Professional Documents
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a. Citizens 1) Those who are citizens of the Philippines at the time of the adoption of the
Constitution (on February 2, 1987);
2) Those whose fathers or mothers are citizens of the Philippines;
3) Those born before January 17, 1973 of Filipino mothers who elect Philippine
citizenship upon reaching the age of majority;
4) Those who are naturalized in accordance with law.
1) Resident citizen A citizen of the Philippines residing therein.
2) Non-resident 1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical
citizen presence abroad with a definite intention to reside therein;
2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as
an immigrant or for employment on a permanent basis;
3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year;
4) A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a
non-resident citizen for the taxable year in which he arrives in the Philippines with respect to his income
derived from sources abroad until the date of his arrival in the Philippines;
5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to
reside permanently abroad or to return to and reside in the Philippines as the case may be.
2. Taxable income
Taxable income defined The term ‘taxable income’ means the pertinent items of gross income specified in the Tax Code, less
deductions if any, authorized for such types of income by the Tax Code or other special laws.
Over But not over The tax shall be Plus Of excess over
P 250,000 0%
P 250,000 400,000 20% P 250,000
400,000 800,000 P 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 2,419,000 35% 8,000,000
Over But not over The tax shall be Plus Of excess over
P 250,000 0%
P 250,000 400,000 15% P 250,000
400,000 800,000 P 22,500 20% 400,000
800,000 2,000,000 102,500 25% 800,000
2,000,000 8,000,000 402,500 30% 2,000,000
8,000,000 2,202,500 35% 8,000,000
c. Married individuals
1) Joint return of husband and Married individuals, whether citizens, resident or nonresident aliens, who do not derive income purely
wife from compensation, shall file a return for the taxable year to include the income of both spouses, but
where it is impracticable for the spouses to file one return, each spouse may file a separate return of
income but the returns so filed shall be consolidated by the Bureau for purposes of verification for the
taxable year. [Sec. 51 (D)]
2) Separate computation of For married individuals, the husband and wife, subject to the provision of Section 51(D) hereof, shall
income tax compute separately their individual income tax based on their respective total taxable income.
3) Certain income to be divided If any income cannot be definitely attributed to or identified as income exclusively earned or
equally realized by either of the spouses, the same shall be divided equally between the spouses for the
purpose of determining their respective taxable income.
4) Exercise: A husband and wife, resident citizens, with one (1) qualified dependent child, had the following income and expenses
for the year 2020. The husband waived the additional exemption in favor of his wife.
Salary of the husband, net of P50,000 withholding tax P 450,000
Salary of the wife, gross of P60,00 withholding tax 600,000
Gross professional income, husband, gross of 15% withholding tax 1,500,000
Cost of services, husband 500,000
Expenses, practice of profession 300,000
Gross sales, wife 800,000
Cost of sales, wife’s business 300,000
Business expenses, wife 100,000
Gross rental income, lease of common property (Gross receipts, P1,000,000) 700,000
Expenses, leased common property 200,000
Gross business income, Singapore (gross sales, P800,000) 600,000
Business expenses, Singapore 150,000
How much was the taxable income and the income tax due of the husband and wife using itemized deduction?
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Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
Suggested Solutions:
Husband Wife
Gross compensation income (A) P 500,000 P 600,000
Gross receipts/sales 1,500,000 800,000
Less: Cost of services/sales ( 500,000) (300,000)
Gross income 1,000,000 500,000
Other income
Rent income 350,000 350,000
Gross income, Singapore 300,000 300,000
Total 1,650,000 1,150,000
Less: Itemized deductions ( 300,000) ( 100,000)
Expenses, leased property ( 100,000) ( 100,000)
Expenses, Singapore ( 75,000) ( 75,000)
Taxable income – business / practice of profession (B) 1,175,000 875,000
Total taxable net income (A) + (B) P1,675,000 P1,475,000
The holiday pay, overtime pay, night shift differential pay, and hazard pay received by such
minimum wage earners shall likewise be exempt from income tax.
For purposes of these regulations, hazard pay shall mean the amount paid by the employer to MWEs
who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or
isolated stations and camps, which expose them to great danger or contagion or peril to life.
Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to income tax
and consequently, withholding tax on the said hazard pay.
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Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
b) If Total Gross If at any time during a given taxable year, a taxpayer’s gross sales or receipts exceeded the VAT Threshold
Sales and/or (₱3,000,000.00), he/she shall automatically be subjected to the graduated rates under Section 24(A)(2)(a) of
Gross the Tax Code, as amended.
Receipts and
A non-VAT registered taxpayer who initially opted to avail of the 8% option but has exceeded the VAT threshold
Other Non-
during the taxable year, shall be subject to 3% Percentage Tax on the first ₱3,000,000.00 of his/her gross
Operating
sales/receipts under Section 116 of the Tax Code, as amended, without imposition of any penalty if payment is
Income
timely made on the following month when the threshold is breached.
