11 SENIOR HIGH SCHOOL

FABM 2
Quarter 4 – Module 5
Computing Gross Taxable Income
and Tax Due

NegOr_Q4_FABM211_Module5_v2

NegOr_Q4_FABM211_Module5_v2
FABM 2 – Grade 11
Alternative Delivery Mode
Quarter 4 – Module 5: Computing Gross Taxable Income and Tax Due
Second Edition, 2021

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NegOr_Q4_FABM211_Module5_v2
Introductory Message

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 I

This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at our own pace and time. You will be enabled to process
the contents of the learning resource while being an active learner.

The module is intended for you to explain the procedure in the computation of
gross taxable income and tax due.

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 I

Pre-assessment:
I. Identification: Identify the terms described in the sentences below. Choose your answer
from the word pool provided. Write the letter of your answer in your
activity notebook.

a. BIR Form 1700 d. Income Tax

b. BIR Form 1701 e. Income Tax Return

c. BIR Form 1701A f. Optional Deduction

1. It is a tax on the net income of an individual or a business.

2. It is the annual tax form that individuals file every April 15th of the following year.
3. This form will be used if an individual is earning purely business income or income
from your profession.
4. This form will be used by a mixed-income individual or those who opt for chosen
Graduated Tax rate with an Itemized Deduction Method.
5. This allows an individual to claim a deduction of 40% from his/her gross sales or
receipts for the quarter.

II. TRUE or FALSE. Read and analyze each statement below. Determine whether the
statement is TRUE OR FALSE. Write TRUE if the statement is
correct and write FALSE if otherwise. Write your answer in your
activity notebook.

1. Income Tax Return will be filed every 15th day of April on the same year.
2. If the annual income of an individual is beyond ₱ 250,000.00, he/she does not have to
pay and file an annual ITR.
3. Foreign corporations receiving income from sources within the Philippines needs to
file Income Tax Return.
4. Aliens, whether resident or not, receiving income from sources within the Philippines
need not to file Income Tax Return.
5. If an individual has an income of over ₱400,000.00 but not over ₱800,000.00 the
additional rate is 25%.

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III. DIRECTION. Computation. Fill out the tax rate that corresponds to the amount of Net
Taxable Income. Write your answer in your activity notebook.

Amount of Net Taxable Income

Rate
Over But Not Over
- ₱250,000.00 0%
₱250,000.00 ₱400,000.00 11.
₱400,000.00 ₱800,000.00 12.
₱800,000.00 ₱2,000,000.00 13.
₱2,000,000.00 ₱8,000,000.00 14.
₱8,000,000.00 15.

’s In

Task 1
DIRECTION: Answer the questions below. Write your answer in your activity notebook.

1. What is income?
_____________________________________________________________________
2. What is taxable income?
_____________________________________________________________________
_____________________________________________________________________
3. What is gross income?
_____________________________________________________________________
4. Who are not required to file Income Tax returns? Give at least 3.
a. ______________________________________________________
b. ______________________________________________________
c. ______________________________________________________
5. Who are exempted from Income Tax? Give at least 3.
a. ______________________________________________________
b. ______________________________________________________
c. ______________________________________________________

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 ’s New

Answer the following questions in your notebook.

1. What is gross taxable income and tax due?
2. What is the procedure in the computation of gross taxable income and tax due.

is It

Income Tax is a tax on a person’s income, emoluments, profits arising from property,
practice of profession, conduct of trade or business or on the pertinent items of gross income
specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions if any,
authorized for such types of income, by the Tax Code, or other special laws.

Who are Required to File Income Tax Returns?

Individuals

• Resident citizens receiving income from sources within or outside the Philippines
o Employees deriving purely compensation income from two or more employers,
concurrently or successively at any time during the taxable year
o Employees deriving purely compensation income regardless of the amount, whether
from a single or several employers during the calendar year, the income tax of
which has not been withheld correctly (i.e. tax due is not equal to the tax withheld)
resulting to collectible or refundable return
o Self-employed individuals receiving income from the conduct of trade or business
and/or practice or profession
o Individuals deriving mixed income, i.e. compensation income and income from the
conduct of trade or business and/or practice of profession
o Individuals deriving other non-business, non-professional related income in addition
to compensation income not otherwise subject to a final tax
o Individuals receiving purely compensation income from a single employer, although
the income of which has been correctly withheld, but whose spouse is not entitled to
substituted filing.
• Non-resident citizens receiving income form sources within the Philippines
• Aliens, whether resident or not, receiving income from sources within the Philippines

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 Non-Individuals

• Corporations including partnerships, no matter how created or organized.

