REGULAR INCOME TAX Individuals can be classified as follows:

CHARACTERISTICS OF THE REGULAR INCOME TAX 1. Pure compensation income earner

1. General in coverage 2. Pure business or professional income earner

2. A net income tax 3. Mixed income earner

3. An annual tax

4. Creditable withholding tax TAXABLE INCOME OF INDIVIDUAL INCOME TAX EARNERS

5. Progressive or proportional tax - Computed using Classification and Globalization Rule

THE REGULAR INCOME TAX MODEL Classification Rule

Gross income – inclusions xxx a. Compensation Income – arises from employer-employee

relationship
Less: Allowable deductions xxx
b. Business Income – arises from selling goods or rendering of
Taxable income xxx services for profit

Other taxable income - income that are either compensation income

or business income such as passive income
Gross Income – items that are neither excluded in gross income nor
subject to final tax or capital gains tax

Exclusions from Gross Income – items of income that are excluded; Taxable Income of Pure Compensation Income Earner
hence, exempted from regular income tax
Gross compensation income xxx
Allowable Deductions – expenses of the conduct of business or
exercise of profession, commonly known as business expenses Less: Non-taxable compensation xxx

Personal expenses – non-deductible against gross income Taxable compensation income xxx

Individuals that are not engage in business cannot claim deductions

from gross income
Taxable Income of Pure Business or Professional Income Earner Less: Allowable deductions xxx

Gross income from business or profession xxx Net income xxx

Add: Non-operating income xxx

Total Gross Income xxx Mixed Income Earner with Other Income

Less: Allowable deductions xxx Gross compensation income xxx

Taxable net income xxx Less: Non-taxable compensation xxx

Taxable compensation income xxx

Globalization Rule for Mixed Income Earner

Income of mixed earner from both sources is globalized or totaled. Gross business income xxx
Net loss when deductions exceed gross income from business or
profession shall not be offset against taxable compensation income. Add: Other gross income xxx

Total gross income xxx

Compensation Earner with Other Income Less: Deductions xxx

Gross compensation income xxx Taxable net income xxx

Less: Non-taxable compensation income xxx Taxable income xxx

Taxable compensation income xxx

Add: Other gross income xxx REPORTING FORMAT FOR INDIVIDUALS ENGAGED IN
BUSINESS OR PROFESSION
Taxable income xxx
Net Sales/Revenues/Receipts/Fees xxx

Add: Other taxable income from operation xxx

Business Earner with Other Income
not subject to final tax
Gross Business Income xxx
Total sales/Revenues/Receipts/Fees xxx
Add: Other gross income xxx
Less: Cost of sales/services xxx
Total gross income xxx
Gross income from business/profession xxx INDIVIDUAL INCOME TAX (YEAR 2018-2022)

Add: Non-operating income xxx Taxable Income per Year Income Tax Rate
250,000 and below 0%
Total Gross Income xxx Above 250,000 to 400,000 25% of the excess over 250K
Above 400,000 to 800,000 30,000 + 30% of excess over
Less: Allowable deductions xxx 400K
Above 800,000 to 2,000,000 130,000 + 32% of excess
Taxable income xxx over 800K
Above 2,000,000 to 8,000,000 490,000 + 32% of excess
over 2M
REPORTING FORMAT FOR CORPORATE TAXPAYERS Above 8,000,000 2,410,000 + 35% of excess
over 8M
Net sales/revenues/receipts/fees xxx

Less: Cost of sales/services xxx The progressive tax covers all individuals including taxable estates
and trusts except NRA-NETB which is subject to 25% final tax on
Gross income from operations xxx gross income.

