INCOME TAX (INDIVIDUALS, ESTATES,TRUSTS)

1. Classification of Individuals

a. Citizens 1) Those who are citizens of the Philippines at the time of the adoption of the
Constitution(2/2/1987);
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 Phil who establishes to the satisfaction of the Commissioner the fact of his
citizen physical presence abroad with a definite intention to reside therein;
2) A citizen of the Phil who leaves the Phil during the taxable year to reside abroad, either as
immigrant or for employment on a permanent basis;
3) A citizen of the Phil who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time (at least 183days) during
the taxable year;
4) A citizen who has been previously considered as non-resident citizen and who arrives in the Phil
at any time during the taxable year to reside permanently in the Phil shall likewise be treated as
non-resident citizen for the taxable year in which he arrives in the Phil with respect to his income
derived from sources abroad until the date of his arrival in the Phil;
5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Phil to
reside permanently abroad or to return to and reside in the Phil as the case may be.
b. 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 Phil
1. Resident alien An individual whose residence is within the Phil and who is not a citizen thereof.
1) An alien who lives in the Philippines with no definite intention as to his stay;
2)One who comes to the Phil for a definite purpose which in its nature would require an extended
stay and to that end makes his home temporarily in the Phil, although it may be his intention at all
times to return to his domicile abroad;
3) An alien who has acquired residence in the Phil retains his status as such until he abandons the
same and actually departs from the Phil
2. Non-resident An individual whose residence is not within the Phil and who is not a citizen thereon.
alien 1) One who comes to the Phil for a definite purpose which in its nature may be promptly
accomplished
2) A non-resident alien individual who shall come to the Phil 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 Phil”

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.

3. Tax Base and Tax Rate

Taxpayer Tax Base Tax Rate

a. Resident citizen Net income within and without Sec. 24 (A)
b. Non-resident citizen Net income within Sec. 24 (A)
c . Resident alien Net income within Sec. 24 (A)
d. Non-resident alien engaged in trade or business Net income within Sec. 25 (A) (1)
e. Non-resident alien not engaged in trade or business Gross income within Sec. 25 (B)
f. Estate and trust Net income within and without Sec. 24 (A)

4. Personal Exemptions

a. Personal exemptions defined Personal exemptions are arbitrary amount allowed in the nature of a deduction from
gross or net income for personal, living or family expenses of the taxpayer. These
have been calculated to be roughly equivalent to the minimum of subsistence.
b. Kinds of personal exemptions
5. Basic personal exemption
a. Taxpayers allowed to
claim basic personal
exemption
b. Amount of basic
personal exemption
c. Amount of Personal
exemption allowed to non-
resident alien doing
business in the Phil (non-
resident alien engaged in
trade or business)
6. Additional Exemptions
a. Taxpayers allowed
additional exemptions
b. Amount of additional
exemption
c. Maximum number of
dependent child
d. Dependents for additional
exemption
e. Requisites for qualifications
of a dependent child
f. Foster Child
g. Proper claimant of
additional exemption
h. Claimant of additional
exemption in case of legally
separated spouses
1) Basic personal exemption
2) Additional exemptions
1) Resident citizens;
2) Non-resident citizens;
3) Resident aliens;
4) Non-resident aliens doing business in the Phil ( subject to reciprocity)
5) Estates and Trusts
Amount allowed
1) Single (including married but legally separated,widow, widower) P 50,000
2) Head of the family 50,000
3) Married ( for each working spouse) 50,000
4) Estate and trust 20,000
a. Conditions for allowance:
1) The foreign country of which the NRA-ETB is a subject or citizen has an income tax
law;
2) The NRA-ETB’s country allows personal exemptions to citizens of the Phil not
residing therein
3) The NRA-ETB files a true and accurate return of his income from all sources within
the Phil
b. Amount allowed: The lower between what is allowed in the NRA-ETB’s country and
what is allowed in the Phil
1) Resident citizens; 3) Resident aliens;
2) Non-resident citizens; 4) NRA-ETB (subject to reciprocity)
P 25,000 per dependent child
Four (4) dependent children
1) Legitimate child 4. Foster Child
2) Illegitimate child 5. PWDs
3) Legally adopted child
1) Chiefly dependent upon the taxpayer; 4) Unmarried
2) Living with the taxpayer ; 5) Not gainfully employed
3) Not more than 21 years old;
For purpose of R.A. 10165 (Foster Care Act of 2012), a “child” refers to a person below
18 years of age, or one who is over 18 but is unable to fully take care of, or protect,
himself from abuse, neglect, cruelty, exploitation or discrimination because of a
physical or mental disability or condition. (IRR of RA 10165)
The definition of the term “dependent” has been amended to include a “Foster Child.”
Thus, a foster parent shall be allowed an additional exemption of P25,000.00 for each
qualified dependent, provided that the total number of qualified dependents, including
a foster child, shall not exceed (4).
This additional exemption shall be allowed only if the foster child care is at least a
continuous period of one (1) calendar year.
1) The husband shall be the proper claimant of the additional exemption for qualified
dependent children unless he explicitly waives his right in favour of his wife in the
Application for Registration (BIR Form No. 1902) or the Certification of Update of
Exemption and Employer’s and Employee’s Information (BIR Form No. 2305),
whichever is applicable.
2) Where the spouse of the employee is unemployed or is a non-resident citizen
deriving income from foreign sources, the employed spouse within the Phil shall be
automatically entitled to claim the additional exemption for children.
1) The additional exemption may be claimed only by the spouse who has custody of
the child or children;
2) The total amount of additional exemption that may be claimed by both shall not

