Learning Modules in INCOME TAXATION
Income Tax of Individuals
Module 6
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Learning Modules in INCOME TAXATION
Income Tax of Individuals
OBJECTIVES
At the end of this module, you should be able to:
- Differentiate the types of taxpayers.
- Used the Income Tax Table.
You can think of this as the final step for you to grasp the basics of income taxation.
We are now at the step where we will compute the income tax due of a tax payer.
Income tax due is basically the income tax that the taxpayer should pay.
I. Individual Taxpayers
Individual taxpayers are natural persons with income derived within the territorial
jurisdiction of a taxing authority. These individual taxpayers are classified as citizens
and aliens.
Under Art. IV, Section I of the Philippine Constitution, a Filipino Citizen is he who
is/has:
a. Those who are citizens of the Philippine at the time of the adoption of the 1987
Philippine Constitution;
b. Born (by birth) with father and/or mother as Filipino citizens;
c. Born before January 17, 1973 of Filipino mother who elects Philippine citizenship upon
reaching the age of majority; or
d. Acquired Philippine citizenship after birth (naturalized) in accordance with the
Philippine laws.
An Alien is a foreign-born person who is not qualified to acquire Philippine citizenship
by birth or after birth.
Classification of Citizens
Citizens are classified into:
1. Resident Citizen
A Filipino citizen who stayed permanently in the Philippines or stayed outside the
Philippines for less than 183 days during the taxable year.
A citizen of the Philippines residing therein is taxable for all income derived from
sources within and without the Philippines.
2. Nonresident Citizen
A Filipino citizen who stayed outside the Philippines for 183 days or more during the
taxable year and has established proof to the BIR Commissioner of his definite intention
to reside outside the Philippines on a permanent basis as an immigrant or employee.
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A nonresident citizen is taxable only on income derived from sources within the Philippines.
A citizen of the Philippines who works and derives income from abroad and whose
employment requires him to be physically present abroad most of the time (at least
183 days) during the taxable year is to be classified as nonresident citizen.
An individual citizen of the Philippines who is working and deriving income from
abroad as overseas contract worker is taxable only on income from sources within the
Philippines.
A seaman who is a citizen of the Philippines and who receives compensation for
services rendered abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an overseas contract worker.
A Filipino citizen who was previously a nonresident citizen who arrives and resides
permanently in the Philippines at any time during the taxable year shall likewise be
treated as a nonresident citizen for the same taxable year with respect to his income
derived from sources abroad until the date of his arrival to the Philippines.
Illustration 1.0
During 2019, Mr. Dongdi Perio, a Filipino Citizen, worked and earned P200,000 in
Saudi Arabia. Before the end of year 2019, he returned to the Philippines and earned
P80,000 salary from his employment here.
How much would be his gross taxable income for year 200B or basis for Philippine
income tax computations under each of the following independent assumptions?
Assumption 1: Mr. Perio went abroad on January 2019 and returned to the Philippines
on March 2019.
For the taxable year 2019, Mr. Perio was out of the country for less than 183 days.
Hence, he is a resident citizen. Consequently, his income earned from all sources is
taxable in the Philippines. For year 2019, his taxable income before exemption is
P280,00.
Assumption 2: Mr. Perio was in Saudi Arabia since June 1 2018, and returned to the
Philippines on March 2019.
Although Mr. Perio is already a resident citizen in year 2019, with respect ot his
income earned outside the Philippines he is still ha nonresident citizen; hence, not
subject to Philippine income tax. His taxable income before exemption would only be
limited to his earnings within the Philippines, which is P80,000.
Classifications of Aliens
As a rule, an alien individual, whether a resident or not of the Philippines, is taxable
only for income derived from sources within the Philippines.
Aliens are classified as either a Resident Alien, or Nonresident Alien.
1. Resident Aliens (RA) are persons who are not citizens of the Philippines bur at residing
within the Philippines including foreign individuals who have stayed in the Philippines
for more than one year from date of arrival.