Add: Other taxable income xxx

not subject to final tax THE OPTIONAL 8% INCOME TAX

Total gross income xxx For self-employed and/or professionals, they can opt to be taxed at
8% of sales or receipt and other non-operating income.
Less: Allowable deductions xxx
It shall be in lieu of the:
Net income xxx
a. Progressive income tax

b. 3% percentage business tax on sales or receipts

TYPES OF REGULAR INCOME TAX

1. Individual income tax

CORPORATE INCOME TAX
2. Corporate income tax
- The Regular Corporate Income Tax (RCIT) is a proportional or flat
tax at a rate of 30% on taxable income.
MINIMUM CORPORATE INCOME TAX (MCIT) DEADLINE OF FILING ITR

The minimum tax of corporate taxpayers is 2% of total gross income 15th day of the fourth month following the taxable year of the taxpayer
subject to regular tax.
The income tax due shall be paid upon filing.

SPECIAL CORPORATIONS
QUARTERLY FILING INCOME TAX RETURN
Those enjoying lower tax rates but not 0%, such as private schools,
non-profit hospitals, and PEZA and TIEZA-registered enterprises. - For corporations and individuals engaged in business and
those engaged in the practice of profession

Quarterly income tax Taxpayers

EXEMPT CORPORATIONS returns Individuals Corporations
1st Quarter May 15, same year 60 days end of 1st
Those enjoying 0% tax rate, such as govt agencies, non-profit orgs Qtr
with no taxable income, cooperatives, and those registered with the 2nd Aug. 15, same year 60 days end of 2nd
Board of Investments enjoying Income Tax Holiday. Qtr
3rd Nov. 15, same year 60 days end of 3rd
Qtr

INCOME TAX RETURNS

Individuals – 45 days from the end of the quarter
Tax return Individual tax payers
forms Corporations – 60 days from the end of the quarter
Form 1700 Purely employed taxpayer
1701A Purely in business or profession, using itemized,
OSD, or opting to the 8% optimal income tax
1701 Mixed income earners, Estates, and Trusts FREQUENCY OF REPORTING PER TAXPAYER TYPE
Corporate income taxpayers
Taypayer Frequency of tax reporting
1702-RT Corporations subject only to the 30% regular income
tax Individuals
1702-MX Corporations subject to special or a combination of Pure compensation income Annual
tax rates earner
1702-EX Corporations that is exempt with no tax due Purely engaged in business or Quarterly and annual
profession
Mixed income earner Quarterly and annual
Corporations Quarterly and annual
 EXCLUSIONS FROM GROSS INCOME b. Separation or termination

- Income not subject to income tax - Must be due to job-threatening sickness, deaths, or other
- Not included in gross income subject to regular tax, capital physical disability, or
gains tax, and final tax.
- Musts be due to any cause beyond control of the employee
1. Proceeds from life insurance policy or official

- paid to heirs or beneficiaries upon the death of the insured c. Social security benefits, retirement gratuities, and other
similar benefits from foreign govt agencies and other institutions,
- whether in single amount or otherwise private or public received by resident or non-resident citizens or aliens
who come to settle permanently in the Philippines
- but if such amounts are held by the insurer under an agreement to
pay interest thereon, the interest payments shall be included in gross d. US Veterans Administration (USVA) – administered benefits
income.
e. Social Security System benefits
- life insurance is a return of capital
f. GSIS Benefits
2. Amount received by the insured as a return of premium
7. Miscellaneous items
- however, proceeds of property insurance contracts in excess of the
tax basis of the property lost or destroyed is a taxable return on a. Income derived in investments in the PH in loans, stocks,
capital. bonds, or other domestic securities, or from interest on deposits in
banks in the PH by foreign govts, financing institutions owned,
3. Gifts, bequest, devises or descent controlled, or enjoying refinancing from foreign govt, international or
regional financial institutions established by foreign govts
4. Compensation for injuries or sickness
b. Income derived by the govt and its political subdivisions
5. Income exempt under treaty
from any public utility or exercise of essential govt function
6. Retirement benefits, pensions, gratuities and other benefits
c. Prizes and awards made primarily in recognition of religious,
a. Retirement benefit under RA 7641 and those received by charitable, scientific, educational, artistic, literary, or civic
officials and employees of private firms achievements

