TOPIC: REGULAR INCOME TAX – GROSS INCOME

Aljon J. Roque, CPA, MBA - Exclusivity test - must be exclusively working for the
ROHQs or RHQs as a regular employee and not just a
consultant or contractual personnel. Exclusivity means
Characteristics of Regular Income Tax having just one employer at a time. (RR No. 11-2010)

1. General, in coverage
2. Net income tax
3. Annual Tax Nontaxable or Exempt Compensation
4. Creditable withholding tax
1. Excluded or exempted under NIRC and special laws
Gross Income xxx - Exempt retirement benefits under RA 7641 including
Less: exempt retirement gratuities to government officials
Allowable Deductions: xxx and employees
Personal Exemptions: xxx - Exempt termination benefits
Taxable Income xxx - Benefits from the US Veterans Administration
- Benefits from SSS and GSIS
Types of Gross Income subject to Regular Income Tax - Social security, retirement gratuities, pensions and
similar benefits from foreign government and agencies,
1. Compensation Income public or private.
2. Business or Professional Income - Employee mandatory contributions to SSS, GSIS,
3. Other income PHILHEALTH, HDMF and union dues
a. Gains from dealings in properties - Exempt benefits of minimum wage earners (basic
b. Other active or passive income not subject to final tax minimum wage, holiday pay, OT pay, hazard pay, night
or CGT shift differential pay)
c. Income distribution from a general professional - De minimis benefits
partnership, taxable trust or estate or from an exempt - 13th month pay and other benefits not exceeding
joint venture P82,000
2. Exempt under treaty or international organizations
Compensation Income - all remuneration for services performed by an 3. Benefits necessary to the trade, business or conduct of
employee for his employer, whether paid in cash or in kind, unless profession of the employer
specifically excluded under the Tax Code (e.g. salaries, wages, 4. Benefits for the convenience or advantage of the employer
emoluments, honoraria, bonuses, allowances, director’s fees).
De Minimis Benefits - are facilities or privileges furnished or offered
 Minimum wage earner – must not have other income aside by an employer to his employees that are of relatively small value and
from their minimum wage and exempt benefits (holiday pay, are offered or furnished by the employer merely as a means of
OT pay, hazard pay, night shift differential pay). Cost of promoting the health, goodwill, contentment, or efficiency of his
Living Allowance (COLA) should be treated as part of the employees.
minimum wage
- Must not receive any additional compensation income Item Ceiling
such as commissions, honoraria, fringe benefits,
benefits excess of P82,000, taxable allowances, any 1) Medical benefits given Actual medical assistance, e.g.
other taxable income to the employees by the medical allowance to cover medical
- Can avail the substituted filing of tax return employer and healthcare needs, annual
 Special Aliens – aliens holding managerial or technical
positions in a: medical/executive check-up,
- Regional or area HQ (RHQ) or regional operating HQ of maternity assistance, and routine
multinational companies consultations, not exceeding
- Offshore banking units P10,000 per annum
- Petroleum service contractors / subcontractors
2) Employee achievement Must be in the form of a tangible
Taxation: 15% on gross income except those subject to awards (e.g. for length personal property other than cash
FBT of service or safety or gift certificate with an annual
achievement)
monetary value not exceeding
Optional Final Income tax for Filipino employees: P10,000 received by the employee
- Position and function test - must occupy managerial under an established written plan
position or technical position AND must actually be which does not discriminate in
exercising such managerial or technical functions favor of highly paid employees
pertaining to said position;
3) Gifts given during Not exceeding P5,000 per employee
- Compensation threshold test - , a gross annual taxable Christmas and major per annum per employee. However,
compensation of at least P975,000 (whether or not this anniversary celebrations
is actually received.) chrismats gifts will fall under 13th

