Income Taxation for Individuals
Module 2
Classification of Individual Income Taxpayers
 Citizen
– Resident
– Non-resident
 Alien
– Resident
– Non-Resident
• Engaged in trade or business in the Philippines.
• Not engaged in trade or business in the Philippines
Citizen
 Those who are citizens of the Philippines at the
time of the adoption of the Feb. 2, 1987
Constitution.
 Those whose fathers or mothers are citizens of the
Philippines.
 Those who born before January 17, 1973.
 Those who are naturalized in accordance with the
law.
Resident Citizen
 Is a Filipino citizen who permanently resides in
the Philippines.
Non-resident Citizen
 Physical presence abroad with a definite
intention to reside therein.
 Who leaves the Phils. to reside abroad either as
an immigrant or for employment on a
permanent basis.
 Presence abroad for at least 183 days during the
taxable year.
Resident Alien
 An individual whose residence is within the
Phils. and who is not a citizen thereof.
 Actually present in the Phils. and not a mere
transient or sojourner.
 Depending on his intention with regard to the
length and nature of his stay.
Non-resident Alien
 An individual whose residence is not within the
Phils. and who is not a citizen thereof.
Non-resident Alien
 Engaged in Trade and Business
– Who comes to the Philippines and stay for an
aggregate period of more than 180 days
 Not Engaged in Trade and Business
– Who comes to the Philippines and stay for an
aggregate period of 180 days or less
Individual
Resident Citizen
Non-resident
Citizen
Resident Alien
Non-resident
Alien
Sources of Income
Within the Phils.
Without the
Phils.
Yes
Yes
Yes
No
Yes
Yes
No
No
Sample Situation
 A British computer expert was hired by a
Philippine Corporation to assists in its computer
system installation for which he had to stay in
the Philippines for 6 months. Is he a resident
alien?
Sample Situation
 A British cultural performer was engaged to
perform in the Philippines for 2 weeks after
which he returned to his country. Is he a
resident alien?
Sample Situation
 A resident alien left the Philippines and
abandoned his residency thereof without any
intention of returning. May he still be
considered a resident alien?
Types of Income Taxes
 Final Withholding Tax on passive income
derived from Philippine source
 Capital Gains Tax on Sale of Shares of Stock of
unlisted domestic corporations
 Capital Gains Tax on Sale of Real Properties
located in the Philippines
 Basic Income Tax on regular or ordinary income
Final Withholding Tax (FWT) On Passive Income
 It is subject to a separate and final tax
 Applicable only to passive income from sources
within the Philippines.
 It is a tax deducted from the income to be paid
to the payee or seller.
Tax Rates for Passive Income
Sample Problems
Identify the tax rate and compute the tax due of the
following:
1. Royalties from an invention by a resident alien,
P50,000.
2. Lotto winnings of a resident alien, P100 million.
3. Interest from a BPI savings deposit of a resident
citizen, P75,000.
Exercise 1
Identify the tax rate and compute the tax due of the following:
1. Royalties as a musical composer received by a non-resident
citizen, P200,000.
2. Bingo winnings at Robinson’s Place-Manila of a NRC,
P200,000.
3. PCSO winnings for P5,000.
4. Cash dividend from a domestic corporation received by a
RC, P5million.
5. Interest from BDO savings deposit of a RC, P75,000.
Exercise 2
Helena Dela Cruz, single and a resident citizen has the
following passive income for the year 2021:
 Interest from BPI savings P75,000
 Royalty from invention P80,000
 Prize in a painting competition P50,000
 Dividends received from a
domestic corporation P30,000
Compute for the total final tax.
Capital Gains from Sale of Shares of Stock,
Not Traded trough the Local Stock Exchange
 Taxed at 15% of the capital gains
Formula for Capital Gains (CG):
Selling Price Less Cost = CG
Sample Problem
 Ester, a resident citizen owns shares of stocks of
ABC Company costing P20,000. She sold it for
P80,000. Compute for the capital gains tax.
Exercise 3
 In 2022, Alexis, a resident citizen, holds a shares
of stocks of XYZ company, a domestic
corporation for P40,000. He sold all shares
directly to Imee for P160,000. How much final
tax must be paid?
Capital Gains from Sale of Real Property
 Taxed at 6% final tax on the gross selling price or
current fair market value at the time of the sale,
whichever is higher.
Sample Problem
 In 2021, Nicos Luna, a resident citizen, sold his
residential house and lot in Singalong, Manila
for P2,500,000. The cost of the house and lot
three years ago when he acquired the property
was P1,500,000 and the fair market value at the
time of sale is P2,300,000. How much is the
capital gains from sale?
