Chapter 4: Preparing for Personal Income Taxes

Income Tax for Individuals

Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax
Code of 1997 (Tax Code), as amended, less the deductions if any, authorized for such types of income,
by the Tax Code, as amended, or other special laws.

Who are Required to File Income Tax Returns?

Individuals

 Resident citizens receiving income from sources within or outside the Philippines

 Employees deriving purely compensation income from two or more employers, concurrently or
successively at any time during the taxable year

 Employees deriving purely compensation income regardless of the amount, whether from a
single or several employers during the calendar year, the income tax of which has not been
withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or
refundable return

 Self-employed individuals receiving income from the conduct of trade or business and/or
practice of profession

 Individuals deriving mixed income, i.e., compensation income and income from the conduct of
trade or business and/or practice of profession

 Individuals deriving other non-business, non-professional related income in addition to

compensation income not otherwise subject to a final tax

 Individuals receiving purely compensation income from a single employer, although the income
of which has been correctly withheld, but whose spouse is not entitled to substituted filing

 Non-resident citizens receiving income from sources within the Philippines

 Aliens, whether resident or not, receiving income from sources within the Philippines

Non-Individuals

 Corporations including partnerships, no matter how created or organized.

 Domestic corporations receiving income from sources within and outside the Philippines

 Foreign corporations receiving income from sources within the Philippines

 Estates and trusts engaged in trade or business

Different Kinds of Tax in the Philippines

At the national level, taxes are imposed and collected pursuant to the National Internal Revenue Code,
the Tariff and Customs Code, and several special laws.

There are four main types of National Internal Revenue taxes:

 income
 indirect (value-added and percentage taxes)
 excise
 documentary stamp taxes

all of which are administered by the Bureau of Internal Revenue (BIR). At the local level, governments
have some autonomy to impose taxes on business and ownership of real property (Amilyar).

Change of Status

Pursuant to Section 236 of the National Internal Revenue Code, any registered taxpayer shall,
whenever applicable, update his registration information with the Revenue District Office where he is
registered, specifying therein any change in tax type and other taxpayer details (i.e. change in
registered activities/line of industry, change in registered name/ trade name and change in accounting
period).

Gross Taxable Compensation Income

What is Taxable Income?

Taxable income refers to any individual’s or business’ compensation that is used to determine tax
liability.

 The total income amount or gross income is used as the basis to calculate how much the
individual or organization owes the government for the specific tax period.

Gross compensation income is defined as taxable income arising from an employer/employee

relationship and includes the following:

 salaries, wages, compensation, commissions, emoluments, and honoraria

 bonuses and other benefits exceeding PHP90,000
 allowances for transportation, representation, entertainment, and other similar items
 fees (including director’s fees paid to a director who is at the same time an employee of the
payer)
 taxable pensions
 taxable retirement pay
 other income of a similar nature, including compensation paid in-kind.

Premium Payment on Health and / or Hospitalization Insurance

What Is Health Insurance?

Health insurance is a contract that requires an insurer to pay some or all of a person's healthcare costs
in exchange for a premium.

 Health insurance is a type of insurance coverage that pays for medical and surgical expenses
incurred by the insured.
 Choosing a health insurance plan can be tricky because of plan rules regarding in- and out-of-
network services, deductibles, copays, and more.
The Philippine Health Insurance Corporation or Philhealth is a government-owned and controlled
corporation founded on February 5, 1995.

 Its main goal is to ensure the health of every Filipino through social health insurance regardless
of social status: poor, rich, young, old, sick, healthy, working or jobless. To achieve this, all
premiums paid by members are pooled nationally and in effect, there is a cross-subsidization
across districts.

What is an HMO in Philippines?

HMO or Health Maintenance Organization is a healthcare delivery system that most employees are
entitled to use as part of the benefit they receive from their employers.

Popular Tax Strategies

What are the 3 basic tax planning strategies?

There are a number of ways you can go about tax planning, but it primarily involves three basic
methods:

 reducing your overall income

 increasing your number of tax deductions throughout the year
 and taking advantage of certain tax credits
 What Is a Tax Credit?
 A tax credit is an amount of money that taxpayers can subtract directly from taxes owed to
their government.
 A tax credit is an amount of money that taxpayers are permitted to subtract, peso for
peso, from the income taxes that they owe.
 Tax credits are more favorable than tax deductions because they actually reduce the tax
due, not just the amount of taxable income.

Sources/References:

https://www.bir.gov.ph/

https://home.kpmg/

https://corporatefinanceinstitute.com/

https://www.bpi-philam.com/

https://www.imoney.ph/

https://www.philhealth.gov.ph/

Prepared by:

Lesley Allen D. Kabigting, MBA

College of Business Administration
Guagua National Colleges