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2. Nonresident Aliens (NRA) are foreign individuals whose residences are not within the
Philippines. There are two types:
a. Those engaged in trade or business within the Philippines (NRAETB)
Those who have stayed within the Philippines for more than 180 days during the
taxable year shall be deemed nonresident aliens doing business in the Philippines. A
nonresident alien who is engaged in trade or business and has business income in
the Philippines also belongs in this group.
b. Those not engaged in trade or business within the Philippines (NRANETB)
They are nonresident foreign individuals who have stayed within the Philippines for
only 180 days or less, and have no business income derived within the Philippines.
II. Taxes on Individuals
Taxes on individual taxpayers are classified as:
1. Income tax (Normal graduated tax)
This is the tax that we have discussed from the very start. The tax rated to be used in
computing income tax due of an individual taxpayer is the normal graduated tax or
income tax table.
If Taxable Income is: Tax Due is:
Not over
ZERO
P250,000
Over P250,000 but not over P400,000 20% of the excess over P250,000
Over P400,000 but not over P800,000 P30,000 + 25% of the excess over P400,000
Over P800,000 but not over P2,000,000 P130,000 +30% of the excess over P800,000
Over P2,000,000 but not over P8,000,000 P490,000 +32% of the excess over P2,000,000
Over P8,000,000 P2,410,000 +35% of the excess over P8,000,000
Individual taxpayer’s taxable income subject to normal (tabular) tax is income derived
from compensation, business and profession. It may also include capital gains and
passive income not subjected to final taxes.
2. Passive income tax
3. Capital gains tax
- Let us discuss these two in the next module.
Taxable income
We have been computing taxable income in the last few modules. I hope you are
already familiar with it. The amount of taxable income is the basis of income tax rate
to arrive at income tax due.
If you are not yet familiar and to give you a complete look of the computation, let me
provide this general computation format. (Nilagyan ko ng mga numero imbes na “X”
para masmadaling matanggap. I mean, maintindihan)
Illustration 1.0
Gross compensation income (the taxable ones) P 100
Less: Health/Hospitalization insurance paid* 10
Net taxable Compensation Income 90
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Learning Modules in INCOME TAXATION
Business Income:
Sales P 80
Less: Cost of Goods Sold 20
Gross Income 60
Less: Allowable Deductions 10
Taxable Business Income 50
Add: Capital Gains 5
Passive Income 12
TOTAL TAXABLE INCOME 67
157
Net Taxable Compensation Income / Taxable Business Income / Capital Gains / Passive
Income – lahat yan ay TAXABLE INCOME, specifically. So, kung walang trabaho,
capital gains at passive income ang tao jan sa illustration, ang kanyang taxable
income ay 50, yung Taxable Business Income.
Illustration 2.0.
Mario Kutapa started working for DoMc in May 10, 2000. He retired this June 1, 2020.
All Salaries received 400,000
Commission 2,000
Overtime Pay 42,000
Interest income from time deposit in the BPI 3,000
Royalty income from mining, net of final tax 70,000
Juan received his very first retirement pay of P200,000 from BIR approved retirement
program, also fair and equitable, of Jobillee. Juan celebrated his 62nd birthday in
October, 12, 2020.
He started a business that resulted to the following for 2020:
110,000 Sales
60,000 Cost of Goods Sold
10,000 Allowable Deduction
How much is the tax due?
Answer:
The first thing to do is to compute for the Taxable Income
All Salaries received 400,000.00
Commission 2,000.00
Overtime Pay 42,000.00
Less: Health/Hospitalization insurance paid -
Net Taxable Compensation Income 442,000.00
Business Income:
Sales 110,000.00
Less: Cost of Goods Sold 60,000.00
Gross Income 50,000.00
Less: Allowable Deductions 10,000.00
Taxable Business Income 40,000.00
Capital Gains -
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Passive Income - 40,000.00
Total Taxable Income 482,000.00
To compute for the tax due, use the income tax table.
