INDIVIDUAL INCOME TAX

I. Classes of Individual Taxpayers

1. Citizens

Those who are citizens of the Philippines at the time of the adoption of the Constitution (on February
2,1987);

Those whose fathers or mothers are citizens of the Philippines;

Those born before January 17, 1973 of Filipino mothers who elect Philippine Citizenship upon reaching
the age

of majority

Those who are naturalized in accordance with law

a. Resident Citizen – is a citizen of the Philippines who has a permanent or perpetual home in the
Philippines to

which he plans or intends or return whenever he is away or out of the country

b. Nonresident Citizen

1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his
physical

presence abroad with a definite intention to reside therein

2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either
as an

immigrant or for employment on a permanent basis

3) A citizen of the Philippines who works and derives income from abroad and whose employment
thereat

requires him to be physically present abroad most of the time during the taxable year

4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines
at any

time during the taxable year to reside permanently in the Philippines shall likewise be treated as a
nonresident

citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from

sources abroad until the date of his arrival in the Philippines

2. Aliens

a. Resident alien – an individual whose residence is within the Philippines and who is not a citizen
thereof.
b. Nonresident alien – an individual whose residence is not within the Philippines and who is not a
citizen

thereof.

1) Nonresident Alien – ETB – a nonresident alien who has stayed in the Philippines for an aggregate
period of

more than 180 days during any calendar year.

2) Nonresident Alien – NETB – a nonresident alien who has stayed in the Philippines for an aggregate
period

of not more than 180 days during any calendar year.

Taxpayers Classification Tax Base Tax Rate

a. Resident Citizen

b. Nonresident Citizen

c. Resident alien

d. Nonresident Alien – ETB

e. Nonresident Alien – NETB

II. Kinds of Income

a. Subject to 24a

1. Compensation Income

- “Those arises from employer-employee relationship”

- Includes salaries, wages, emoluments and honoraria, commissions, taxable bonuses and fringe
benefits, taxable

allowances, non-monetary compensation, director’s fees and the like, taxable pensions and retirement
pay,

amounts drawn as salaries by partners of a partnership and other incomes of a similar nature unless
specifically

exempted by the Tax Code.

2. Business Income

- These are incomes from business such as incomes from manufacturing and selling goods, incomes from
buying

and selling goods, incomes, fees from the exercise of profession, gains from sale or exchange of assets
other

than inventories, commission, rental income, and other incomes not covered by compensation income
3. Mixed Income

b. Subject to other rate

1. Passive Income

- Consist of interest from currency deposits, yields and other monetary benefits from deposit
substitutes, trust

fund and similar arrangements, royalties, prizes, winnings, interest from foreign currency deposits, share
in a

business partnership income, dividends in a domestic corporation, interest on long term deposits.

2. Capital Gains TaxInclude capital gains from sales of shares of stock and sales of real property

3. Fringe Benefit Tax

c. Excluded or exempted

Format of Computation of Taxable Income

A. Gross Compensation Income P xxx

Less: Non-taxable/Exempt Income xxx

Taxable Compensation Income P xxx

Non-Taxable/Exempt Income includes:

1. SMW, holiday pay, overtime pay, night shift differential, and hazard pay of an MWE;

2. First P90,000 of 13th Month Pay and other benefits;

3. De minimis fringe benefits;

4. Employee’s share of SSS, GSIS, PhilHealth,and Pag-ibig Contributions; and

5. Union dues.

B. Sales/Receipts, net of returns, allowances and discounts P xxx

Less: Cost of Sales/ Cost of Services xxx

Gross Income from Operations P xxx

Less: Itemized Deductions or OSD xxx

Net Income from Operations P xxx

Add: Non-operating income P xxx

Share in GPP net income xxx xxx

Taxable Net Income P xxx

11.