INCOME TAX – INDIVIDUALS
Philippines and who is not a citizen thereof.
Classification of Individuals
1. Citizens
1.1. Those who are citizens of the Philippines at
the time of the adoption of the Constitution (on
February 2, 1987).
1.2. Those whose fathers or mothers are citizens
of the Philippines;
1.3. Those born before January 17, 1973 of
Filipino mothers who elect Philippine citizenship
upon reaching the age of majority;
1.4. Those who are naturalized in accordance with
law.
a. Resident citizen - A citizen of the Philippines
residing therein.
b. Non-resident citizen
i. A citizen of the Philippines who establishes to
the satisfaction of the Commissioner the fact of
his physical presence abroad with a definite
intention to reside therein;
ii. 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;
iii. 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;
iv. 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;
v. 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. Aliens
Individuals who are not Filipinos.
1) Resident alien;
2) Non-resident alien doing business in the
Philippines;
3) Non-resident alien not doing business in the
Philippines.
1. Resident alien
An individual whose residence is within the
1) An alien who lives in the Philippines with no
definite intention as to his stay;
2) One who comes to the Philippines for a definite
purpose which in its nature would require an
extended stay and to that end makes his home
temporarily in the Philippines, although it may be
his intention at all times to return to his domicile
abroad;
3) An alien who has acquired residence in the
Philippines retains his status as such until he
abandons the same and actually departs from the
Philippines.
2. Non-resident alien
An individual whose residence is not within the
Philippines and who is not a citizen thereon.
1) One who comes to the Philippines for a definite
purpose which in its nature may be
promptly accomplished
2) A non-resident alien individual who shall come
to the Philippines and stay therein for an
aggregate period of more than 180 days during
any calendar year shall be deemed a “non resident
alien doing business in the Philippines.”
An Alien individual actually engaged in trade or
business = NRA doing business in the Philippines
NOT DOING BUSINESS IN THE PHILIPPINES
= Those NRAs not included above
Taxable income
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.
Tax Base and Tax Rate
Rates of Tax on Taxable Income of Individual