Saan kabilang ang 482,000?
Sa Over P400,000 but not over P800,000
Sundin lang yung guidelines na nakabit dito.
So, ang sabi, P30,000 (ito yung kumbaga minimum tax sa level na ito) PLUS 25% na
sobra mula sa P400,000.
Kung gagawin mo yang formula, ganito ang itsura. Tax Due = 30,000 + [25% X
(taxable income - 400,000)]
Tax Due = 30,000 + [25% X (482,000 - 400,000)]
Tax Due = 30,000 + [25% X 82,000]
Tax Due = 30,000 + 20,500
Tax Due = 50,500
So, ang income tax niya ng 2020 is P50,500
Illustration 3.0.
Raul Baul, 44 years old, has been working in McDid from October 1, 2015. He retired
in June 30, 2020, wherein he received his final monthly salary.
28,000.00 Monthly salary
40,000.00 Total commission
28,000.00 13th month pay
1,200.00 Daily salary that was used in computing the 54 monetized vacation and sick leave of Kid.
70,000.00 Retirement benefit under a reasonable private plan. First availement of Kid.
15,000 Company anniversary bonus
200.00 Monthly laundry allowance
He also started a business in 2019. In 2019, he filed a net loss of P65,000 to BIR.
In 2020, his business resulted to the following:
1,221,000 Sales
594,000 Cost of Goods Sold
29,000 Allowable Deduction
Answer:
Monthly salary 168,000.00
Total commission 40,000.00
Retirement benefit 70,000.00
13th month pay and other benefits:
13th month pay 28,000.00
Excess of monetized leaves over its ceiling (54-10) X P1,200.00 52,800.00
Excess of anniversary bonus over its ceiling (P15,000 - P10,000) 10,000.00
Total 90,800.00
Less: Ceiling 90,000.00
800.00 800.00
Net Taxable Compensation Income 278,800.00
Business Income:
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Sales 1,221,000
Less: Cost of Goods Sold 594,000
Gross Income 627,000
Less: Allowable Deductions 29,000
Taxable Business Income 598,000
Less: Special Deduction - NOLCO 65,000
Taxable Business Income 533,000
Total Taxable Income 811,800.00
To compute for the tax due, use the income tax table.
Saan kabilang ang 811,800?
Sa Over P800,000 but not over P2,000,000
Sundin lang yung guidelines na nakabit dito.
So, ang sabi, P130,000 (ito yung kumbaga minimum tax sa level na ito) PLUS 30% na
sobra mula sa P800,000.
Kung gagawin mo yang formula, ganito ang itsura. Tax Due = 130,000 + [30% X
(taxable income - 800,000)]
Tax Due = 130,000 + [30% X (811,800 - 800,000)]
Tax Due = 130,000 + [30% X 11,800]
Tax Due = 130,000 + 3,540
Tax Due = 133,540
So, ang income tax niya ng 2020 is P133,540
III. Income Tax Return and Filing
I am pretty sure you already heard about Income Tax Return. Basically, this is the BIR
document that Income Tax players are sending to BIR, showing the computation of
the tax due.
So, how do an individual pay his Income Tax?
A. For Individual, employed, not doing business
If an individual is employed with only one employer during the taxable year, the
corresponding withholding tax every month for the whole year will be accurately
deducted.
Employer (yung pinagtratrabahuan nung income tax payer) will furnish the employee
with form 2316 which will serve the same purpose as the of BIR Form 1700 (Tax
Return for Employed, not doing business).
BIR Form 2316 is a sworn declaration of the employer of the compensation payment
to an employee (with or without tax withheld) and the amount of creditable tax
withheld.
What is creditable tax withheld or withholding tax?
Maalala ang salary expenses? Di ba, allowable deduction ito. Maalala ba yung
requirement para maging allowable deduction ito para sa business?
