INCOME TAX FOR INDIVIDUALS

Objectives:
Discuss the types of income based on the applicable tax
discuss passive income subject to final withholding tax

TYPES OF INCOME AND APPLICABLE TAX

1. Ordinary or regular income
compensation income
business income / practice of profession
capital gains NOT subject to capital gains tax
all other income NOT subject to capital gains tax or final withholding tax

SUBJECT TO BASIC TAX OR GRADUATED RATE

2. Passive Income -income received on a regular basis requiring minimal to no effort by the recipient.
Interest income
dividend income
royalty income
prizes
winnings
SUBJECT TO FINAL WITHHOLDING TAX
earned within the Philippines only - for all types of individual taxpayers
earned abroad - for RC (subjected to basic tax), for NRC, RA, NRAET, NRANET (exempted)

3. Capital gains
on sale of stocks
on real properties

SUBJECT TO CAPITAL GAINS TAX

Applicable tax will depend on the type of income involved.

PASSIVE INCOME
-subject to final withholding tax
-derived from the Philippines

1. INTEREST INCOME - income earned by a lender for use of funds over a period of time.
a. Interest income - bank deposits, trust fund, mutual fund, deposit substitutes, and other similar arrangements
b. interest income under the expanded foreign currency deposit system

RC, NRC, RA, NRAET

Peso deposits
Short-term 20%
Long-term Exempt
deposits under FCDS 15% - applicable only to RC & RA
Exempt for NRC and NRAET

2.ROYALTY INCOME - payment received for the use and exploitation of artistic or literary works, patents and mineral right
 RC, NRC, RA, NRAET
In general 20%
Literary works (books, musical composition, etc) 10%

3. DIVIDEND INCOME - distribution of earnings to shareholders.

cash dividend
property dividend

RC, NRC, RA
from domestic corporation 10%
from foreign corporation subject to graduated rates
will form part of basic income

4. PRIZES - anything given as a reward to the winner of a competition or race or in recognition of outstanding achievemen
-Generally, 20%, EXCEPT if the amount does not exceed P10,000, then the amount shall be added to GROSS INCOME subje
-All prizes and awards granted to athletes in local and international sports competitions and tournaments, Philippines or a
national sports association are EXEMPT from income tax. (Sports accredited only by the Philippine Olympics Committee)
-exempted if received in recognition of religious, charitable, educational achievement

5. WINNINGS - money won by an individual by GAMBLING

-Generally, 20% INCLUDING PCSL Lotto winnings where amount exceeds P10,000.
-exempted if PCSO and lotto winnings do not exceed P10,000

PRIZES
earned within the Philippines, more than P10k 20%

added to gross income subject

earned within the Philippines, less than P10k
to basic tax
mal to no effort by the recipient.

ANET (exempted)

period of time.
titutes, and other similar arrangements

RC, NRC, RA, NRAET NRANET

20% 25%
Exempt 25%
15% - applicable only to RC & RA
Exempted
Exempt for NRC and NRAET

artistic or literary works, patents and mineral rights.

 RC, NRC, RA, NRAET NRANET
20% 25%
10% 25%

RC, NRC, RA NRAET NRANET

10% 20% 25%
subject to graduated rates
25%
will form part of basic income

r race or in recognition of outstanding achievement

he amount shall be added to GROSS INCOME subject to normal/basic tax
ts competitions and tournaments, Philippines or abroad, sanctioned by their respective
ted only by the Philippine Olympics Committee)
achievement

WINNINGS
20% (including PCSO lotto winnings)

still subject to 20% FWT, EXCEPT PCSO

lotto winnings (exempted if below P10k)
Compute for the final tax of the following passive income of resident citizen individual (unless stated that it is not t

