EXERCISE ON COMPUTING INDIVIDUAL INCOME TAX
1. Mr. X, a minimum wage earner, works for 123 Co. Mr. X is not engaged in business nor
has any other source of income other than his employment. For 2018, Mr. X earned a total
compensation income of P150,000.00.
a. The taxpayer contributed to the SSS, Philhealth, and HDMF amounting to P5,000.00 and
has received 13th month pay of P12,000.00. COMPUTE HIS INCOME TAX LIABILITY FOR
2018.
1.
Total Compensation lncome
P150,000
Less: Mandatory contributions
P5,000
Non-taxable benefits
12,000
17,000
TAXABLE INCOME
P133,000
TAX DUE
EXEMPT / NONE
b. The following year, Mr. X earned, aside from his basic wage, additional pay of
P160,000.00 which consists of the overtime pay (P90,000.00), night shift differential
(P40,000.00), hazard pay (P10.000.00) and holiday pay (P20,000.00). He has the same
benefits and contributions as in Example (a) above. COMPUTE HIS INCOME TAX LIABILITY
FOR 2018
Total Compensation lncome
150,000
Add: Overtime, night shift differential, hazard, and holiday pay
160,000
Total Income
P310,000
Less: Mandatory contributions
P5,000
Non-taxable benefits
12,000
NET TAXABLE INCOME
17,000
P293,000
Source: Bureau of Internal Revenue (BIR www.bir.gov.ph), Department of Finance (DOF
www.dof.gov.ph) Philippines
2. SELF EMPLOYED AND PROFESSIONAL/FREELANCERS/CONSULTANTS Sample
Computation: Ms. A. Terry operates a SARI SAri store while she offers consultancy services
to her clients. In 2018, her gross sales amounted to P900,000.00, in addition to her
receipts from bookkeeping services of P400,000.00. She already signified her intention to
be taxed at 8% income tax rate in her 1st quarter return. Compute her income tax liability
for the year.
Gross Sales - Convenience Store
900,000
Gross Receipts -Bookkeeping
400,000
Total Sales/Receipts
P1,300,000
Less: Amount allowed as deduction
250,000
TAXABLE INCOME
P1,050,000
TAX DUE (8% of P1,050,000.00)
P84,000.00
b. Ms. Terry above, failed to signify her intention to be taxed at 8% income tax rate on
gross sales in her initial Quarterly Income Tax Return, and she incurred cost of sales and
operating expenses amounting to P800,000.00 and P300,000.00, respectively, or a total
of P800,000.00, Compute her tax liability for the year using the graduated tax rates
Gross Sales/Receipts
P1,300,000
Less: Cost of Sales
800,000
Gross Income
500,000
Less: Operating Expenses
300,000
TAXABLE INCOME
P200,000
TAX DUE: On excess (P200,000 - P250,000) x 20%)
-10,000.00
3. Ms. RSVP is a prominent independent contractor who offers architectural and
engineering services. Since her career flourished, her total gross receipts amounted to
P5,000,000.00 for taxable year 2018. Her recorded cost of service and operating expenses
were P2,000,000.00 and P1,500,000.00, respectively. Compute her income liability for
the year.
Gross Receipts
P5,000,000
Less: Cost of Service
(2,000,000)
Gross Income
3,000,000
Less: Operating Expenses (1,500,000)
TAXABLE INCOME
1,500,000