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Lesson 1

TAXATION OF MINIMUM WAGE EARNERS

Lesson Objectives:

At the end of this lesson, the students should be able to:

a. Define and learn who are minimum wage earners
b. Know the taxation for senior citizens, persons with disabilities, and special employees
c. Apply, practice, solve, analyze, and evaluate problems relating to the application of taxation
for minimum wage earners, senior citizens, persons with disabilities, and special employees

Discussion

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Minimum Wage Earners. shall refer to a worker in the private sector paid in the statutory minimum wage, or to
an employee in the public sector with compensation income of not more than the statutory minimum wage in
the non-agricultural sector where he/she is assigned.

Minimum wage earners shall be exempt from the payment of income tax on their taxable income.

The holiday pay, overtime pay, night shift differential pay, and hazard pay received by such minimum wage
earners shall likewise be exempt from income tax.

Senior Citizens (SC) and Persons with Disabilities (PWD)

 For income taxation purposes, SCs and PWDs are taxable in the same manner as an ordinary individual
taxpayer. Hence, SCs and PWDs deriving returnable income are required to file their income tax returns
and pay the tax as they file the return.
 SCs/PWDs as MWE- Exempt from income tax on the said compensation income
 If aggregate gross income does not exceed P250, 000, he shall be exempt from income tax and shall not
be required to file income tax return.

SPECIAL EMPLOYEES
1. Special Alien Employees. an alien individual employed by the following:
a. Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies
b. Offshore banking units
c. Petroleum service contractors or subcontractors
2. Special Filipino employee. Filipino employees of letters a, b and c above occupying managerial or
technical position

Note: preferential tax Rate for Special Employees shall apply only to income derived prior to 2018
taxable year or prior to the effectivity of RA 10963 (TRAIN Law). Special employees, under TRAIN
law are now subject to graduated income tax rate on their compensation income.

Summary of the Lesson

The lesson defined who are the minimum wage earners, senior citizens, persons with disabilities, and special
employees. It also discussed the taxation of such taxpayer and what part of their income is subject to such.

Enrichment Activity

Choose the letter of the correct answer:

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1. Compensation income of alien individuals who are employed by foreign principals and who are assigned
to render services exclusively to ROHQs/RHQs, OBUs, Petroleum Contractors and subcontractors,
otherwise known as “seconded employees or secondees, are subject to:
a. 15% final tax
b. 25% final tax
c. Graduated income tax rate
d. Exempt

2. Which of the following statements regarding MWEs is correct?

a. The MWE is exempt from income tax on his basic statutory minimum wage (SMW)
b. The MWE is exempt from income tax on his overtime pay, holiday pay, night shift differential, and
hazard pay
c. The MWE is subject to income tax on income other than those mentioned in A and B
d. All of the above

3. What is the correct treatment of overtime pay, holiday pay, night differential pay, and hazard pay
received by those whose basic pay is more than SMW?
a. Exempt from income tax
b. Subject to income tax and consequently to the withholding tax on compensation income
c. Considered as fringe benefit subject to fringe benefit tax, provided the employee is holding
managerial or supervisory position
d. None of the above

4. Minimum wage earners (MWE) receiving other benefits exceeding P90,000 limit shall be
a. Taxable on excess benefits only
b. Taxable on the excess benefits as well as his salaries, wages and allowances, just like an employee
receiving compensation income beyond the statutory minimum wage
c. Exempt from income tax
d. None of the above

5. Senior citizens deriving returnable income during the taxable year, whether from compensation or
otherwise, are
a. Required to file their ITRs and pay the tax as they file the return
b. Exempt from compensation income taxes
c. Exempt from business taxes
d. Given a special tax at 15% of gross income

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6. Persons with disabilities deriving returnable income during the taxable year, whether from compensation
or otherwise, are
a. Required to file their ITRs and pay the tax as they file the return
b. Exempt from compensation income taxes
c. Exempt from business taxes
d. Given a special tax at 15% of gross income

7. If the returnable income of a SC/PWD is in the nature of a compensation income but s/he qualifies as
MWE under RA 9504, such income shall be:
SC PWD
a. exempt Exempt
b. Exempt Basic tax
c. Basic tax Basic tax
d. Basic tax Exempt

8. A senior citizen and PWD, as a regular income taxpayer, is liable for the following internal revenue
taxes:
Basic income tax FWT on passive income Capital gains tax
a. Yes Yes Yes
b. No Yes Yes
c. Yes No No
d. No No No

9. A PWD/SC who is self-employed and/or professional may qualify for the 8% income tax rate:
PWD SC
a. Yes Yes
b. No Yes
c. Yes No
d. no no

Assessment

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Compute what is being asked in every problem and provide supporting solutions in the back or excess space in
this module.

Problem 1
GI Joe, an alien employed in Pan Pacific Petroleum, a Petroleum Service Contractor received compensation
income of P5M in 2018, inclusive of P400,000 13th month pay and other benefits.
1. GI Joe’s income tax due for the year shall be:
a. P490,000
b. P931,000
c. P1,421,200
d. Nil

Problem 2
Pedro, single, is a minimum wage earner of Maharlika Corporation. In addition to his basic minimum wage of
P180, 000 for the year, he also received the following benefits:
Holiday pay 32,000
Overtime pay 25,000
Night shift differential 18,000

2. The income subject to tax should be:

a. P57,000
b. P75,000
c. P255,000
d. Nil

Problem 3
Pedro, single, is a minimum wage earner. In addition to his basic minimum wage of P180,000 for the year 2020,
he also received the following benefits:
 De minimis, P140, 000 excluding Productivity Incentive pay (P80, 000 over the ceiling)
 Productivity incentive pay as provided in the CBA, P28, 000
 13th month pay and other benefits, P112, 000
3. How much is the income tax due of Pedro?
a. P80,000
b. P102,000
c. P192,000

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d. Nil
4. How much is the income tax due of Pedro in 2020 assuming he also earned P450, 000 derived from his
business of buying and selling various consumer products?
a. P30,000
b. P38,000
c. P68,000
d. P75,000
5. Using the same data in the immediately preceding number and the productivity incentive pay amounted
to P10, 000 only, how much is the correct income tax due?
a. P30,0000
b. P38,000
c. P68,000
d. P75,000
References:

SIA, TABAG & REYES (2018). Income Tax on Individuals. Taxation. Excel Professional Services, Inc.
TAMAYO, LIM, CAIGA & MANUEL (2019). Income Tax (Individuals, Estates and Trusts). Taxation. The
Review School of Accountancy
TABAG, E (2020). Individual Taxpayers. CPA Reviewer in Taxation with Special Topics and Properly Filled
BIR Form. EDT Bookshop

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