Income Tax
Regular Compensation Income
❖ Allowances
- May either be FIXED OR
VARIABLE
- It is generally subject to tax
except;
● It is necessary and
ordinary traveling and
representation or
entertainment
expenses
● The employee is
required to
accounting / liquidate
for the foregoing
expenses
● Any excess advances
are returned to the
employer
Supplementary Compensation
❖ Fees
- Retainer fees of consultants,
talents, and directors who
have no management
function in the business.
❖ Commission
- To non-employees such as
independent sales agent are
business income to the sales
agent
❖ Tips and Gratuities
- Other income of the
employee
❖ Overtime pay
- refers to premium payment
received for working beyond
regular hrs of work.
❖ Hazard Pay
- To the amount paid by the
employees who were actually
assigned to danger or strife/
tom areas, disease- infected
places or un distressed or
isolated stations and camps,
which expose them to great
danger.
❖ Night shift differential pay
- To the pay received by an
employee for every hour of
work performed between
10:00 pm to 6:00 am
❖ Holiday Pay
- Refers to pay received by an
employee on the occasion of
a regular holiday or special
day
Other forms of Compensation
❖ Property as payment of
Compensation
- Fair Market Value of the
property at the time of
payment
❖ Service as Payment of
Compensation
- Fair Value of the Services at
the time the services were
rendered
❖ Debt Cancellation
- Recognition of income:
1. If the creditor/
employer cancels the
debt of a debtor/
employee in
consideration for the
service rendered by
the latter, the debtor/
employee realizes
income amount to
debt.
- Resulting to Donation:
1. If the creditor/
employer simply
cancels the debt of a
debtor / employees
without any
consideratioj, the
amount pf debt
Income Tax

canceled is Contributions. At the end of the year, he

considered gift. received 13 and 14(equivalent to one
- Cancellation of debt month salary for each pay). Christmas
resulting: bonus of P120,000. How much is the
(Wala ni mahuman) gross compensation income?
❖ Issuances of shares of stock as a
payment of compensation Answer:
- Fair Market Value of the Annual. 720,000
stock at the time the shares Less: SSS, PHILHEALTH
are issued of notes as PAG-IBIG 72,000
payment of compensation TAXABLE 648,000
- Fair Value of the notes
- Interest bearing 13th and 14th 120,000
➢ In the year the Xmas bonus. 120,000
interest bearing note Total. 240,000
is received, the Less: Exempted. 90,000
taxable (wala ni Total. 150,000
mahuman)
- Non- interest bearing ❖ De minis benefits
➢ Present Value - Benefits that are considered
13th Month Pay and Other Benefit minimal, in value, thus, when
❖ 13th Month Pay given to employees IT IS
- of an employee is equivalent to the NOT TAXABLE
mandatory one month basic salary ➢ Monetized unused
of officials and employees actions leaves credits
BASIC SALARY 30,000/ mo. of private employees
DATE. 4/1/24 not exceeding 10
13th Month Pay of 2024. 30,000 x 9 /12 days during the year
Total 22,000 ➢ Monetized value of
❖ Other Benefits vacation and sick
- Include Christmas bonus, leave credits paid to
productivity incentive bonus, government officials
loyalty award, gift in cash, or and employees
in kind and other benefit ➢ Medical cash
nature actually received. allowance to
- 13th month pay and other dependents of
benefits are not taxable is the employees not
total amount received is exceeding per
90,000 less. semester or 250 per
Exercises: month
Mr. Wang is the vice president of CID ➢ Rice subsidy of 2,000
Corporation. He receives an annual or one sack of 50-kg
salary of P720,000, 10% of which pertain rice per month
to SSS, PHIC and PAG-IBIG
Income Tax
amounting to not
more than 2,000
➢ Uniform and clothing
allowance not
exceeding 6,000 per
annum
➢ Actual medical
assistance not
exceeding 10,000 per
year
➢ Laundry allowance
not exceeding 300
per month
➢ Employees ❖ Rules Governing Exemptions:
achievement award
➢ Gifts given during
Christmas and major
anniversary
celebrations not
exceeding 5,000 per
employee per year.
➢ Daily meal allowance
for overtime work and
night/ graveyard shift
not exceeding 25% of
the basic minimum
wage
➢ 75% -part of 13th
month pay
➢ Benefits received by
an employee with
employee of a
collective bargaining ❖ Separation pay
agreement
❖ Monthly salary x 12
❖ Fixed monthly allowance of
5,000 per month x 12
monthly benefit
MINIMUM WAGE INCOME EARNERS (RA
9504)
❖ Statutory Minimum Wage
- Refers to rate fixed by the
Regional Tripartite wage and
productivity Board if the
Department of Labor and
Employment
- The following types of
compensation income all
inclusive, earned by
minimum wage earned afe
also exempted from income
tax
➢ Holiday Pay
➢ Overtime Pat
➢ Night shift differential
pay
➢ Hazard Pay
- MWF receiving other income,
such as income from conduct
of trade or business, or from
the practice of profession,
except income subject to
final tax in addition to
compensation income shall
be subject to tax on their
income from business.
- MWF shall be subject to
income tax if he/she receives
additional compensation
such as commission,
honoraria, fringe benefit,
benefits excess of the
allowance statutory amount
of 90,000 taxable allowance
and other taxable.
- refers to the amount due to
the employee who has bren
terminated from service for
causes authorized by law
- Generally; it is taxable
except:
➢ The separation or
term/nation must be
due to job threatening
sickness, death or
Income Tax

other physical ➔ The employer

disability and , maintain a
➢ The same must be reasonable private
due to any cause plan (registered in
beyond the control of BIR)
the employee or ➔ The retiring official or
official such as; employee has been in
➔ Rebondary the services of the
➔ Retrenchment dame employer for at
➔ Closure of least 10 years.
employers ➔ The retiring employee
business is at least 50 years of
➔ Downsizing age at the time of
EXERCISE retirement
1. Ysa is an employee if Golsin ➔ This is the first tine
company which closed its availment of
business during the year Ysa last retirement benefit
pay check shows the following exemption
details; EXERCISE
Unpaid salary in the last 2 months 30,000 1. Answer: Taxable
Current Monthly salary. 15,000 2. Answer: Taxable
Separation pay. 100,000 3. Answer: Not taxable
Business and Professional Income
Answer: ❖ Business Income
30,000+ 15,000= 45,000 - Arises from habitual
2. Helbert’s employer was engagement in any
downsizing its business commercial activity involving
operations. Herbert was identified regualr sales pf goodals or
among others to be laid off. To servuces by an individual or
avoid implications of a corporation.
inefficiencies on his part, Helbert ❖ Merchandising
Filed a resignation letter to the ❖ Manufacturing
Company and received a ❖ Services
separation pay of 120,000. ➢ Services
Answer: Taxable ➔ Business entities
❖ Retirement pay engaged in
- Those received by officials agriculture, farm
and employees of private operation or
firms in accordance with a production of farm
reasonable private benefit animals.
plan maintained by the ➢ Methods of Recognizing
employer. Income
- Requisite of exemption
Income Tax

➔ Cash basis/
computing gross
income shall be used
➔ Accrual basis
➔ Crop year basis