***Requisites of exemption: d. Prizes and Awards in Sports Competition granted to

athletes
- First time availment of retirement benefit exemption
- Has been in the service of the same employer for at least 10 e. Contributions for GSIS, SS, PhilHealth, Pag-Ibig and Union
years dues of individuals
- At least 50 years of age at the time of retirement
- The employer maintains a reasonable private benefit plan
 f. Contributions to Personal Equity Retirement Account INCLUSION IN GROSS INCOME
(PERA)
ITEMS OF GROSS INCOME
- PETA contributors are allowed to claim 5% of their PERA
contributions as tax credit against any internal revenue taxes 1. Gross income subject to final tax

g. PERA Investment and PERA distributions 2. Gross income subject to capital gains tax

h. 13th month pay and other benefits received by officials and 3. Gross income subject to regular tax
employees of public and private entities not exceeding 90,000

i. Gains from sale of bonds, debentures, or other certificate of ITEMS OF GROSS INCOME SUBJECT TO REGULAR TAX
indebtedness with a maturity of more than 5 years
1. Compensation for services for whatever form paid
j. Gains realized from redemption of shares in mutual fund
company by the investor 2. Gross income from the conduct of trade, business or exercise of
profession

3. Gains derived from dealings in properties

OTHER EXEMPT INCME UNDER THE NIRC AND SPECIAL LAWS
- Dealings in ordinary assets – subject to regular income tax
1. Minimum wage and certain benefits of minimum wage earners
- Dealings in capital assets other than domestic stocks and real
2. Income of Barangay Micro-Business Enterprises Act (RA 9178) properties – subject to regular income tax
3. Income of cooperatives (RA 9520) 4. Interest income (refers to interest income other than passive
4. Income of non-stock, non-profit entities interest income subject to final tax)

5. Income of qualifies employee trust funds 5. Rents

6. Royalties

- earned from sources within the PH, generally subject to final tax
except when active by nature

- Active royalty income and royalties earned from sources outside the
PH are subject to regular income tax

7. Dividends

- pertains to dividends declared by foreign corporations

- stock dividends are exempt from income tax 2. Share from net income of pass-through entities

- liquidating dividends is not income a. Exempt joint venture

8. Annuities b. Exempt co-ownership

- the excess of annuity payments received by the recipient over 3. Farming income
premium paid is taxable income in the year of receipt
4. Recovery of past deductions
9. Prizes and winnings
5. Reimbursement of expenses
For individuals:
6. Cancellation of indebtedness for a consideration
Earned from sources
Within Abroad
PRIZES:
10,000 below Regular tax Regular tax
More than Final tax Regular tax
10,000
PCSO and Final tax N/A
lotto,
exceeding
20,000
PCSO and Exempt N/A
lotto, not
exceeding
20,000
Winnings from Final tax Regular tax
other sources

10. Pensions

11. Partner’s distributable share from the net income of the general
professional partnership

OTHER SOURCES OF GROSS INCOME SUBJECT TO REGULAR

INCOME TAX

1. Income distributions from taxable estates or trusts

 COMPENSATION INCOME GROSS COMPENSATION INCOME

- Arises from employer-employee relationship - Generally includes all remunerations received under employer-
employee relationship

NON-TAXABLE COMPENSATION
ELEMENTS OF EMPLOYER-EMPLOYEE RELATIONSHIP
A. Mandatory deductions
1. Selection and engagement of employees
- Mandatory contribution to GSIS, SSS, PHILHEALTH, HDMF, and
2. Payment of wages union dues
3. Power of dismissal B. Exempt benefits
4. Power of control 1. Benefits excluded and/or exempted under NIRC and special laws

2. Benefits exempt under treaty or international arrangements

TYPES OF EMPLOYEES AS TO FUNCTION 3. Benefits necessary to the trade, business, or conduct of profession
of the employer
1. Managerial employees
4. Benefits for the convenience or advantage of the employer
2. Supervisory employees