• Domestic corporations receiving income from sources within and outside the
Philippines
• Foreign corporations receiving income from sources within the Philippines
• Estates and trusts engaged in trade or business

(Source: https://www.bir.gov.ph/index.php/tax-information/income-tax.html)

WHAT IS THE ANNUAL INCOME TAX RETURN?

The Income Tax Return (ITR) that most people refer to is the annual tax form that
individuals file every April 15th of the following year. This form summarizes all the income
(or loss) and individual incurred for the past year.

With the new Tax Reform Law (TRAIN), there are now 3 types of forms available to
file an annual ITR. Note that all these forms are new forms that were just recently launched.

o Form 1700 – this form will be used by an individual with no other sources of income
other than employment
o Form 1701 – this form will be used by a mixed-income individual or if you have
chosen Graduated Tax rate with an Itemized Deduction Method
o Form 1701A – this form will be used if an individual is earning purely business
income or income from your profession
Under the new TRAIN law, those who earn less than ₱250,000.00 annually are
exempt from paying income tax returns. So, if an individual fall under this bracket, he/she
don’t have to pay annual ITR – still have to file.

If an individual has an annual income more than ₱250,000.00, the TRAIN law gives
two options for filing and computing your taxes. He/she can either follow the 3% percentage
+ income tax (use the graduated income tax table) or use the new 8% Gross Receipt Tax.

After calculating taxable income, you will need to refer to the tax table below for the
tax dues.

TRAIN Tax Table

Effective until December 31, 2021

Range of Taxable Income Tax Due = a + (b*c)

Over Not Over Basic Amount Additional Rate Of Excess Over

(a) (b) (c)

- 250,000 - - -

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 250,000 400,000 - 20% 250,000

400,000 800,000 30,000 25% 400,000

800,000 2,000,000 130,000 30% 800,000

2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 - 2,410,000 35% 8,000,000
(Source: https://taxumo.com/blog/how-do-i-file-an-annual-income-tax-return/)

Computation of Income Tax Payable of Individuals (resident and non-

resident citizens)
A. Based on Graduated Income Tax Rate

Gross Income P ____________

Less: Allowable Deductions (Itemized or Optional) ____________
Net Taxable Income P ____________
Multiply by Tax Rate (0% to 35%) ____________
Income Tax Due P ____________
Less: Tax Withheld (per BIR From 2316) ____________
Income Tax Payable P ____________

In Graduated Income Tax Rate, an individual need to check first whether he/ she is on
Itemized Deduction or Optional Standard Deduction (OSD).

o OSD – allows an individual to claim a deduction of 40% from his/her gross sales or
receipts for the quarter
o Itemized Deduction – he/she must identify and deduct all the ordinary and necessary
expenses from his/her gross income. These expenses must attribute to the
development, management, and operation of his/her business-like travel and salaries

Now, both of the deductions have different formulas for computing your taxable
income so he/she should check the Certificate of Registration to confirm which one applies to
him/her

Steps in calculating tax payable for Graduated Income Tax Rate:

1. Compute the taxable income and
2. Based on the taxable income, refer to the tax table for how much tax you will need to
pay

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B. Based on Preferential Tax Rate of 8%
i. Taxpayers source of income is purely from self-employment

Gross Sales/Receipts P ____________

Add: Non-operating Income ____________
Gross Taxable Income P ____________
Less: Amount allowed as deduction under Sec. 24 (A)(2)(b) of 250,000.00___
NIRC, as amended
Net Taxable Income P ____________
Multiply by Tax Rate __________8%
Income Tax Due P ____________
Tax Withheld (per BIR Form 2307) ____________
Income Tax Payable P ____________

ii. Mixed Income Earner

On Compensation
Total Compensation Income P ____________
Less: Non-taxable Income ____________
13th month pay and other benefits (max) ____90,000.00
Taxable Compensation Income P ____________
Multiply by Tax Rate (0% to 35%) ____________
Tax Due on Compensation P ____________