3. Married individuals
Joint return of husband and wife - Married
individuals, whether citizens, resident or
nonresident aliens, who do not derive income
purely 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.
Separate computation of income tax - For
married individuals, the husband and wife, subject
to the provision of Section 51(D) hereof, shall
compute separately their individual income tax
based on their respective total taxable income.
Certain income to be divided equally - If any
income cannot be definitely attributed to or
identified as income exclusively earned Or
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. Minimum Wage Earners
Definition - The term “minimum wage earner”
shall refer to a worker in the private sector paid
the statutory minimum wage, or to an employee in
the public sector with compensation income of not
more than the statutory minimum wage in the non-
agricultural sector where he/she is assigned.
Exempt from income tax
Minimum wage earners shall be exempt from the
payment of income tax on their taxable income.
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.
5. Individuals Earning Purely Compensation
Income
Individuals earning purely compensation income
shall be taxed based on the graduated income tax
rates above.
6. Self-Employed Individuals and/or
Professionals
Self-employed individuals and/or professionals
shall have the options to be taxed at:
a. graduated income tax rate on taxable income or
b. an eight percent (8%) tax on gross sales or
gross receipts and other non-operating income in
excess of Two hundred fifty thousand pesos
(P250,000) in lieu of the graduated income tax
rates and the percentage tax under Section 116 of
this Code.
7. Mixed Income Earners
Type of Income
a. All Income from Compensation - Graduated
income tax rates above
b. All Income from Business or Practice of
Profession
i. If Total Gross Sales and/or Gross Receipts and
Other NonOperating Income Do Not
Exceed the VAT Threshold
ii. If Total Gross Sales and/or Gross Receipts and
Other NonOperating Income Exceed
the VAT Threshold
A. If Total Gross Sales and/or Gross Receipts and
Other NonOperating Income Do Not Exceed the
VAT Threshold
(a) Graduated income tax rates above (Section
24 A), or
Eight percent (8%) income tax based on gross
sales or gross receipts and other nonoperating
income in lieu of the graduated income tax rates
under Section 24(A) and the percentage tax under
Section116 all under the Tax Code, as amended.
Unless the taxpayer signifies in the 1st Quarter
Return of the taxable year the intention to elect the
8% income tax, the taxpayer shall be considered
as having availed of the graduated rates under
Section 24(A) of the Tax Code, as amended, and
such election shall be irrevocable. He shall also be
liable to business tax.
The following cannot avail of the 8% income
tax rate option:
1. A VAT-registered taxpayer, regardless of the
gross sales/receipts
2. Taxpayers who are subject to Other Percentage
Taxes under Title V of the Tax
Code, as amended, except those subject under
Section 116 Of the same Title
3. Partners of a General Professional Partnership
(GPP) by virtue of their distributive
share from GPP which is already net of cost and
expenses
B. If Total Gross Sales and/or Gross Receipts and
Other NonOperating Income Exceed the VAT
Threshold
(a) If at any time during a given taxable year, a
taxpayer’s gross sales or receipts exceeded
the VAT Threshold (₱3,000,000.00), he/she shall
automatically be subjected to the
graduated rates under Section 24(A)(2)(a) of the
Tax Code, as amended.
A non-VAT registered taxpayer who initially
opted to avail of the 8% option but has exceeded
the VAT threshold during the taxable year, shall
be subject to 3% Percentage
Tax on the first ₱3,000,000.00 of his/her gross
sales/receipts under Section 116 of the
Tax Code, as amended, without imposition of any
penalty if payment is timely made on the
following month when the threshold is breached.
The excess of the threshold shall be subject to
VAT prospectively, andthe8%income tax
previously paid shall be credited to the Income
Tax Due under the graduated rates provided in
Section 24(A)(2)(a) of the Tax Code, as amended
8. Optional Standard Deductions (OSD) for
Individual Taxpayers
a. In lieu of the deductions allowed (itemized), an
individual subject to tax under Section 24,
other than a nonresident alien, may elect a
standard deduction in an amount not exceeding
forty percent (40%) of his gross sales or gross
receipts, as the case may be
b. Unless the taxpayer signifies in his return his
intention to elect the optional standard deduction,
he shall be considered as having availed himself
of the itemized deductions allowed.
c. An individual who is entitled to and claimed for
the optional standard deduction shall not be
required to submit with his tax return such
financial statements otherwise required under the
Tax Code
d. The said individual shall keep such records
pertaining to his gross sales or gross receipts.
9. Estate and Trust
Definition of estate - Estate refers to the mass of
all property, rights and obligations of a person.
which are not extinguished by his death.
Definition of trust - Trust is a right on property,
real or personal, held by one party for the benefit.
of another
Estate as a taxpayer - An estate is a taxpayer if it
is under settlement or administration.
Trust as a taxpayer –
(1) A trust is a taxpayer if under the terms of the
trust the fiduciary must accumulate the income.
(2) A trust is a taxpayer if under the terms of the
trust the fiduciary may accumulate or
distribute the income, in his discretion.
When is the income of the trust taxable to the
grantor?
(1) If under the term of the trust the title to any
part of the corpus or principal of the trust may
be revested to the grantor, the income of the part
of the corpus or principal shall be taxable to the
grantor.
(2) If under the term of the trust the income of the
trust shall be applied for the benefit of the
grantor, the income that shall be applied for the
benefit of the grantor shall be taxable to
the grantor
Treatment of income distribution of the year’s
income to heir or Beneficiary
When an estate or a trust is a taxpayer, a
distribution of the year’s income to an heir or
beneficiary is:
(1) A special item of deduction for the estate/trust;
(2) A special item of income to the
heir/beneficiary.
Computation of taxable income of the estate or
trust
Income Tax Returns (Individuals, Estates and
Trusts)
Required to File
The following individuals are required to file an
income tax return:
1) Every Filipino citizen residing in the
Philippines;
2) Every Filipino citizen residing outside the
Philippines, on his income from sources within
the Philippines;
3) Every alien residing in the Philippines, on
income derived from sources within the
Philippines;
and
4) Every nonresident alien engaged in trade or
business or in the exercise of profession in the
Philippines
Contents of ITR
The income tax return (ITR) shall consist of a
maximum of four (4) pages in paper form or
electronic form, and shall only contain the
following information:
1) Personal profile and information;
2) Total gross sales, receipts or income from
compensation for services rendered, conduct of
trade or business or the exercise of a profession,
except income subject to final tax as provided
under this Code;
3) Allowable deductions under this Code;
4) Taxable income as defined in Section 31 of this
Code; and
5) Income tax due and payable
Substituted Filing of Income Tax Returns Final Tax Rates on Certain Passive Income
Individual taxpayers shall not be required to file from Philippine Sources.
an annual income tax return if: a. Rates of Tax Certain Passive Income
1) receiving purely compensation income, 1) Sec. 24 (B) – For residents or citizens;
regardless of amount, 2) Sec. 25 (A) (2) – For non-resident aliens
2) from only one employer in the Philippines for engaged in trade or business.
the calendar year,
3) the income tax of which has been withheld
correctly by the said employer (tax due equals tax
withheld).
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.
Where to File
Except in cases where the Commissioner
otherwise permits, the return shall be filed with 2) Sec. 25 (B) – For non-resident aliens not engaged in
trade or business
1) an authorized agent bank
2) Revenue District Officer,
3) 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
4) if there be no legal residence or place of
business in the Philippines, with the Office of the
Commissioner.
When to File

Payment of Tax
The tax is paid as the return is filed.

TAX RATES FOR INDIVIDUAL

TAXPAYERS, ESTATES AND TRUSTS
Sec. 24 (A) – The tax shall be computed on
taxable income in accordance with and at the
rates established in the following schedule
(resident citizens, non-resident citizens,
resident alien,
estate and trust):
 GROSS INCOME – INCLUSIONS

SOURCES of INCOME
1. Classification of Income as to Sources
i) Income purely within
ii) Income purely without
iii) Income partly within and partly without