T
R
A
I
REVISED
INDIVIDUAL
INCOME TAX
N
20
WHO ARE THE INDIVIDUAL
TAXPAYERS
Classification according to the source of income:
1.
Compensation income earners — Individuals whose source
of income is PURELY derived from an employer-employee
relationship
2. Self-employed — a sole proprietor or an independent
contractor who reports income earned from selfemployment. S/he controls who s/he works for, how the
work is done and when it is done. It includes those hired
under a contract of service or job order, and professionals
whose income is derived purely from the practice of
profession and not under an employer-employee
relationship.
21
WHO ARE THE INDIVIDUAL
TAXPAYERS
Classification according to the source of income:
3. Mixed Income Earner — an individual earning
compensation income from employment, and income from
business, practice of profession and/or other sources aside
from employment.
22
REVISED GRADUATED INCOME
TAX RATES (1ST tranche)
NEW GRADUATED INCOME TAX RATES
(Effective January 1, 2018 to December
31, 2022)
OLD GRADUATED
INCOME TAX RATES
Not over P250k
0%
Not over P10k
5%
Over P250k but not more
than P400k
20%
Over P10k but not more
than P30k
P500+10%
Over P400k but not more
than P800k
P30k + 25%
Over P30k but not more
than P70k
P2.5K + 15%
Over P800k but not more
than P2M
P130k + 30%
Over P70k but not more
than P140k
P8.5K + 20%
Over P2M but not more
than P8M
P490k +
32%
Over P240k but not more
than P250k
P22.5k + 25%
Over P8M
P2.4M +
35%
Over P250k but not more
than P500k
P50k + 30%
Over P500k
P125k + 32%
23
REVISED GRADUATED INCOME
TAX RATES (2nd tranche)
NEW GRADUATED INCOME TAX RATES
(Effective January 1, 2023 and onwards)
NEW GRADUATED INCOME TAX RATES
(Effective January 1, 2018 to December 31,
2022)
Not over P250k
0%
Not over P250k
0%
Over P250k but not more than
P400k
15%
Over P250k but not more than
P400k
20%
Over P400k but not more than
P800k
P22.5k +
20%
Over P400k but not more than
P800k
P30k +
25%
Over P800k but not more than
P2M
P102.5k +
25%
Over P800k but not more than
P2M
P130k +
30%
Over P2M but not more than
P8M
P402.5k +
30%
Over P2M but not more than
P8M
P490k +
32%
Over P8M
P2.2025M
+ 35%
Over P8M
P2.41M +
35%
EXCLUDED 13TH MONTH PAY
AND OTHER BENEFITS
➢
Non-taxable 13th month pay and other benefits ceiling has
been increased:
from: P82,000
to: P90,000
Additional exemption of P8,000.00
➢
The ceiling of P90,000 may be increased through rules and
regulations issued by the Secretary of Finance, upon
recommendation of the Commissioner, after considering
among others, the effect on the same of the inflation rate
at the end of the taxable year. (RR 11-2018)
25
REVISED GRADUATED
INCOME TAX RATES
Highlights:
✓
▪
✓
▪
The first P250,000 of total taxable income is now EXEMPT.
BUT, Basic personal and additional exemptions have been
removed as allowable /authorized deduction.
Amounts in each bracket range have been WIDENED.
AND, the tax rate in each bracket has been increased.
26
TRAIN vs. OLD INCOME
TAX COMPUTATION
Computation (for a purely compensation earner individual)
TRAIN
LAW
OLD
NIRC
Annual Taxable
Compensation
Less: APE
600,000
-
600,000
150,000
Taxable Income
600,000
450,000
30,000
50,000
50,000
60,000
80,000
110,000
Income Tax Due:
Not over P400k/P250k
In excess of P400,000
Annual income
tax savings
Php 30,000
Daily tax savings – P82.19 (using 365-day rule)
TRAIN vs. OLD INCOME
TAX COMPUTATION
INCOME BRACKET
Over
Over
Over
Over
Over
250,000.00
250,000.00
400,000.00
400,000.00
800,000.00
800,000.00 2,000,000.00
2,000,000.00 8,000,000.00
8,000,000.00 10,235,000.00
TRAIN
OLD NIRC
14,500.00
30,000.00 50,000.00
130,000.00 173,000.00
490,000.00 557,000.00
2,410,000.00 2,477,000.00
3,192,250.00 3,192,200.00
Maximum Daily Tax Savings – P183.56
Savings
(Loss)
14,500.00
20,000.00
43,000.00
67,000.00
67,000.00
(50.00)
OPTIONAL 8% GROSS
TAX (NEW)
✓
Tax rate and base:
8% of [gross sales and/or gross receipts and other nonoperating income, (in excess of P250,000, if
applicable)].