Dapat mag-withold ng tax ng mga pinapasweldo. Ano ang ibig sabihin nito?
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Learning Modules in INCOME TAXATION
Ang business o employer ay kukuha/babawasan ang sweldo ng mga empleyado
(percentage ito ng sweldo), para i-remit sa BIR bilang income tax nung empleyado.
Kumbaga, sila na ang nagkokolekta ng ilang bahagi ng income tax ng mga empleyado
para ibigay sa BIR.
Kumbaga, kung ang buwanang sweldo ng isang empleyado ay P40,000 at kung ang
computation ay nagsasabi na magwitheld ng P5,000 ang employer, dapat P35,000
lang ang makukuhang cash ng empleyado.
Ngayon, bakit ito gagawin ng employer/business?
Kasi yung ang requirement para maging deductible (pambawas sa business income /
pambawas ng tax due) yung P40,000 na salary nung empleyado.
B. For Individual, employed, with several employers during the year, not doing business
Under this case, the individual taxpayer is required to accomplish form 1700 and
attach to it the form 2316 furnished by his employers.
Illustration 4.0
For year 2021, his employers furnished Mr. Jun Fuentes with the following BIR Form
2316:
Employer A Employer B
Nontaxable Compensation 10,000 0
Taxable Compensation 140,000 408,000
Income tax withheld 11,000 39,000
So, how much is his tax due?
Taxable Compensation Income (140,000 + 480,000) 620,000
Business Income 0
Taxable Income 620,000
Tax Due = 30,000 + [25% X (620,000 - 400,000)]
Tax Due = 30,000 + [25% X 220,000]
Tax Due = 30,000 + 55,000
Tax Due = 85,000
So, the tax that the taxpayer should pay for his income of 2021 is P85,000. But, how
much should he pay when he now submits his form 1700 to BIR?
Tax Due 85,000
Less: Tax Credit – withholding tax
Employer A 11,000
Employer B 39,000 50,000
Income tax still due 35,000
Why P35,000? Di ba yung P50,000 binawas na ng mga employer niya at binayad na sa
BIR? So, yung P35,000 na lang ang hindi pa nababayaran.
C. Individual, employed and doing business
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Under this case, the taxpayer’s income tax return should be reported in BIRT Form
1701Q for the first three quarters and BIR form 1701 for the annual income tax return.
In real life, businesses files quarterly tax and pay income tax with it. Let us call those
income tax payment as quarterly income tax.
Illustration 5.0
Mr. Manuel Layco, a businessman and also working, received a BIR Form 2316 with
the following:
P250,000 Taxable Compensation
6,000 Income tax withheld
Layco’s business income, expenses and quarterly income tax paid were as follows:
First Quarter Second Quarter Third Quarter
Business Income 120,000 270,000 390,000
Allowable Deductions 90,000 200,000 250,000
Taxable Income 30,000 70,000 140,000
Quarterly Income Tax 2,500 8,500 22,500
Less: Payment previous quarters 0 2,500 8,500
Quarterly Income Tax Payment 2,500 6,000 14,000
Note: Hindi na pinakita yung computation ng Quarterly Income tax para hindi na
masyadong komplikado. Ngayon, yang nacocompute na Quarterly Income Tax ay
cumulative.
Kapag sinabing cumulative, hindi lang yan Quarterly Income Tax ng quarter na yun,
bagkus kasama yung past quarter ng current year.
Di ba, ang first quarter ng taon ay January to March? Sa January to March, ang
Quarterly Income tax ay P2,500. Yung P8,500 ay hindi Quarterly Income tax lang ng
2nd quarter (April to June), kundi ng first at 2nd quarter (PINAGSAMA / CUMULATIVE).
So, yung P8,500 ng 2nd Quarter ay Quarterly Income Tax mula January hanggang June.
Now, cumulative din po yung mga Business Income, Allowable Deduction at Taxable
Income jan sa illustration.