Basic Income Tax
Individuals Earning Purely Compensation Income
 Shall be taxed based in the income tax rates
prescribed under the graduated income tax
rates.
Total Compensation Income
xxx
Less: Mandatory Contributions/
Non-taxable benefits
xxx
Net Taxable Income
xxx
Minimum Wage Earners
 Shall be exempt from the payment of income
tax based on their statutory minimum wage
rates. The holiday pay, overtime pay, night shift
differential and hazard pay received by such
earner are likewise exempt.
13th Month Pay and Other Benefits
 Shall not exceed P90,000.
 The excess amount is included in the taxable
income.
Sample Problem 1
 Mr. CSO, a minimum wage earner, works for ABC
Company. He is not engaged in business nor has any
other source of income other than his employment.
Mr. CSO earned a total compensation income of
P135,000. The taxpayer contributed to the SSS, PHIC
and HDMF amounting to P5,000 and has received 13th
month pay of P11,000.
Compute for the tax due of Mr. CSO.
Exercise 1
 Employee A, above minimum wage earner, received
the following:
Total Basic Salary
650,000
13th month pay
50,000
SSS, PHIC and HDMF Contri.
(20,000)
Total Net Compensation
680,000
a. If the taxable year is 2022, how much is the tax due?
b. If the taxable year is 2023, how much is the tax due
Self-Employed and/or Professionals (SEP)
Taxable Income (If Graduated Rates)
Gross Sales/Receipts
xxx
Less: Cost of Sales
xxx
Gross Income
xxx
Less: Operating Expenses
xxx
Taxable Income
xxx
Taxable Income (8% tax on Gross sales/Receipts
and Other Non-Operating Income
Total Gross Sales/Receipts
Less: Amount allowed as deduction
under Sec. 24(A)(2)(b)
Taxable Income
xxx
250,000
xxx
Sample Problem 2
 Ms. EBQ operates a convenience store while she
offers bookkeeping services to her clients, In
2018, her gross sales amounted to P800,000, in
addition to her receipts from bookkeeping
services of P300,000. She already signified her
intention to be taxed at 8% income tax rate in
her 1stQ income tax return. Compute for the tax
due.
Sample Problem 3
 If Ms. EOQ failed to signify her intention to be
taxed at 8% income tax on gross sales in her
initial Quarterly Income Tax Return, and she
incurred cost of sales and operating expenses
amounting to P600,000 and P200,000
respectively. Compute for the tax due.
Exercise 2
 Engr. Cala offers professional consultancy
services. For taxable year 2018, her records
show a total gross receipts of P3,850,000, cost
of services amounting to P1,900,000 and
operating expenses of P800,000. Compute for
Engr. Cala’s income tax liability for 2018.
Exercise 3
 Dr. Adrina is a medical practitioner. In 2023, her
medical practice’s gross receipts amounted to
P5,700,000. Her cost of services and operating
expenses were P2,200,000 and P750,000. What
is Dr. Adrina’s tax liability for 2023?
Individuals Earning Income Both
from Compensation and from SelfEmployment
Sample Problem 4
 Mr. MAG, a financial comptroller of JAB Company. Earned
annual compensation in 2018 of P1,500,000 inclusive of 13th
month pay and other benefits of P120,000. Aside from
employment, he owns a convenience store, with gross sales of
P2,400,000. His cost of sales and operating expenses are
P1,000,000 and P600,000, respectively, and with non-operating
income of P100,000.
a. What is his tax due if he opted to use the 8% income tax rate?
b. What is his tax due if he did opted to use the graduated income
tax rate?
 In 2018, Mr. Boris, Sales Manager of ABC Co.,
earned an annual compensation of P1,380,000,
inclusive of 13th month pay and other benefits
of P135,000. He is also a proprietor with gross
sales of P3,750,000 and non-operating income
of P175,000. Cost of sales and opex of
1,250,000 and 675,000, respectively. Compute
for the total tax due.
Sample Problem 5
In 2018, Mr. Bonaro, Senior Manager of DEF Company,
earned an annual compensation of P1,800,000, inclusive
of 13th month pay and other benefits amounting to
P130,000 but net of mandatory contributions to SSS,
PHIC and HDMF. Aside from being employed, he is also
into the business of selling travel accessories. His gross
sales for the year was P2,700,000. His cost of sales and
operating expenses were P1,200,000 and P700,000
respectively, while non-operating income was P250,000.
Sample Problem 6
Sample Problem 7