Taxation of Employment Income

 Taxability of Employees
Minimum Wage Earner Regular Employee
An individual recipient of a minimum wage An employee not considered MWE.
as fixed by RTWPB of the DOLE (DOLE
can fix the rate or compensation per region)
Compensation Income is Exempt from tax
including HONsHa (holiday, overtime, Taxable: RIT or Final Tax
night shift differential, hazard pay).

Other Compensation or Other Income

Subject to TAX.
 Compensation Income
Any remuneration for services performed by an employee for his employer under an
employee-employer relationship, UNLESS specifically EXCLUDED by the Tax Code
(exclusions from Gross income under SEC 32B). (Sec. 2 (a) BIR RR No. 8-2018
1. Regular Compensation
2. Supplemental Compensation
1. HONsHa
2. Fees, Commissions, Emoluments, and Honoraria
3. Retirement and Separation Pay
4. Profit Sharing and Taxable Bonuses
5. Exercise of Stock Option
6. 13th Month Pay and Other Benefits
 Non-Taxable Income Benefits

Rule: Must meet the requirements, if not it is TAXABLE.

1. Exempt Retirement / Pension / Termination Benefits
1. Retirement / Pensions – 50 years old -1 first time -10 years na sa company RP
2. Termination – must be beyond the control of the employee EXCLUDED IN G.I
3. De Minimis Benefits
4. 13th Month Pay and Other Benefits not exceeding 90, 000 (INCLUDED IN G.I &
SUBSEQUENTLY DEDUCTED)

 De-Minimis Benefits (Amount provided by law is exempt. Excess will be included as

an item of Gross Income)
(a) Monetized unused VL Credits of private employees not exceeding ten (10) days
during the year; (For example: Daily wage = 700, 12 days VL) (10 days is exempt
however the 2 days will be taxable = 2 x 700 = P1, 400)

(b) Monetized value of VL and SL credits paid to government officials and

employees; (10) days
(c) Medical cash allowance to dependents of employees, not exceeding P1, 500 per
employee per semester of P 250 per month; (1500 / 6 (semi annual = 250)
(d) Rice subsidy of P2, 000 or one sack of 50kg. rice per month amounting to not more
than P2, 000; (to compute for annual x 12)
(e) Uniform and clothing allowance not exceeding P6, 000 per annum; (yearly)
(f) Actual medical assistance not exceeding P10, 000 per annum; (RR No. 5-2011)
(yearly)
(g) Laundry allowance not exceeding P300 per month; (RR No. 5-2011) (Monthly)
(h) Employees achievement awards not exceeding P10,000 (RR No. 5-2011) (yearly)
(i) Gifts given during Christmas and major anniversary celebrations not exceeding
P5,000 per employee per annum; (RR No. 5-2011) (yearly)
(j) Daily meal allowance for overtime work and night/graveyard shift not exceeding
twenty-five percent (25%) of the basic minimum wage on a per region basis; (RR
No. 5-2011)
(k) Benefits received by an employee by virtue of a CBA and productivity incentive
schemes provided that the total monetary value received from both CBA and
productivity incentive schemes combined do not exceed P10, 000 per employee per
taxable year. (RR No. 5-2015)
  Mandatory Contributions – deduction
GSIS, SSS, Medicare and Other Contributions – GSIS, SSS, Medicare and Pag-Ibig
contributions, and union dues of individuals.
 Taxation of Compensation Income
Individuals earning purely compensation income shall be taxed based on the income tax rates
by the TRAIN law.
 EXAMPLE:
A compensation income earner has a:
Monthly Compensation Income 65, 000;
13th Month pay 65, 000(13th & OB); Productivity based bonus 50, 000 (sc); Rice Allowance
3,000/month (de minimis subject to amt provided by law); Clothing Allowance 7,000;
Laundry 500/month; Contributions to Pag-Ibig/SSS/Union Dues 11,000.

1. Compute the taxable income if the employee is a Rank and File Employee
Compensation
Regular Compensation Income (65,000*12)
780,000
Supplemental Compensation 50,000
13th Month pay and other benefits (65,000
+ 15,400) 80,400
- Non-taxable and other benefits 80,400
- Mandatory Contributions 11,000
TAXABLE COMPENSATION
INCOME 819,000

(819, 000 – 800, 000) = 19, 000 x 30% = 5, 700 + 130, 000 = Tax Due: 135, 700

2. Compute the taxable income if the employee is a Managerial employee

Compensation
Regular Compensation Income (65,000*12)
780,000
Supplemental Compensation 50,000
13th Month pay and other benefits
65, 000
- Non-taxable and other benefits 65,000
- Mandatory Contributions 11,000
TAXABLE COMPENSATION
INCOME 819,000
  Income Tax Filing (Substituted Filing System)
Taxpayer is no longer required to file income tax return provided the following requisites are
present:
1. Must be pure compensation earner. No other source of income.
2. Must have only one employer.
3. The tax withheld must be of equal to tax due on tax payable.

- Employee must file an Information Tax Return

- The BIR Form 1604 serves as Tax Return of the taxpayer.