INCOME TAX

INCOME TAXATION FOR

EMPLOYED AND SELF-EMPLOYED INDIVIDUALS
CHANGES IN INDIVIDUAL INCOME TAXATION
UNDER R.A. 10963 (TRAIN LAW)

1. TAX-EXEMPT COMPENSATION INCOME IS INCREASED TO P20,833 PER

MONTH.

2. TAX-EXEMPT ANNUAL INCOME IS INCREASED TO P250,000.

3. PERSONAL AND ADDITIONAL EXEMPTION FOR QUALIFIED DEPENDENTS IS
REMOVED.

4. TAX-EXEMPT 13TH MONTH AND OTHER BENEFITS IS INCREASED FROM 82,000

TO 90,000.
WHAT IS INCOME TAX?

INCOME TAX IS A TAX ON PERSON’S INCOME, EMOLUMENTS,

PROFITS ARISING FROM PROPERTY, PRACTICE OF PROFESSION,
CONDUCT OF TRADE OR BUSINESS.
IS INCOME TAX PAID IN ADVANCE?

A PERCENTAGE OR AN ESTIMATE OF INCOME TAX DUE ON SOME

INCOME IS COLLECTED BY THE GOV’T IN ADVANCE.

THERE ARE 2 METHODS OF PREPAYMENT OF INCOME TAX:

1. WITHHOLDING TAX ON COMPENSATION
2. EXPANDED WITHHOLDING TAX
WHO ARE REQUIRED TO PAY INCOME TAX?

1. RESIDENT CITIZENS RECEIVING INCOME FROM SOURCES WITHIN AND OUTSIDE

THE PHILIPPINES.

2. NON-RESIDENT CITIZENS RECEIVING INCOME FROM SOURCES WITHIN THE

PHILIPPINES.
3. NON-CITIZENS, WHETHER RESIDENT OR NON-RESIDENT RECEIVING INCOME
FROM SOURCES WITHIN THE PHILIPPINES.
WHAT ARE THE COMMON SOURCES OF INCOME?

1. INCOME FROM CONDUCT OF TRADE OR BUSINESS

2. INCOME FROM PRACTICE OF PROFESSION
3. INCOME FROM EMPLOYMENT
WHAT ARE THE COMMON TYPES OF INDIVIDUAL
TAXPAYERS?

1. COMPENSATION INCOME EARNERS

2. SELF-EMPLOYED AND PROFESSIONALS
3. MIXED INCOME EARNERS
WHAT ARE THE 2 TYPES OF TAXPAYERS EARNING
PURELY COMPENSATION INCOME?

1. STATUTORY MINIMUM WAGE EARNERS (SMWE)

2. REGULAR COMPENSATION EARNERS
MINIMUM WAGE EARNERS

REVENUE REGULATIONS 10-2008

COMPENSATION INCOME OF MINIMUM WAGE EARNERS ARE EXEMPT FROM
THE REQUIREMENTS OF WITHHOLDING TAX ON COMPENSATION AND FROM
INCOME TAX.

HOLIDAY PAY, OVERTIME PAY, NIGHT SHIFT DIFFERENTIAL, AND HAZARD PAY
SHALL LIKEWISE BE EXEMPT FROM WITHHOLDING TAX AND INCOME TAX.
MINIMUM WAGE EARNERS
HOWEVER, MWES RECEIVING ADDITIONAL COMPENSATION SUCH AS
COMMISSIONS
HONORARIA
FRINGE BENEFITS
BENEFITS IN EXCESS OF THE STATUTORY AMOUNT OF 90,000
TAXABLE ALLOWANCES, AND
OTHER TAXABLE INCOME
SHALL NOT ENJOY THE PRIVILEGE OF BEING A MWE.
REGULAR COMPENSATION EARNERS
(PURELY COMPENSATION INCOME)
EMPLOYEES EARNING INCOME GREATER THAN THE STATUTORY MINIMUM
WAGE ARE SUBJECT TO WITHHOLDING TAX ON COMPENSATION.