On Business Income
Gross Sales/Receipts P ____________
Add: Non-operating Income ____________
Taxable Business Income P ____________
Multiply by Tax Rate _________8%
Tax Due on Business Income P ____________

Total Income Tax Due (Compensation + Business) P ____________

Tax Withheld (per BIR Form 2316/2307) ____________
Income Tax Payable P ____________
In 8% Income Tax Rate, the first thing we have to consider is to know whether the
individual earnings come solely from business or profession, or if it comes from
compensation (basically if the individual has an employer) and business/ profession. After
which, an individual can apply the formula table which is applicable to him/her.

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 As you can see, the ₱250,000.00 deduction is NOT applied for Mixed-Income
Earners. The reason for this is because the ₱250,000.00 has already been deducted from the
tax due based on compensation so it no longer applies to the tax from your business.

We have to note that the 13th month pay and other equivalent benefits shall not be
subject to tax for a maximum of ₱90,000.00. This new amount is relative increase from the
previous tax exclusion rate of ₱82,000.00. Anything beyond the maximum exclusion rate of
₱90,000.00 must be included in the computation of the employee’s gross income for the
taxable year. This was amended by Republic Act No. 10963 or the TRAIN law on January
2018.

Source:https://www.kcrecruitment.com/hr-consulting/labor-and-employment/13th-month-pay
Example:
Ms. Leia is employed in LAQ Corporation and is also a part-time real estate agent for
a real estate broker. In addition to the SMW of ₱180,000 she received from her employer, she
likewise received ₱75,000 as commissions from her real estate dealings for the year 2018.
Compute for the tax due.

Illustration: Computation
The amount subject to income tax and withholding tax shall be computed depending on the
income tax regime selected by Ms. Leia, since she is qualified to avail of such option (income
from business/practice of profession did not exceed ₱3,000,000) and such option was
reflected in the payee’s sworn declaration given by the taxpayer to the payor/withholding tax
agent-real estate broker, as follows:

1. Under the graduate income tax (IT) regime:

Total Income received ₱ 255,000.00

Less: Income exempt from income tax – SMW 180,000.00
Taxable Income- Commission ₱ 75,000.00
▹ Tax Due
▹ On not over ₱250,000.00 (₱75,000.00 x 0%) ₱ 0.00
*Taxpayer subject to PT
2. Under the 8% IT regime:

Total Income received ₱ 255,000.00

Less: Income exempt from income tax – SMW 180,000.00
Taxable Income- Commission ₱ 75,000.00
▹ Tax Due
▹ On not over ₱250,000.00 (₱75,000.00 x 8%)
₱ 6,000.00
*In lieu of graduated rates & PT

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Withholding of Taxes on Compensation
Withholding Tax on Compensation is the tax withheld from income payments to
individuals arising from an employer-employee relationship. Employers are basically
required to deduct and withhold tax from the compensation or salary paid to employees.

Below is a table showing the new matrix for computing withholding tax:

REVISED WITHOLDING TAX TABLE

Effective January 1,2018 to Dec. 31,2022
DAILY 1 2 3 4 5 6
Compensation 685 and 685 1,096 2,192 5,479 21,918
Level (CL) below

Prescribed 0.00 0.00 82.19 356.16 1,342.47 6,602.74

Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

WEEKLY 1 2 3 4 5 6
Compensation 4,808 4,808 7,692 15,385 38,462 153,846
Level (CL) And below
Prescribed 0.00 0.00 576.92 2,500.00 9,423.08 46,346.15
Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

SEMI- 1 2 3 4 5 6
MONTHLY
Compensation 10,417 10,417 16,667 33,333 83,333 333,333
Level (CL) and below
Prescribed 0.00 0.00 1,250.00 5,416.67 20,416.67 100,416.67
Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

MONTHLY 1 2 3 4 5 6
Compensation 20,833 and 20,833 33,333 66,667 166,667 666,667
Level (CL) below
Prescribed 0.00 0.00 2,500.00 10,833.33 40,833.33 200,833.33
Minimum +20% over CL +25% over CL +30% over CL +32% over CL +35% over CL
Withholding Tax