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 month pay and other benefits if govt - above rule doesn’t apply to Filipino employees, except
employee on below organizations:
1. United Nations
4) Uniforms and clothing Not exceeding P5,000 per annum 2. Specialized Agencies of the UN
allowance given to 3. Australian Agency for International Devpt (AUSAID)
employees by the 4. Food and Agricultural Organization (FAO)
employer 5. World Health Organization (WHO)
5) Rice subsidy granted by P1,500 (old P1,000) or one (1) sack 6. UN Devpt Programme (UNDP)
an employer to his of 50 kg. rice per month amounting 7. Intl Organization for Migration (IOM)
employees to not more than P1,500 ( R.R. 5- 8. Intl Seabed Authority (ISA)
2008 published in Manila Bulletin
April 25, 2008) - Filipino employees of Phil embassies or consulate
offices are not considered nonresident citizens and are
6) Laundry allowance Not exceeding P300 per month
subject to Phil income tax. Aliens are exempted.
7) Medical cash allowance Not exceeding P750 per semester
to dependents of or P125 per month. - Exemption from international agreements or treaty is
employees not automatic. Needs to be applied to Intl Tax Affairs
8) Daily meal allowance for Not exceeding 25% of the basic Division.
overtime work and minimum wage on a per region
night/graveyard shift basis Benefits necessary to the trade, business or conduct of
profession of the employer (necessity of the employer rule)
9) Monetized unused and benefits for the convenience or advantage of the
vacation and sick leave employer (convenience of the employer rule)
credits paid to govt - Regarded as business expenses since it implements the
officials and employees employer’s business to ensure the convenience
10) Monetized unused Not exceeding 10 days during the - Any excess should be treated as compensation income
vacation leave credits of year (rank and file) or fringe benefits (mgr/supervisor)
private employees
11) Benefits received by an Total annual monetary value Examples:
employee by virtue of a received from both CBA and
collective bargaining productivity incentive schemes do 1. Personnel Economic Relief Allowance (PERA)
agreement (CBA) and 2. Car incentives to doctors who are on-call anytime
not exceed P 10,000 per employee
productivity incentive 3. Scholarship grants to employees under contract to remain in
schemes (RA 6971) per taxable year
service for a specified period upon completion of the study
Note: All other benefits Not considered as “de minimis”
given by employers benefits and shall be subject to 13th Month Pay and Other Benefits
which are not income tax as well as withholding
1. 13th month pay
included in the tax as compensation income.
2. Other benefits
above enumeration
- Christmas bonus of private employees
- Cash gifts (other than Christmas or anniversary gifts of
private employees)
Rank and File Managerial & Supervisory - Additional compensation allowance of govt personnel
- 14th month pay etc
Regular Pay Compensation Income Compensation Income
- Other fringe benefits of rank and file employees
Fringe Benefits Compensation Income Fringe Benefit
Deadline of Filing and Remittance of the Withholding Taxes on
Compensation

Benefits Exempt under Treaty or International Agreements BIR FORM 1601 – C (Monthly Remittance Return of Income Taxes
Withheld on Compensation) – on or before 10th day of the following
- employee benefits of non-Filipino nationals and/or non-
month the withholding was made except for taxes withheld for
permanent residents of the Philippines from foreign
governments, embassies, or diplomatic missions, and December which shall be filed/paid on or before January 15 of the
international organizations in the Philippines are succeeding year
exempt from income tax
Who Are Required To File
Every registered withholding agent on compensation, which
includes, but not limited to the following:
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 1) Individuals engaged in business or practice of profession
with employees subject to income tax
2) All Juridical persons (e.g., Corporations, general
partnerships, associations, etc.) whether or not engaged in
business.
3) Government Agencies and Instrumentalities (e.g.,NGAs,
GOCCs, etc.), including local government units (LGUs)

Sec. 24 (A) – The tax shall be computed on taxable income in accordance with and at
the rates established in the following schedule (resident citizens, non-resident
citizens, resident alien, estate and trust):
(applicable only up to December 31, 2017)

Over But not over The tax shall be Plus Of excess over

P 10,000 5% - -

P 10,000 30,000 P 500 10% P 10,000

30,000 70,000 2,500 15% 30,000

70,000 140,000 8,500 20% 70,000

140,000 250,000 22,500 25% 140,000

250,000 500,000 50,000 30% 250,000

500,000 - 125,000 32% 500,000

Semi Monthly Withholding Tax Table (applicable only up to December