INDIVIDUAL TAXATION
SCOPE
Under the tax code the following are taxed as individuals
 Natural persons
 Taxable estates
 Taxable trusts
Natural persons
 Resident citizen
 Resident alien
 Non-resident citizen
 Non-resident alien engaged in trade or business (NRA-ETB)
 Non-resident alien not engaged in trade or business (NRA-NETB)
All natural persons other than NRA-NETB are required to file a return and are taxed in the
same manner, except that resident citizens (RC) are taxed globally.
NRA-NETB is taxed at 25% final tax on gross receipt.
Taxable estates
When an estate undergone a judicial settlement, the income of the estate from the time of
death up to the settlement date shall be filed with BIR and register as individual taxpayer.
Income of the estate from the time of death up to the settlement date under extra-judicial
settlement accrues to the heirs.
Income of the estate before the time of death accrues to the decedent and included in the
gross estate, regardless of whether settled judicial or extra-judicial.
Taxable trusts
When the trust is irrevocable, the income of the property while held in trust shall be filed and
registered as individual taxpayer.
Income of property under revocable trust accrues to the grantor.
CLASSIFICATION
 Purely compensation
 Purely business or profession
 Mixed income earner
PURELY COMPENSATION
Gross compensation income
xx
Less: Non-taxable income/benefits
Taxable compensation income
(xx)
xx
Gross compensation income
All renumeration for services performed by an employee for his employee for his employer
under an employer-employee relationship, unless specifically excluded by the code.
The name by which the renumeration for services is designated is immaterial. In that case it,
gross compensation income includes:
 Salaries
 Wages
 Emoluments and honoraria
 Allowances
 Commissions
o Transportations, representations, entertainment, and the like
 Fees, including directors’ fees if the said director is employed by the said corporation.
 Taxable bonuses and fringe benefits, except fringe benefits of managerial and
supervisory level employees subject to final tax.
 Allowable “de minimis benefits”
 Taxable pensions and retirement pay.
 Other income of similar nature
Non-taxable income/benefits
All exclusions from gross income listed by regulations that are included in the gross
compensation income should be deducted to arrive at the taxable compensation income.
Exclusions that are already excluded from gross income should not be included in the
deduction (e.g., fringe benefits subject to final tax)
These are the exclusions relating to compensation income:
 13th month pay
 Christmas bonus
 Productivity incentives
 Other benefits such as productivity incentives and loyalty awards
 GSIS, SSS, Medicare and other contributions (employees share)
 Retirement benefits, pensions, gratuities etc.
 Gifts in cash or in kind or other benefits of similar nature
Applies to all employees, official or rank and file. Also applies to all entities, government or private.
Limit of Non-taxable income/benefits: 90,000
Considerations for minimum wage earners
Minimum wage earners shall be exempt from the payment of income tax based on their
statutory minimum wage rates.
Exempt compensation of minimum wage earners:
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
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Basic pay
Holiday pay
Overtime pay
Night shift differential pay
Hazard pay
Regardless of amount, aggregate or not, if the taxpayer is classified as minimum wage earner
as determined by the statutory minimum rates as prescribed by DOLE, the following
compensation income mentioned above shall be exempt.
Note: All other compensation that is not listed above is taxable.
Additional considerations
Husband and wife shall compute their individual income tax separately based on their
respective taxable income; if any income cannot be attributed to or identified as income
exclusively earned or realized by either of the spouses, the same shall be divided equally
between the spouses for the purposes of determining their respective taxable income (RR 8 2018)
PURELY BUSINESS OR PROFESSION (SELF-EMPLOYED)
Gross sales/receipt
xx
Less: cost of sales/services
(xx)
Gross income
xx
Less: operating expenses
(xx)
Taxable income
xx