1. Interest income from bank deposit - P80,000.

Final tax - 80,000 x 20% = 16,000

2. Prizes and winnings - P35,000

Final tax - 35,000 x 20% = 7,000

3. Royalties - P10,000
Final tax - 10,000 x 20% = 2,000

4. Royalties from musical composition by a non-resident alien - P9,000

Final tax - 9,000 x 10% = 900

5. Dividends from a domestic corporation - P25,000

Final tax - 25,000 x 10% = 2,500

6. Lotto winnings from PCSO - P130,000

Final tax - 130,000 x 20% = 26,000

7. Prizes in Wowowin - P18,000

Final tax - 18,000 x 20% = 3,600

8. Interest income from long-term deposit, P18,000

Final tax = P0 (exempted)

9. Interest Income under expanded FCDS, P18,000

Final tax = 18,000 x 15% = 5,100
unless stated that it is not the case).
De Minimis Benefits - facilities or privileges furnished or offered by an employer to his/her employees that are of R
merely as a means promoting health, goodwill, contentment or efficacy of his/her employees.
NOT REQUIRED BY LAW. Tax exempt as provided by law. Excess amounts will be considered as "Other Benefits"

a. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year.
b. Monetized value of vacation leave and sick leave credits of government officials and employees
c. Rice subsidy of P2,000 or one sack of rice of 50-kg rice per month amounting to not more than 2,000.
d. Daily meal allowance for overtime work and night/graveyard shift 25% of the basic minimum wage on a per reg
e. uniform and clothing allowance not exceeding P6,000 per annum
f. laundry allowance not exceeding P300 per month.
g. Medical cash allowance for dependents of employees not exceeding P1,500 per employee per semester or P250
h. Actual medical assistance (medical allowance to cover medical and healthcare needs, annual medicine/executive
P10,000 per annum.
i. gifts given during christmas and major anniversary ccelebrations not exceeding P5,000 per employee per annum
j. Employee achievement awards for length of service or safety achievement, which must be in the form of tangible
or gift certificate with annual monetary value of P10,000 received by an employee under an established written pla
k. Benefits received by an employee by virtue of collective bargaining agreement and productivity incentives schem
received from both CBA and productivity incentive schemes combined do not exceed P10,000 per employee per ta
her employees that are of RELATIVELY SMALL VALUE and are offered by the employer

ered as "Other Benefits"

during the year.

more than 2,000.

minimum wage on a per region basis

oyee per semester or P250/month

annual medicine/executive check-ups, maternity assistance, routin consultation not exceeding

0 per employee per annum

st be in the form of tangible personal property other than cash
r an established written plan which does not discriminate in favor of highly paid employees.
roductivity incentives schemes provided that the total monetary value
10,000 per employee per taxable year.
Taxable Income - refers to the pertinent items of gross income specified in the Code, less deductions, if any, author
by the Code or other special laws.

Individuals Earning Purely compensation income

Total Compensation Income xxx
Less: Mandatory contributions -xxx
Less: Non-taxable benefits -xxx
Net Taxable Income xxx

Ms. A, resident citizen, has the following items relating to her compensation during the taxable year 2022. (She is n

Basic Salary 600,000

Commissions 50,000
Overtime Pay 25,000
13th month pay 50,000
14th month pay 50,000
Other benefits 30,000
De minimis benefits 80,000
Mandatory contributions (included in basic salary) 30,000

Basic Salary 600,000

Commissions 50,000
Overtime Pay 25,000
13th month pay 50,000
14th month pay 50,000
Other benefits 30,000
De minimis benefits 80,000
Total Compensation Income 885,000
Less: Mandatory contributions -30,000
Less: Non-taxable benefits
De Minimis Benefits -80,000
Other Benefits
13th month pay 50,000
14th month 50,000
Other benefits 30,000
130,000 vs 90,000 ceiling -90,000
Net Taxable Income 685,000

Income tax due

First 400,000 30,000
Excess 285,000 @ 25% 71,250
685,000 101,250

Examples:
1,050,000
First 800,000 130,000
Excess 250,000 @ 30% 75,000
1,050,000 205,000

2,500,000
First 2,000,000 490,000
Excess 500,000 @ 32% 160,000
2,500,000 650,000
ode, less deductions, if any, authorized for such types of income

ng the taxable year 2022. (She is not a minimum wage earner)