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Produced The Income)
Produced The Income)
Produced The Income)
An income tax is one levied on the income from property or an occupation. It is direct tax upon
the thing called income.
Meaning of Income
Income means all wealth which flows into the taxpayer other than a mere return of capital.
Income is a gain derived from:
a. The use or employment of labor or capital, or both labor and capital; and/or
b. From the sale or other disposition of assets or property (both ordinary and capital)
Capital is a fund, income is a flow. Capital is wealth, while income is the service (or fruit) of
wealth. Capital is the three, income the fruit.
Amounts received as a return of capital are not income those are return of capital.
(Return of capital – getting back what was invested: return on capital – receives more
than the amount that was invested)
Classification of Income According to Source (refers to the activity, or property or labor that gave rise or
produced the income)
1. Resident Citizen
a. Citizens at the time of the adoption of the 1987 Constitutions.
b. Those whose fathers and mothers are citizens
c. Those born before Jan 17, 1973 of Filipino mother, and who elect Philippine
citizenship upon reaching majority age or
d. Those who are naturalized in accordance with law and whose residence is
within the Philippines.
2. Non-Resident Citizen
a. Citizen who establishes the fact of his physical presence abroad with a
definite intention to reside therein;
b. Citizen who leaves for abroad either as an immigrant, or for employment on
permanent basis;
c. Citizen who derives from abroad which requires him to be physically present
abroad most of the time (183 days or more during the year.)
3. Overseas Contract Worker
a. Considered as Non Resident Citizen
b. Revenue Regulation 1-2011 defines OCWs as Filipino citizens employed in
foreign countries, commonly referred to as OFWs, who are physically
present in a foreign country as a consequence of their employment thereat.
Their salaries and wages are paid by an employer abroad and are not borne
by entities or persons in the Philippines. Hence, OFWs are classified as
nonresident citizens for tax purposes, to be considered as an OCW or OFW,
they must be duly registered as such with the Philippine Overseas
Employment Administration (POEA) with a valid Overseas Employment
Certificate (OEC).
4. Resident Alien
a. Not a citizen but whose residence is within the Philippines
b. Not a mere transient or sojourner as determined by his intention regarding
the nature and length of stay.
5. Non-resident Alien
5.1 NRA Engaged in trade and business if stay in the Philippine is for more than
180 days during the year
5.2 NRA Not Engaged in trade and business if stay in the Philippine for 180 days
or less than during the year.
Minimum wage earner: worker whether in the public or private sector, who is paid not more than the
statutory minimum wage is tax exempt.
Graduated Tax Table
Annual
Monthly
Taxable
W/IN Compensation Gra
Resident Citizen W/O Compensation Income Income R
Income from Business or
Non Resident Citizen W/IN Practice of Prof Gra
Gross Income Less Deduction
Income from Business or R
Overseas Contract Worker W/IN Practice of Prof
Income from Business or
Resident Alien W/IN Practice of Prof
or Gross Sales / Receipts
Non Resident Alien Engaged in Trade Income from Business or
and Business W/IN Practice of Prof
Non Resident Alien Non Engaged in Income from Business or
plus Non Operating Income
Trade and Business W/IN Practice of Prof
Tax Formula 1
Tax Formula 2
Gross Income
Less: Itemized Deduction or 40% Optional Standard Deduction
Taxable Income
Used Graduated Tax Table 0% to 35%
Tax Formula 3
Tax Formula 4