(https://governmentph.com/revised-withholding-tax/)
The computation of the deductible tax depends on whether an employee is paid daily,
weekly, semi-monthly, or monthly. It is given by the following formula:

Taxable Income = Taxable Earnings – Nontaxable Deductions

Taxable earnings include the following:

o Basic Pay + Overtime Pay + Night Differential – Late and Undertime –
Absences + Taxable Allowances +/- Salary Adjustments
Nontaxable Deductions are comprised of the following:
o SSS or GSIS Contribution + Philhealth contribution + Pag-ibig Contribution
(mandatory amount only for HDMF contribution)

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 Once the taxable income is already known, you can now compute the withholding tax
based on the table above.

Example:
Let’s try computing for the tax deduction for monthly wage earners. Let’s project that
the employee’s monthly taxable earnings for the payroll period is ₱100,000.00. The
nontaxable deductions would be SSS (₱ 581.30), Philhealth (₱ 550.00), and HDMF (₱
100.00). Hence the total nontaxable income will amount to ₱ 1,231.30.

Solution:

Taxable Earnings ₱ 100,000.00

Less: non-taxable deductions 1,231.30
Total Taxable Compensation 98,768.70
Less: Compensation Range under Column 4 66,667.00
Excess 32,101.70
Multiply by rate 0.30
9,630.51

Tax on ₱ 66,667.00 10,833.33

Tax on excess (₱ 32,101.70 x 30%) __9,630.51
Total Withholding Tax ₱ 20,463.84

Source: https://tinyurl.com/4uhxm4rh

’s More

Task 2
Direction: Compute for the withholding tax for weekly wage earners. Write your
computation in your activity notebook.

For instance, employee’s weekly taxable earnings for the payroll period are
₱10,000.00. The non-taxable deductions would amount to the following:

SSS – ₱ 363.30; PhilHealth – ₱125.00; HDMF – ₱100.00

Task 3
Requirement: Compute for Net Tax Due. Write your answer in your activity notebook.
Assumptions:

• Resident alien husband and wife with two dependent children.

• Salary and allowances of husband arising from employment: Salary of ₱652,000,
living allowances of ₱100,000.00 and housing benefits (100%) of ₱300,000.

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 • Teaching salary of wife: ₱68,000.00
• Gross dividend income from investment in shares of stock of a domestic corporation
of ₱10,000.00.
• Interest of ₱20,000.00 on peso bank account.
• Capital gain on sale of shares of ₱5,000.00.
• Taxes withheld by employer of husband at ₱118,000.00 and by employer of wife at
nil.
• Husband is occupying a managerial position in the company.

I Have Learned

Task 4
Complete the following statements. Write your statements in your activity notebook.
1. I have learned that __________________________________________________.
2. I have realized that __________________________________________________.
3. I will apply ________________________________________________________.

I Can Do

Task 5
Ms. Alona is employed in LMN Corporation. She received the SMW for 2018 in the total
amount of ₱175,000, inclusive of the 13th month pay. In the same year, she also received
overtime pay of ₱40,000 and night-shift differential of ₱25,000. She also received
commission income from the same employer of ₱20,000, thus, total income received
amounted to ₱260,000.

Compute for the withholding tax due.

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I. Identification: Read each item carefully and identify what is being described/asked on
each item. Choose your answer from the word pool provided below. Write
your answer in your activity notebook.

Withholding Tax Return Non-taxable Deduction

Income Tax Taxable Earnings ₱90,000.00
Optional Standard Deduction Bir Form 1700 below ₱250,000.00
Taxable Income=Taxable Earnings-Non-taxable Deductions
₱2,410,000.00+35%of excess over ₱8,000,000.00