REVENUE MEMORANDUM CIRCULAR 1-2018

IN GENERAL, EVERY EMPLOYER PAYING COMPENSATION TO ITS EMPLOYEE/S
SHALL DEDUCT AND WITHHOLD FROM SUCH COMPENSATION A TAX DETERMINED
IN ACCORDANCE WITH THE PRESCRIBED REVISED WITHHOLDING TAX TABLES,
VERSION 2 (ANNEX “A”).
REGULAR COMPENSATION EARNERS
(PURELY COMPENSATION INCOME)
INDIVIDUALS EARNING
PURELY
COMPENSATION
INCOME SHALL BE
TAXED BASED ON THE
GRADUATED INCOME
TAX RATES
PRESCRIBED.
REGULAR COMPENSATION EARNERS
(PURELY COMPENSATION INCOME)
REGULAR COMPENSATION EARNERS
(PURELY COMPENSATION INCOME)
TOTAL TAXABLE COMPENSATION 15,500.00
LESS: COMPENSATION RANGE 10,417.00
EXCESS 5,083.00
REGULAR COMPENSATION EARNERS
(PURELY COMPENSATION INCOME)
WITHHOLDING TAX SHALL BE COMPUTED AS FOLLOWS:
TAX ON 10,417.00 0.00

TAX ON THE EXCESS (5,083.00 X 20%) 1,016.60

_____________________________________________________________________
TOTAL SEMI-MONTHLY WITHHOLDING TAX 1,016.60
WHAT IS ANNUALIZATION?

ANNUALIZATION IS THE PROCESS OF CONSOLIDATING ALL MONTHLY INCOME

AND TAXES WITHHELD THEREON AND COMPUTING THE ANNUAL TAX DUE.

THIS IS MADE TO ENSURE THAT TAX PREPAID THRU WITHHOLDING TAX ON

COMPENSATION AND EXPANDED WITHHOLDING TAX (EWT) IS EQUAL TO
ANNUAL INCOME TAX DUE.

ANY EXCESS OF TAXES WITHHELD OVER ANNUAL INCOME TAX DUE IS

RETURNED TO RESPECTIVE TAXPAYERS (TAX REFUND).
HOW TO COMPUTE ANNUAL INCOME TAX DUE
AND TAX REFUND IF THERE IS ANY
EXAMPLE: AN EMPLOYEE WITH A SALARY OF P25,000.00 PER MONTH EARNED THE FOLLOWING
DURING THE YEAR:

BASIC SALARY 288,074.40

13TH MONTH PAY 25,000.00
COMMISSION 30,000.00
MANDATORY CONTRIBUTIONS (SSS, PHIC, HDMF) 11,925.60
GROSS COMPENSATION 355,000.00
THE TOTAL TAXES WITHHELD FROM JANUARY TO NOVEMBER IS P18,000.
HOW TO COMPUTE ANNUAL INCOME TAX DUE
AND TAX REFUND

STEP 1. IDENTIFY AND SEPARATE THE TAXABLE AND NON-TAXABLE COMPENSATION.

TAXABLE NON-TAXABLE
BASIC SALARY 288,074.40 288,074.40
13TH MONTH PAY 25,000.00 25,000.00
COMMISSION 30,000.00 30,000.00
MANDATORY CONTRIBUTIONS 11,925.60 11,925.60
GROSS COMPENSATION 355,000.00 318,074.40 36,925.60
HOW TO COMPUTE ANNUAL INCOME TAX DUE
AND TAX REFUND

STEP 2. DETERMINE THE TAXABLE INCOME BRACKET USING THE REVISED INCOME TAX TABLE.

TAXABLE INCOME 318,074.40

INCOME BRACKET 250,000.00
EXCESS 68,074.40
HOW TO COMPUTE ANNUAL INCOME TAX DUE
AND TAX REFUND

ANNUAL INCOME TAX DUE SHALL BE COMPUTED AS FOLLOWS:

TAX ON INCOME BRACKET (250,000) 0.00
TAX ON THE EXCESS (68,074.40 X 20%) 13,614.88
INCOME TAX DUE 13,614.88
HOW TO COMPUTE FOR TAX REFUND
OR TAX STILL PAYABLE
TO COMPUTE FOR THE TAX REFUND OR TAX STILL PAYABLE, COMPARE THE
TOTAL WITHHOLDING TAXES WITHHELD FROM JANUARY TO NOVEMBER (OR UNTIL
1ST CUTOFF OF DECEMBER IF THERE IS TAX WITHHELD).
IF TOTAL WITHHOLDING TAXES WITHHELD > ANNUAL INCOME TAX DUE = TAX REFUND
IF TOTAL WITHHOLDING TAXES WITHHELD < ANNUAL INCOME TAX DUE = TAX STILL PAYABLE
IN OUR EXAMPLE:
TOTAL WITHHOLDING TAXES WITHHELD 18,000.00
ANNUAL INCOME TAX DUE 13,614.88
TAX REFUND 4,385.12
SELF-EMPLOYED AND PROFESSIONALS