✓
8% gross tax is in lieu of:
i.
Income tax; AND
ii.
3% percentage tax (under Section 116 of the Tax
Code)
OPTIONAL 8% GROSS
TAX (NEW)
✓
Who are QUALIFIED to avail:
i.
Purely self-employed individuals and/or professionals;
OR
ii.
Mixed income earners (i.e., earning both
compensation income and income from business or
practice of profession;
iii. Whose Gross Sales or Gross Receipts and Other Nonoperating Income Do Not Exceed the VAT Threshold
as provided in Section 109(BB), ie., P3M threshold;
AND
iv. Must be a Non-VAT registered person (and subject to
3% Percentage tax)
OPTIONAL 8% GROSS
TAX (NEW)
✓
Who are NOT QUALIFIED to avail:
i.
PURELY compensation income earners (and MIXED
income earner, with respect to his/her compensation
income);
ii.
VAT-registered taxpayers, regardless of the amount of
gross sales/receipts and other non-operating income;
iii. Non-VAT taxpayers whose gross sales/receipts and
other non-operating income exceeded the P3M VAT
threshold;
iv. Taxpayers who are subject to Other Percentage Taxes
under Title V of the Tax Code, as amended, except
those under Section 116 of the same title;
OPTIONAL 8% GROSS
TAX (NEW)
✓
Who are NOT QUALIFIED to avail: Cont’n.
v.
Partners of a General Professional Partnership (GPP)
since their distributive share from the GPP is already
net of costs and expenses; and
vi. Individuals enjoying income tax exemption such as
those registered under the Barangay Micro Business
Enterprises (BMBEs), etc., since taxpayers are not
allowed to avail of double or multiple tax exemptions
under different laws, unless specifically provided by law.
OPTIONAL 8% GROSS
TAX (NEW)
✓
WHEN to avail:
❑ Taxpayer must signify his/her intention to avail of the
8% gross tax with the prescribed period, as follows:
Qualified Taxpayer
When
New business
registrant
• Upon application (BIR Form NO. 1905,
end date the PT); or
• Initial quarterly filing of IT or PT return
Existing registered
taxpayer
▪ Update COR (to end date the PT); or
▪ First quarter filing of IT or PT return
SUMMARY:
COMPARISON
PARTICULARS
GRADUATED IT
RATES
8% IT RATES
Applicability
In general,
applicable to ALL
individual
taxpayers (Default
IT rate)
May be availed by qualified
individuals engaged in
business/practice of
profession whose gross
sales/receipts and other nonoperating income did not
exceed P3M
Basis of IT
Taxable income
Gross sales receipts and
other non-operating income
Business Tax
PT or VAT
If qualified: No subject to PT
ILLUSTRATION:
GIT OR 8%
Illustration 1.1: PURELY self-employed/professionals
Annual gross receipts
2,000,0000
Less: Exemption up to P250,000
Gross taxable receipts
250,000
1,750,000
ANNUAL INCOME TAX DUE (8%)
140,000
Less: Creditable Withheld Taxes (5% or NIL)
100,000
INCOME TAX STILL DUE
Note:
▪
▪
No longer liable to Percentage Tax (ie., P2M x 3% = P60,000)
Therefore, the government shall not withhold 3% OPT.