Exceed the
VAT The excess of the threshold shall be subject to VAT prospectively, and the 8% income tax previously paid shall
Threshold be credited to the Income Tax Due under the graduated rates provided in Section 24(A)(2)(a) of the Tax Code,
as amended.
6. Exercises
a. Mr. CSO, works for G.O.D., Inc. He is not engaged in business nor has any other source of income other than his employment.
For 2020, Mr. CSO earned a total taxable compensation income of ₱1,060,000. How much is his income tax liability?
Suggested Solutions:
His income tax liability will be computed as follows:
b. Ms. EBQ operates a convenience store while she offers bookkeeping services to her clients. In 2020, her gross sales amounted to
P800,000, in addition to her receipts from bookkeeping services of ₱300,000. She already signified her intention to be taxed at
8% income tax rate in her 1st quarter return. How much is the income tax liability for the year?
Suggested Solutions:
His income tax liability will be computed as follows:
The total of gross sales and gross receipts is below the VAT threshold of ₱3,000,000.00.
Income tax imposed herein is based on the total of gross sales and gross receipts.
Income tax payment is in lieu of the graduated income tax rates under subsection (A) hereof and percentage tax due,
by express provision of law.
c. Ms. EBQ above, failed to signify her intention to be taxed at 8% income tax rate on gross sales in her 1 st Quarter Income Tax
Return, and she incurred direct costs and operating expenses amounting to ₱600,000 and ₱200,000, respectively, or a total of
₱800,000. How much is the income tax?
Suggested Solutions:
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Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
d. Ms. MRU operates a convenience store while she offers bookkeeping services to her clients. In 2020, her gross sales amounted to
₱1,800,000, in addition to her gross receipts from bookkeeping services of ₱400,000. Her recorded cost of goods sold and
operating expenses were P1,325,000 and P320,000, respectively.
Questions:
1. How much is Ms. MRU’s taxable income and income tax due if she opted to avail of the OSD?
2. How much is the business tax, if any?
3. Can she avail of the 8% option if she does not opt to use OSD?
4. How much is her income tax liability if she signifies her intention to be taxed at 8% income tax rate in her 1st Quarter
return?
e. In 2020, Mr. MAG, a Financial Comptroller of JAB Company, earned annual compensation of ₱1,500,000, inclusive of 13 th month
and other benefits in the amount of ₱120,000 but net of mandatory contributions to SSS and Philhealth. Aside from employment
income, he owns a convenience store, with gross sales of ₱2,400,000. His cost of sales and operating expenses are ₱1,000,000
and ₱600,000, respectively, and with non-operating income of ₱100,000.
Questions:
1. How much is his tax due for 2020 if he opted to be taxed at 8% income tax rate of his gross sales for his income from
business?
2. How much is his income tax due for 2020 if he did not opt for the 8% income tax based on gross sales/receipts and other
non- operating income?
3. How much is the percentage tax 2020 if he did not opt for the 8% income tax based on gross sales/receipts and other non-
operating income?
Tax due:
1. On Compensation:
On ₱800,000.00 ₱ 130,000
On excess (P1,410,000 – P800,000) x 30% 183,000
Tax due on Compensation Income ₱ 313,000
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Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
2. On Business Income:
Gross Sales ₱ 2,400,000
Add: non-operating income of 100,000
TaxableBusinessIncome ₱ 2,500,000
Multiplied by income tax rate 8%
Tax Due on Business Income ₱ 200,000
TotalIncomeTaxDue(CompensationandBusiness) ₱ 513,000
* The option of 8% income tax rate is applicable only to taxpayer’s income from business and the same is in lieu of the income tax under the
graduated income tax rates and the percentage tax under Section 116 of the Tax Code, as amended.
* The amount of ₱250,000 allowed as deduction under the law for taxpayers earning solely from self-employment/practice of profession, is not
applicable for mixed income earner under the 8% income tax rate option.
* The taxable income from both compensation and business shall be combined for purposes of computing the income tax due if the
taxpayer chose to be subject under the graduated income tax rates.
* In addition to the income tax, Mr. MAG is likewise liable to pay percentage tax of ₱72,000, which is 3% of ₱2,400,000
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Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
Suggested Solutions:
3) Tax due from each trust after share in the consolidated income tax
Trust under Danilo Trust under Juancho
Share in the consolidated income tax P42,955 P24,545
Less: Income already paid 20,000 -
Tax payable P22,955 P 24,545
b. Mr. Sixto Cruz IV, a rich businessman, established on December 2019 a trust for the benefit of his son Sixto Cruz V, 18 years old, single.
He transferred to the trust two (2) income producing properties with the following gross rentals:
Vacant lot leased for P600,000 annually, gross of withholding tax
Office building with monthly rental income of P25,000, gross of withholding tax
The appointed trustee was Mr. Osmundo de la Cruz. During the year 2020, ordinary trust expenses amounted to P350,000 and income
distributed to the beneficiary amounted to P150,000. The beneficiary has gross sales from his trading business amounting to P500,000
and business expenses totaling P100,000.