i. Computation of married
individuals’s income tax
exceed the maximum additional exemption allowed
1) For married individuals, the husband and wife shall compute separately their
individual income tax based on their respective total taxable income
2) 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

7. Optional Standard Deductions (OSD) (RR No. 16-2008 as amended by RR No. 2-2010)

a. Persons covered The following may be allowed to claim OSD in lieu of the itemized deductions (i.e. items of
ordinary and necessary expenses allowed under Section 34 (A) to (J) and (M), Section 37, other
special laws, if applicable:
a. Individuals b. Taxable Estates and Trusts
(1) Resident citizen c. Corporations
(2) Non-resident citizen (1) Domestic corporation
(3) Resident alien (2) Resident foreign corporation
b. Determination of a. The OSD allowed to individual taxpayers shall be a maximum of forty percent (40%) of gross
the amount of OSD sales (if on accrual basis) or gross receipts (if on cash basis) during the taxable year.
for individuals b. The “cost of sales” in case of individual seller of goods, or the “cost of services” in the case of
individual seller of services, are not allowed to be deducted for purposes of determining the
basis of the OSD
c. For other individual taxpayers allowed by law to report their income and deductions under a
different method of accounting (e.g. percentage of completion basis, etc.) other than cash and
accrual method of accounting, the “gross sales” or “gross receipts” shall be determined in
accordance with aid acceptable method.
c. Individuals a. Those exempt under the Tax Code, as amended, and other special laws with no other taxable
taxpayers not entitled income (e.g. Barangay Micro Business Enterprise (BMBE));
to avail of OSD and b. Those with income subject to special/ preferential tax rates; and
only itemized c. Those with income subject to income tax rate under Section 24 of the Tax Code, as
deductions method amended, and also with income subject to special/ preferential tax rates

8. Premium Paid on Health and/or Hospitalization Insurance

a. Deductible Premium
b. Amount of deductible
premium
c. Gross income of family that
can claim premium deduction
d. Total family income
e. Examples of nuclear family
f. Claimant of premium
deduction
Premium on health and/or hospitalization insurance taken by the taxpayer for himself,
including his family and paid during the taxable year
P 2,400 per family per year or 200 per month whichever is lower
The family’s total gross income does not exceed P250,000 for the calendar year
Total family income includes primary income and other income from sources received
by all members of the nuclear family
1) Father, mother, unmarried children living together as one household;
2) Single parent with child;
3) Single person living alone
In case of married taxpayers, the spouse claiming the additional exemption for qualified
dependent children shall be the same spouse to claim the deduction for premium paid

9. Head of Family

a. Meaning of head of The term “head of family” means an unmarried or legally separated man or woman with any
family one of the following dependent:
1) one or both parents;
2) one or more brothers or sisters; one or more legitimate, illegitimate, recognized natural or
adopted child;
3) senior citizen;
4) person with disability
b. Requisites or Brother, sister Senior Person with
qualifications of or child Parent/s Citizen disability
dependents of head
Living with the taxpayer √ √ √ √
of family
Dependent upon the taxpayer
or benefactor for chief support √ √ √ √
Not more than 21 years old √
 Unmarried √
Not gainfully employed √

c. Person with 1) A person with disability, whether minor or of legal age, and who is a Filipino citizen, who may
disability or may not be related to his benefactor and who is living with and dependent upon such
benefactor for his/her chief support shall qualify as a dependent (Section 2 d, Revenue
Regulations No. 1-2009)

2) Person with disability shall refer to an individual suffering from restriction or different
abilities, as a result of mental, physical or sensory impairment to perform activity in a manner
or within the range considered normal for human being ( Section 2 b, Revenue Regulations No.
1-2009)