40,000
ILLUSTRATION:
GIT OR 8%
Illustration 1.2: Compared with Graduated Income Tax (claimed
40% OSD)
Annual gross receipts
40% OSD
Taxable income
2,000,0000
800,000
1,200,000
ANNUAL INCOME TAX DUE (0-35%)
250,000
Less: Creditable Withheld Taxes (5% or NIL)
100,000
INCOME TAX STILL DUE
150,000
ILLUSTRATION:
GIT OR 8%
Illustration 1.3: Compared with Graduated Income Tax (claimed
itemized deductions)
Annual gross receipts
Itemized deductions (actual)
2,000,0000
1,200,000
Taxable income
800,000
ANNUAL INCOME TAX DUE (0-35%)
130,000
Less: Creditable Withheld Taxes (5% or NIL)
100,000
QUARTERLY/ANNUAL INCOME TAX STILL DUE
Note: Plus 3% PT
30,000
ILLUSTRATION:
GIT OR 8%
Illustration 2.1: Mixed income earner (8% IT on business income)
Annual taxable compensation income
Income tax due (Excess P50,000 @ 20%) (A)
300,000
10,000
Business income:
Annual gross receipts
2,000,000
Income tax due (8% of P2M)
(B)
160,000
TOTAL INCOME TAX DUE
(C )= (A)+(B)
170,000
ILLUSTRATION:
GIT OR 8%
Illustration 2.2: Mixed income earner (Graduated IT and OSD)
Annual taxable compensation income
300,000
Less: Exempt
250,000
Taxable compensation income (A)
50,000
Business income:
Annual gross receipts
Less: 40% OSD
2,000,000
800,000
Business Income (B)
1,200,000
Taxable income ( C) = (A)+(B)
1,250,000
TOTAL INCOME TAX DUE
265,000
ILLUSTRATION:
GIT OR 8%
Illustration 2.3: Mixed income earner (Graduated IT and itemized
deductions)
Annual taxable compensation income
300,000
Less: Exempt
250,000
Taxable compensation income (A)
50,000
Business income:
Annual gross receipts
2,000,000
Less: Itemized deductions
1,200,000
Business Income (B)
800,000
Taxable income ( C) = (A)+(B)
850,000
TOTAL INCOME TAX DUE
220,000
REVISED FINAL TAX RATES ON
CERTAIN PASSIVE INCOME
PASSIVE INCOME
PCSO and Lotto winnings above
P10,000
PCSO and Lotto winnings amounting
to P10,000 or less
Interest income received from a
depository bank under expanded
foreign currency deposit system
Capital gains from the sale of shares
of stocks not traded in the stock
exchange.
NEW
FWT/CGT
RATE
OLD
FWT/CGT
RATE
20%
EXEMPT
EXEMPT
EXEMPT
15%
7.5%
15% of Net
5%/10% of Net
Capital Gains Capital Gains
INSTALLMENT PAYMENT OF
INCOME TAX DUE
➢ Only an individual taxpayer may elect to pay income tax
in installment, subject to the following:
i.
Annual income tax due is in excess of P2,000; AND
ii. Payable only in two installments, as follows:
▪
1st instalIment – pay when the return is filed;
▪
2nd instalment – on or before October 15,
following the close of the calendar year.
FS REQUIREMENTS
✓ No FS required:
i.
If qualified and availed of 8% gross income tax; and
ii. If qualified and availed of 40% Optional Standard Deduction
✓ Unaudited FS required:
▪ Those whose gross quarterly sales, earnings, receipts or
output DO NOT exceed Three Million Pesos (P3,000,000) and
do not avail of 8% gross income tax or 40% OSD.
✓ Audited FS:
▪ Those whose gross quarterly sales, earnings, receipts or
output exceed Three Million Pesos (P3,000,000) (before
P600,000 or P150,000 per quarter).
FRINGE BENEFIT TAX
RATE
➢ Fringe benefit tax rate has been increased from 32% to 35%.
➢ Alien individuals employed by:
i. Regional Operating Headquarters;
ii. Regional Area Headquarters;
iii. Offshore Banking Units; and
iv. Petroleum Service Contractor
are now subject to the same FBT rate of 35%. They are no
longer entitled to 15% FBT rate, pursuant to the veto
statement of the President.