Suppose that in the fourth quarter the business reported the following for the entire
year of operation:
P600,000 Sales
100,000 Cost of Goods Sold
250,000 Allowable Deductions
In this case, Mr. Layco should report his income tax return (BIR Form 1701) as follows:
Taxable Compensation Income 250,000
Business Income:
Sales 600,000
Less: Cost of Goods Sold 100,000
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Gross Income 500,000
Allowable Deduction 250,000
Taxable Business Income 250,000
Total Taxable Income 500,000
Tax Due = 30,000 + [25% X (500,000 - 400,000)]
Tax Due = 30,000 + [25% X 100,000]
Tax Due = 30,000 + 25,000
Tax Due = 55,000
How much should he still pay when he submits his BIR Forms?
Income Tax Due 55,000
Less: Tax credits
Withholding tax 6,000
Quarterly Income Tax Payment 22,500 27,500
Income Tax still due 26,500
Self
Test
TAX DUE: Compute for the6Tax Due for 2020
Raul Baul, 44 years old, has been working in McDid from October 1, 2015. He retired
in June 30, 2020, wherein he received his final monthly salary.
28,000.00 Monthly salary
40,000.00 Total commission
28,000.00 13th month pay
1,200.00 Daily salary that was used in computing the 54 monetized vacation and sick leave of Kid.
70,000.00 Retirement benefit under a reasonable private plan. First availement of Kid.
15,000 Company anniversary bonus
200.00 Monthly laundry allowance
He also started a business in 2019. In 2019, he filed a net loss of P65,000 to BIR.
In 2020, his business resulted to the following:
221,000 Sales
94,000 Cost of Goods Sold
29,000 Allowable Deduction
QUIZ
TAX DUE: Compute for the Tax Due of 2020
Kay Apaba is a businesswoman and an employee of a motorcycle parts store.
For her business, she recorded the following from 1st to 3rd quarter of 2020 and paid
the corresponding quarterly income tax.
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Sales Cost of Goods Sold Allowable Deductions
1st 77,000 45,000 17000
2nd 160,000 94,000 40000
3rd 290,000 157,000 61000
For the year, the business ended up with:
Sales 347,000
Cost of Goods Sold 188,000
Allowable Deductions 82,000
For her employment, she received the BIR form with the following:
Total Salary 1,200,000
Overtime Pay 46,000
Withholding tax 140,000
Compute the tax due of Miss Apaba and the amount that she should pay when she
submits her Income Tax Return.
SELF TEST –
Monthly salary Answers240,000.00
(6)
Total commission 52,000.00
Retirement benefit 110,000.00
Net Taxable Compensation Income 402,000.00
Business Income:
Sales 404,000
Less: Cost of Goods Sold 195,000
Gross Income 209,000
Less: Allowable Deductions 43,000
Taxable Business Income 166,000
Less: Special Deduction - NOLCO 32,500
Taxable Business Income 133,500
Total Taxable Income 535,500.00
To compute for the tax due, use the income tax table.
Saan kabilang ang 811,800?
Sa Over P800,000 but not over P2,000,000
Sundin lang yung guidelines na nakabit dito.
So, ang sabi, P130,000 (ito yung kumbaga minimum tax sa level na ito) PLUS 30% na
sobra mula sa P800,000.
Kung gagawin mo yang formula, ganito ang itsura. Tax Due = 130,000 + [30% X
(taxable income - 800,000)]
Tax Due = 130,000 + [30% X (811,800 - 800,000)]
Tax Due = 130,000 + [30% X 11,800]
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Tax Due = 130,000 + 3,540
Tax Due = 133,540
So, ang income tax niya ng 2020 is P133,540
References
Valencia, Edwin G. & Roxas, Gregorio R., 2009. Income
Taxation. Valencia Educational Supply.
Ballada, Win, & Ballada, Susan 2015. Income Taxation.
Domsdane Publisher.
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