Compute the taxable net income of the:
1) Trust using optional standard deduction. 2) Beneficiary using itemized deduction.
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Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
Suggested Solutions:
The certificate of withholding filed by the respective employers, duly stamped ‘received’ by the
BIR, shall be tantamount to the substituted filing of income tax returns by said employees.
d. Where to File Except in cases where the Commissioner otherwise permits, the return shall be filed with a. an
authorized agent bank,
b. Revenue District Officer,
c. Collection Agent or duly authorized Treasurer of the city or municipality
in which such person has his legal residence or principal place of business in the Philippines, or
d. if there be no legal residence or place of business in the Philippines, with the Office of the
Commissioner.
e. When to File Quarterly declarations:
First quarter (Sec. 20, TRAIN, amending
Sec. 74, NIRC) May 15 of the current year
Second quarter August 15 of the current year
Third quarter November 15 of the current year
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-601
Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
9. Exercise: Mr. JMLH signified her intention to be taxed at 8% income tax rate on gross sales in her 1st Quarter Income Tax Return. However, her gross
salesduringthe taxable year has exceeded the VAT threshold.
Q1 Q2 Q3 Q4
(8% Rate) (8% Rate) (8% Rate)
Total Sales ₱ 500,000.00 ₱ 500,000.00 ₱ 2,000,000.00 ₱ 3,000,000.00
Less: Cost of Sales 300,000.00 300,000.00 1,200,000.00 1,200,000.00
Operating Expenses 120,000.00 120,000.00 480,000.00 720,000.00
REQ: 1) Compute the quarterly income tax payable and show the due dates
2) Compute the income tax due when the final or adjusted return is filed and show the due date
3) Compute the percentage tax, if any.
4) Compute the VAT, if any.
Suggested Solutions:
Requirement 2 Incme tax due when final income tax return is filed
Tax due shall be computed as follows:
Total Sales ₱ 6,000,000
Less: Cost of Sales 3,000,000
Gross Income 3,000,000
Less: Operating Expenses 1,440,000
Taxable Income ₱ 1,560,000
Tax Due under the graduated rates ₱ 358,000
Less: 8% income tax previously paid (Q1 to Q3) (3,000,000 – 250,000 = 2.750,000 x 8%) 220,000
Annual Income Tax Payable ₱ 138,000
Due date April 15
Taxpayer shall be allowed an income tax credit of quarterly payments initially made under the 8% income tax option.
Taxpayer is likewise liable for business tax(es), in addition to income tax. A percentage tax pursuant to Section 116 of the Tax Code, as
amended, shall be imposed on the first P3,000,000.00. The excess of the threshold shall be subject to VAT.
Percentage tax due on the P3,000,000.00 shall be collected without penalty, if timely paid on the due date immediately following the
month the threshold was breached.
Requirement 4 – VAT
Gross receipts (6,000,000 – 3,000,000) P3,000,000
Tax rate 12%
VAT P 360,000
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Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
10. Exercise: Compute the withholding tax using the table on the next page.
1) An employee receiving daily compensation in the amount of P2,500, net of mandatory contributions.
Suggested Solutions:
By using the daily withholding tax table, the withholding tax beginning January 2018 is computed by
referring to compensation range und er column 4 which shows a predetermined tax of P356.16 on
P2,192 plus 30% of the excess of Compensation Range (Minimum) amounting to P308 (P2,500 — P2,192)
which is P92.40. As such, the withholding tax to be withheld by the employer shall be P448.56.
Suggested Solutions:
By using the weekly withholding tax table, the withholding tax beginning January 2018 is computed by
referring to compensation range under column 3 which shows a predetermined tax of P576.92 on
P7,692 plus 25% of the excess of Compensation Range (Minimum) amounting to P1,808.00 (P9,500 —
P7,692) which is P452. As such, the withholding tax to be withheld by the employer shall be P1,028.92.
3) An employee receiving semi-monthly compensation in the amount of P15,500, net of mandatory contributions.
Suggested Solutions:
By using the semi- monthly withholding tax table, the withholding tax beginning January 2018 is computed
by referring to compensation range under column 2 which shows a predetermined tax of P0.00 on
P10,417.00 plus 20% of the excess of Compensation Range (Minimum) amounting to P5,083.00
(P15,500.00 — P10,417.00) which is P1,016.60. As such, the withholding tax to be w ithheld by the
employer shall be P1,016.60.
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-601
Weeks 6 – 7: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
4) An employee receiving monthly compensation in the amount of P170,500, with supplemental income of
P5,000, net of mandatory contributions.
Suggested Solutions:
By using the monthly withholding tax table, the withholding tax beginning January 2018 is computed by
referring to compensation range under column 2 which shows a predetermined tax of P40,833.33
on P166,667.00 plus 32% of the excess of Compensation Range (Minimum) amounting to P8,833.00
(P170,500.00 + P5,000 —P166,667.00) which is P2,826.56. As such, the withholding tax to be withheld by
the employer shall be P43,659.89.
END
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