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.