1. This form summarizes all the income (or loss) and individual incurred for the past
year.
2. This is the tax withheld from income payments of individuals arising from an
employer-employee relationship.
3. The maximum 13th month pay and other equivalent benefits which shall not be
subject to tax.
4. This allows an individual to claim a deduction of 40% from his/her gross sales or
receipts for the quarter.
5. The formula in computing taxable income.
6. The amount of annual taxable income of an individual that are exempt in paying
personal income tax under the TRAIN Law.
7. Tax rate of an individual who is earning over ₱8,000,000.00 and above.
8. These includes the basic pay, overtime pay, night differential, late and undertime,
absences, taxable allowances, and Salary Adjustments.
9. These comprises SSS or GSIS Contribution + Philhealth contribution + Pag-ibig
Contribution (mandatory amount only for HDMF contribution).
10. This form will be used by an individual with no other sources of income other than
employment

II. Fill out the missing figure in the computation of Income Tax Due based on Preferential
Tax Rate of 8% Taxpayers with an income source purely from self-employment

11. P ____________
Add: Non-operating Income ____________
12. P ____________
Less: Amount allowed as deduction under Sec. 24 (A)(2)(b) 250,000.00___

12 NegOr_Q4_FABM211_Module5_v2
of NIRC, as amended
13. P ____________
Multiply by Tax Rate __________8%
14. P ____________
Tax Withheld (per BIR From 2307) ____________
15. P ____________

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NegOr_Q4_FABM211_Module5_v2 14
What I Know
I.
1. D 2. E 3. B 4.C 5. F
II.
6. F 7. F 8. T 9. F 10. T
III.
11. 20% of excess over ₱250,000.00
12. ₱30,000.00 + 25% of excess over ₱400,000.00
13. ₱130,000.00 + 30% of excess over ₱800,000.00
14. ₱490,000.00 + 32% of excess over ₱2,000,000.00
15. ₱2,410,000.00 + 35% of excess over ₱8,000,000.00
What’s In
Possible answers:
1. Income means all wealth which flows into the taxpayer other than as a mere return of capital.
2. Taxable income means the pertinent items of gross income specified in the Tax Code as amended, less
the deductions, if any, authorized for such types of income, by the Tax Code or other special laws.
3. Gross income means all income derived from whatever source.
4. a. An individual earning purely compensation income whose taxable income does not exceed
₱250,000.00
b. An individual whose income tax has been withheld correctly by his employer, provided that such
individual has only one employer for the taxable year
c. An individual whose sole income has been subjected to final withholding tax or who is exempt from
income tax pursuant to the Tax Code and other special laws.
d. An individual who is a minimum wage earner
e. Those who are qualified under “substituted filing”.
5. a. Income from abroad of a non-resident citizen
b. Overseas Filipino Worker, including overseas seaman
c. General Professional Partnership
d. Government Service Insurance System (GSIS)
e. Social Security System (SSS)
f. Philippine Health Insurance Corporation (PHIC)
g. Local Water Districts (LWD)
WHAT’S NEW
Answers may vary
WHAT’S MORE
TASK 2
Taxable Earnings ₱ 10,000.00
Less: non-taxable deductions 588.30
Total Taxable Compensation ₱ 9,411.70
Less: Compensation Range under Column 3 7,692.00
Excess ₱ 1,719.70
Multiply by rate 0.25
429.93
Tax on ₱7,692.00 576.92
Tax on excess (₱1,719.70 x 25%) __429.93
Total Weekly Withholding Tax ₱ 1,006.85
 NegOr_Q4_FABM211_Module5_v2 15
TASK 3
Tax Computation Husband Wife
Gross Income
Salary (1) 652,000 68,000
Living Allowance 100,000
Total Taxable Income 752,000 68,000
Tax Due
On the first 400,000 30,000
On the remainder of 352,000 at 88,000
25%
On first 250,000 0
Total tax 118,000 0
Less:
Tax withheld by employer per Form (118,00) 0
2316 (2)
Net tax Due 0 0
Note: The following are not included in the income tax return because they are subject to final tax.
Interest on peso bank account ₱20,000.00
Capital gain on sale of shares 5,000.00
Dividend Income 10,000.00
Housing Benefit (3) 300,000.00
1. Philippine social tax contributions, if any, made by the resident alien and/or his wife to the Philippine social
security agencies shall be allowed as deductions from gross income in calculating their tax liabilities for the year.
2. For the individuals receiving salary and other allowances from one employer only, the tax due is usually equal to
the tax withheld since the employee is required to compute and withhold the total tax due on the employee’s
compensation earned during the year, using the annual graduated income tax table, before paying the last payroll
for the year.
3. As managerial employee, the housing benefit provided to the husband shall be subjected to FBT rather than
income tax.
What I Have Learned
(Answers may vary)
What I Can Do
Task 5
The employer of Ms. Alona shall determine the nature of income payments. The amount to be subjected to income
tax withholding shall be computed as follows:
Total Income received ₱ 260,000.00
Less: Income exempt from tax
Basic SMW ₱ 175,000.00
Overtime Pay 40,000.00
Night Shift Differential 25,000.00
Total Exempt Income as MWE 240,000.00
Taxable Income- Commission ₱ 20,000.00
Tax Due:
On not over ₱250,000.00 (₱20,000.00 x 0%) ₱ 0.00
* Taxpayer’s income of SMW, overtime pay, and night shift differential pay are expressly exempt from income tax
under the law and consequently from withholding tax.
* Commission income from the same employer is taxable, however, under the graduated income tax rates since it is
less than ₱250,000, there is no tax due.
NegOr_Q4_FABM211_Module5_v2 16
Task 6
Computation:
By using the monthly withholding tax table, the withholding tax beginning January 2018 is computed by
referring to compensation range under column 4 which shows a predetermined tax of ₱10,833.33 on
₱66,667 plus 30% of the excess of Compensation Range (Minimum) amounting to ₱103,833 (₱165,000.00 –
₱ 66,667.00 + ₱5,000), which is ₱30,999.90. As such, the withholding tax to be withheld by the employer
shall be ₱41,833.23.
Total taxable compensation ₱ 165,000.00
Less: Compensation Range (Minimum) 66,667.00
Excess ₱ 98,333.00
Add: Supplemental Compensation 5,000.00
Total ₱ 103,333.00
Withholding tax shall be computed as follows:
On ₱66,667.00 ₱ 10,833.33
On Excess (₱165,000.00 - ₱66,667.00 +
Supplemental compensation of ₱5,000.00) x 30%= 30,999.90
Total monthly withholding tax ₱ 41,833.23
Assessment
I. 1. Income Tax Return
2. Withholding Tax
3. ₱90,000.00
4. Optional Standard Deduction
5. Taxable Income = Taxable Earnings – Nontaxable Deductions
6. below ₱250,000.00
7. ₱2,410,000.00 + 35% of excess over ₱8,000,000.00
8. Taxable Earnings
9. Non-taxable Deductions
10. BIR Form 1700
11. Gross Sales/Receipts
12. Gross Taxable Income
13. Net Taxable Income
14. Income Tax Due
15. Income Tax Payable
Additional Activities
(Answer may vary)
References