3) The benefactor of a person with disability may only be entitled to claim the new additional
exemption of P 25,000 per qualified dependent child (not exceeding 4) if the person with
disability is his legitimate, illegitimate or legally adopted child, whether minor or of legal age. In
other words, for purposes of additional exemption the benefactor will be entitled to the
additional exemption unless that benefactor is a “parent” of the person with disability (Sec. 7,
RR No. 1-2009)
d. Senior citizen 1) Senior Citizen or elderly shall refer to any resident Filipino aged 60 years old and above
2) May apply to senior citizens with “dual citizenship” status provided they prove their Filipino
citizenship and have at least 6 months residency in the Philippines.
2) The senior citizen, whose annual taxable income does not exceed the poverty level as
determined by the NEDA for corresponding taxable year:
a) must be living with and
b) dependent upon his benefactor for his chief support
It shall be the duty of the benefactor of a senior citizen to register the senior citizen as his
dependent and himself as benefactor in the RDO having jurisdiction over the place where he
and the senior citizen reside
3) Benefactor shall refer to any person, whether related to the senior citizen or not, who takes
care of him/her as his dependent
4) The benefactor of a senior citizen shall NOT however be entitled to claim the additional
exemption of P 25,000 per dependent (not exceeding four) allowable only to a married
individual or head of family with qualified dependent child/ children under Sec. 35 (B) of the
Tax Code. (Sec. 7, R.R. No. 4-2006)
e. Exemptions and 1) If the returnable income of a Senior Citizen is in the nature of compensation income but he
discounts of senior qualifies as a minimum wage earner, he shall be exempt from income tax on the said
citizen s compensation. He is also exempted from income tax if his taxable income does not exceed his
personal exemptions
2) All establishments, supplying certain goods and services for their exclusive use and
enjoyment or availment, shall give a discount of 20%.
3) The monthly utilization of water and electricity by the Senior Citizen supplied by public
utilities will be subject to a 5% discount upon concurrence of certain conditions.
4) 50% discount for electricity, water and telephone consumption if consumed by a Senior
Citizen Center administered by the Government or domestic NGOs organized and operated
primarily for the purpose of promoting the well-being of abandoned, neglected, unattached or
homeless Senior Citizens
5) Sale of any goods and services to Senior citizens shall be exemp from the value-added tax
(e.g. medicines, professional fees of attending physicians and licensed health workers, medical
and dental services, actual fare for land transportation travel as well as air transport services
and sea shipping vessels, utilization of services in hotels and similar lodging places, restaurants
and recreation centers, admission fees charged by theatres, cinema houses etc. funeral and
burial services for the death of Senior Citizen).
f. Meaning of “living The term “living with” does not necessarily mean actual or physical togetherness at all times
with” and under all circumstances. As long as the other requirements of the law are met, the
dependent is considered living with the taxpayer, hence qualified, even if he is not in actual
physical togetherness with taxpayer.
g. Meaning of “chief “Chief support” means principal or main support, not just partial support. It means that the
support” taxpayer is giving more than 50% of the dependent’s need for food, clothing and shelter.

10. Rules in Change in Status

a. Taxpayer marries or shall
have additional dependents
during the taxable year
b. Taxpayer dies during the
taxable year
c. The spouse or any of
dependent dies, dependent
marries, becomes 21 years old
or becomes gainfully employed
If the taxpayer marries or shall have additional dependents during the taxable year,
the taxpayer may claim the corresponding additional exemption, as the case may
be, in full for such year.
If the taxpayer dies during the taxable year, his estate may still claim the personal
and additional exemptions for himself and his dependents as if he dies at the close
of such year
If the spouse or any of the dependents dies or if any of such dependents marries,
becomes 21 years old or becomes gainfully employed during the taxable year, the
taxpayer may still claim the same exemptions as if the spouse or any of the
dependents dies or if such dependent marries, becomes 21 years old or becomes
gainfully employed at the close of the taxable year.

11. Minimum Wage Earner

a. Exemption from Income A minimum wage earner is exempt from income tax on minimum wage; holiday
Tax pay; overtime pay; night shift differential pay; and hazard pay

b. Employers of MWEs and
required to issue original
and duplicate BIR Form
No. 2316
Employees in the public sector with compensation income of not more than the
SMW in the non-agricultural sector; as fixed by Regional Tripartite Wage and
Productivity Board or National Wages and Productivity Commission, applicable to
the place where he/ she is assigned are exempt from income tax. (Section 1,
Revenue Regulations No. 10-2008 pages 3 and 4.)
Employers of MWEs are required to issue original and duplicate BIR Form No. 2316
(Employees Withholding Statements) to the MWEs on or before January 31 of the
following year or if employment is terminated before the close of the calendar
year, on the day on which the last payment of compensation is made.