3. Rank and file employees

BENEFITS EXCLUDED AND/OR EXEMPTED UNDER NIRC AND
SPECIAL LAWS
TYPES OF EMPLOYEES AS TO TAXABILITY
1. Remunerations received as incidents of employment
1. Minimum wage earners
a. exempt retirement benefits under RA 7641 including exempt
2. Regular employees retirement gratuities to govt officials and employees

b. exempt termination benefits

TAX MODEL ON COMPENSATION INCOME c. benefits from the US Veterans Administration

Gross compensation income d. Social security, retirement gratuities, pensions, and similar benefits
from foreign govt agencies and other institutions, private or public
Less: Non-taxable compensation
e. benefits from SSS
Taxable compensation income
f. benefits from GSIS 1. excess de minimis over their regulatory limits

2. De minimis benefits 2. other benefits of relatively small value that are not included in the
list of de minimis benefits
A. Monetized unused vacation leave credits of private employees
not exceeding 10 days during the year

B. Monetized unused vacation and sick leave credits paid to govt TREATMENT OF TAXABLE DE MINIMIS BENEFITS
officials and employees
a. rank and file employees – 13th month pay and other benefits
C. Medical cash allowance to dependents of employees not
exceeding 1,500 per employee per semester, or 375 per month b. managerial and supervisory employees – fringe benefit subject to
fringe benefit tax
D. Rice subsidy < 2,000 or 1 sack of 50 kg rice per month amounting
not more than 2000

E. Uniform and clothing allowance < 6000 per annum BENEFITS EXEMPT UNDER TREATY OR INTERNATIONAL
ARRANGEMENTS
F. Actual medical assistance < 10,000 per annum
Foreign embassy, Philippine embassy
G. Laundry allowance < 300 per month missions, or or consulate office
organization
H. Employee achievement award – tangible property other than IN THE PH
cash and gift certificates, with an annual monetary value not Filipino citizens Taxable (taxpayer N/A
exceeding 10,000 must prove if there is
an exemption grant
I. Gifts given during Christmas and major anniversary celebrations not under contract or
exceeding 5,000 per employee per annum special law)
Aliens Exempt N/A
J. Daily meal allowance for overtime work and night or graveyard shift ABROAD
< 25% of the basic minimum wage on a per region basis Filipino citizens Exempt Taxable
Alien Exempt Exempt
K. Benefits received by an employee by virtue of a collective
bargaining agreement (CBA) and productivity incentive schemes –
total monetary value do not exceed 10,000 per employee per
taxable year

BENEFITS NECESSARY TO THE TRADE, BUSINESS, OR

CONDUCT OF PROFESSION OF THE EMPLOYER
TAXABLE DE MINIMIS BENEFITS
 - Necessity of the employer rule 6. Fees including director’s fees (if director is an employee)
- Convenience of the employer rule
7. Emoluments and honoraria

8. Taxable retirement and separation pay

REGULAR COMPENSATION INCOME
9. Value living quarters or meals
- Fixed remunerations due to be received by an employee every
payroll period such as 10. Gains on exercise of stock options

1. Basic salary 11. Profit sharing and taxable bonuses

2. Fixed allowances such as cost-of-living allowance, fixed

housing allowance, representation, transportation, abd other 13TH MONTH PAY AND OTHER BENEFITS
allowances paid to an employee every payroll period
1. 13TH month pay

2. Other benefits
Non-compensation items
a. Christmas bonus of private employees
1. Fees (consultants, talents, and directors with no mgt function)
b. Cash gifts other than Christmas or anniversary gifts of
2. Commissions to non-employees private employees
3. Tips and gratuities c. Additional compensation allowance (ACA) of govt personnel

d. 14th month pay, 15th month pay, etc.

SUPPLEMENTARY COMPENSATION e. Other fringe benefits of rank and file employees
- Performance based remunerations with or without regard to
the payroll period
Government Private employees
1. Overtime pay employees
Christmas bonus 13th month pay and 13th month pay and
2. Hazard pay other benefits other benefits
th
Christmas gift 13 month pay and De minimis
3. Night shift differential pay
other benefits
4. Holiday pay

5. Commissions