13th Month Pay in the Philippines: Mandatory. (n.d.). Retrieved from KCG Recruitment:
https://kcrecruitment.com/hr-consulting/labor-and-employment/13th-month-pay/
AZ Quote . (n.d.). Retrieved from AZ Quote Web Site:
https://www.azquotes.com/quote/1131754
Filipino Workers and Tax Computations in the Philippines. (n.d.). Retrieved from Taxumo:
https://www.taxumo.com/tax-computation-philippines/
Income Tax. (n.d.). Retrieved from Bureau of Internal Revenue:
https://www.bir.gov.ph/index.php/tax-information/income-tax.html
Individual - Sample Personal Income Tax Calculation. (2020, December 29). Retrieved from
PWC: https://taxsummaries.pwc.com/philippines/individual/sample-personal-income-
tax-calculation
Kelvin. (2020). How to Compute Withholding Tax Based on the Newly Enacted TRAIN Law
(Tax Reform for Acceleration and Inclusion). Retrieved from Sprout Solutions:
https://sprout.zendesk.com/hc/en-us/articles/360030534534-How-to-Compute-
Withholding-Tax-Based-on-the-Newly-Enacted-TRAIN-Law-Tax-Reform-for-
Acceleration-and-Inclusion-
Tan, E. (2021, March 15). How to File Your Annual ITR (1701 or 1701A or 1700) Usinf
Taxumo. Retrieved from Taxumo: https://www.taxumo.com/blog/how-do-i-file-an-
annual-income-tax-return/

17 NegOr_Q4_FABM211_Module5_v2
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