THE RATE OF TAX OF PURELY SELF-EMPLOYED INDIVIDUALS AND/OR

PROFESSIONALS WHOSE GROSS SALES/RECEIPTS AND OTHER NON-OPERATING
INCOME DOES NOT EXCEED THE VAT THRESHOLD (3M) AS PROVIDED IN SECTION
109 (BB) OF THE TAX CODE, AS AMENDED, SHALL HAVE THE OPTION TO AVAIL
OF:

1. THE GRADUATED RATES UNDER SECTION 24 (A)(2)(A) OF THE TAX CODE, AS

AMENDED;

2. OR THE 8% TAX ON GROSS SALES OR RECEIPTS AND OTHER NON-OPERATING

INCOME IN EXCESS OF P250,000.00 IN LIEU OF THE GRADUATED INCOME
TAX AND PERCENTAGE TAX UNDER SECTION 116.
SELF-EMPLOYED AND PROFESSIONALS

SEC. 116 – TAX ON PERSONS EXEMPT FROM VAT

ANY PERSON WHOSE SALES OR RECEIPTS ARE EXEMPT UNDER SECTION 109
(BB) OF THE CODE FROM PAYMENT OF VAT AND WHO IS NOT A VAT-
REGISTERED PERSON SHALL PAY A TAX EQUIVALENT TO 3% OF HIS GROSS
QUARTERLY SALES OR RECEIPTS.
SELF-EMPLOYED AND PROFESSIONALS
EXAMPLE: MS. HEIDI MACABENTA, A SALES AGENT TO A MULTI-MILLION EDUCATIONAL
EQUIPMENT COMPANY HAS RECEIVED A TOTAL OF P2,360,000.00 IN COMMISSION FOR
THE YEAR. HER BUSINESS-RELATED EXPENSES TOTALED P160,000. SHE RECEIVED A
CERTIFICATE (2307) AMOUNTING TO P188,000.00FOR ALL EXPANDED WITHHOLDING
TAXES (8%) WITHHELD FROM HER COMMISSION.
IF SHE WOULD OPT FOR 8% INCOME TAX RATE, HER TAX WILL BE:
GROSS RECEIPTS 2,360,000.00
LESS: ALLOWABLE DEDUCTION 250,000.00
TAXABLE INCOME 2,110,000.00
TAX DUE (2,110,000.00 X 8%) 168,800.00
LESS: EWT (2307) 188,000.00
REFUND -19,200.00
SELF-EMPLOYED AND PROFESSIONALS
IF SHE FAILED TO SIGNIFY HER INTENTION TO BE TAXED AT 8%, INCOME TAX DUE WILL BE
COMPUTED USING THE GRADUATED INCOME TAX RATES AS FOLLOWS:
GROSS RECEIPTS 2,360,000.00 SHE WILL ALSO PAY
LESS: DEDUCTIBLE BUSINESS EXPENSES 160,000.00 3% PERCENTAGE
TAX PER SECTION
TAXABLE INCOME 2,200,000.00
116 OF THE TAX
PREDETERMINED TAX ON 2,000,000 490,000.00 CODE IN ADDITION
TAX ON THE EXCESS (200,000.00 X 32%) 64,000.00 TO INCOME TAX.
TAX DUE 554,000.00
2,360,000.00 X 3%
LESS: EWT (2307) 188,000.00 =70,800.00
TAX PAYABLE 366,000.00
MIXED INCOME EARNERS

THE AMOUNT P250,000.00 ALLOWED AS DEDUCTION UNDER THE

LAW FOR TAXPAYERS EARNING SOLELY FROM SELF-EMPLOYMENT OR
PRACTICE OF PROFESSION, IS NOT APPLICABLE FOR MIXED INCOME
EARNER UNDER THE 8% INCOME TAX RATE OPTION.
 THANK YOU!

JOHN STEVE Y. JEPOLLO, CPA

steve.jsjacctng@outlook.com