or late payment but shall be imposed the
interest penalties.