c. MWEs with other income
In cases covered by substituted filing, the employer shall furnish each employee
with the original copy of BIR Form No. 2316 and file/submit to the BIR the
duplicate copy not later than February 28 following the close of the calendar year.
Section 1 and 3 of RR No. 10-2008 are inconsistent with RA 9504. The treatment of
bonuses and other benefits that an employee receives from the employer in excess
of P30,000 (now P82,000) ceiling remains the same- anything in excess of P30,000
(now P82,000) is taxable. The treatment of this excess cannot serve to
disenfranchise the MWE from enjoying the exemption explicitly granted by RA
9504. (G.R.No. 184450, 184538, 185234 promulgated January 24, 2017).

d. MWEs whose income
exceeds the SMW during
the year
In sum, the proper interpretation of RA 9504 is that it imposes taxes only on the
taxable income received in excess of the minimum wage, but the MWEs will not
lose their exemption as such. Workers who received the statutory minimum wage
(SMW) as their basic pay remains MWEs. The receipt of any other income during
the year does not disqualify them as MWEs. They remain MWEs, entitled to
exemption as such, but the taxable income they received other than as MWEs may
be subjected to appropriate taxes.
The minimum wage earner (MWE) shall be exempted from income tax during the
time that his salary does not exceed the statutory minimum wage (SMW). He shall
be only be subjected to tax for the month (e.g. December) if his salary exceeds his
personal and additional exemptions. The employer should amend the year-end
adjustment to reflect the adjustment in salaries of the promoted employee.

12. Estate and Trust

a. Definition of estate Estate refers to the mass of all property, rights and obligations of a person which are not
extinguished by his death
b. Definition of trust Trust is a right on property, real or personal, held by one party for the benefit of another.

13. Important Pointers on Estates and Trusts

a. Estate as a taxpayer An estate is a taxpayer if it is under the settlement or administration

b. 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
c. When is the income
of the trust taxable to
the grantor
d. Treatment of income
distribution of the
year’s income to heir
or beneficiary
e. Computation of
taxable income of the
estate or trust
14. Several Trusts with a Common Grantor and a Common Beneficiary
a. Filing of separate returns
b. Consolidation of the
separate returns
c. Consolidated income tax
d. Apportionment of the
consolidated income tax to
the different trusts
e. Tax payable to each trust
15. Filing of Returns and Payment of Tax (Estate and Trust)
a. Who shall file the
return?
b. Gross income is P
20,000 or more
c. In case of two or more
joint fiduciaries
16. Income Tax Returns (Individuals, Estates and Trusts)
a. Pure compensation
income earner
b. Income from business
or practice of profession
c. Place of filing of return
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.
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
Gross Income P xxx
Less: Deductions
Business expenses P xxx
Distribution of year’s income to the heir/beneficiary xxx xxx
Net income before exemption xxx
Less: Personal exemption xxx
Taxable net income P xxx
Tax due [Sec. 24 (A)] P xxx
A separate return will have to be filed for each trust by the respective trustee or fiduciary
The separate return filed by the different fiduciaries shall be considered in the BIR
allowing against the consolidated taxable income one exemption only of P20,000
An income tax shall be computed on the consolidated income
The tax computed on the consolidated income shall be apportioned to the different
trusts, such that each trust shall have a share in the income tax on consolidated income
The format of computation follows:
Taxable income of the trust x Consolidated income tax
Taxable income of all trusts
Each trust shall pay an income tax still due computed as follows:
Income tax apportioned to the trust P xxx
Less: Income tax already paid by the fiduciary of the trust xxx
Income tax still due xxx
The following persons acting in any fiduciary capacity shall file the income tax return for an
estate or trust:
1) Guardians; 5) Receivers;
2) Trustees; 6) Conservators;
3) Executors; 7) All other persons or corporations acting as fiduciary
4) Administrators;
The return shall be filed if the estate or trust has a gross income of P 20,000 or more during
the taxable year
In case of two or more joint fiduciaries, return filed by one of them shall be a sufficient
compliance with the requirements of the Tax Code
The income tax return shall be filed on or before April 15 of the succeeding year
Quarterly declarations:
First quarter April 15
Second quarter August 15
Third quarter November 15
Final adjusted return April 15 of the succeeding year
1) Authorized agent banks;
2) Revenue District Officer;
 3) Collection agent;
4) Duly authorized city or municipal Treasurer in which the taxpayer has his legal residence
or principal place of business
d. Payments of tax The tax paid is paid as the return is filed
17. Summary of basic personal and additional exemption

Dependent Qualified as For Additional

Dependent Exemption
Legitimate child/children Yes Yes
Illegitimate child/ children Yes Yes
Adopted child/ children Yes Yes
Foster child/ children Yes Yes
Person with disability (child) Yes Yes
Person with disability (relative within the fourth degree of Yes Yes
consanguinity or affinity)
Parent/parents Yes No
Brother/s or sister/s Yes No
Senior citizen Yes NO

*Only qualified dependent children and PWD will qualify the taxpayer to additional exemption. Others qualify as
dependents but do not qualify the taxpayer to additional exemption.

END