Las - Week 3.fabm II.

12
FUNDAMENTALS OF
ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 2
LEARNER'S ACTIVITY SHEET
Quarter 2 – Week 3:
Gross Taxable Income and

Tax Due
Fundamentals of A.B.M. 2– Grade 12
Learner's Activity Sheet
Quarter 2 – Week 3: Gross Taxable Income and Tax Due
First Edition, 2021
Republic Act 8293, section 176 states that: No copyright shall subsist in
any work of the Government of the Philippines. However, prior approval of
the government agency or office wherein the work is created shall be
necessary for exploitation of such work for profit. Such agency or office
may, among other things, impose as a condition the payment of royalties.
Borrowed materials (i.e., songs, stories, poems, pictures, photos,

brand names, trademarks, etc.) included in this module/activity
sheet are owned by their respective copyright holders. Every effort
has been exerted to locate and seek permission to use these
materials from their respective copyright owners. The publisher and
authors do not represent nor claim ownership over them.
Published by the Department of Education Secretary: Leonor Magtolis

Briones Undersecretary: Diosdado M. San Antonio
Development Team of the Module
Writer: Ma. Jemaris M. Solis
Editor:
Reviewers: Illustrator: Layout Artist:
Management Team:
Marilyn B. Siao
Roberto N. Mangaliman
Ma. Luz I. Orbe
Cecilia A. Arga
Ma. John Ray Rosales
Printed in the Philippines by

Department of Education – Schools Division of Catbalogan City
Office Address: Purok 4, Barangay Payao, Catbalogan City
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Address: Purok 4, Barangay Payao, Maharlika Highway, Catbalogan City, Samar

Email: depedcatbalogancitydivision15@gmail.com
Telefax: (005) 251-3196 | (055) 543-8268
\|
LEARNER’S ACTIVITY SHEET FOR QUARTER 2, WEEK 3
Competencies:
1. Explain the procedure in the computation of gross taxable income and tax
due
General Reminders: Use this activity sheet with care. Do not put
unnecessary mark/s on any part of the activity sheet. Use a separate sheet
of paper in answering the exercises. Read the directions carefully before
doing each task. Return this activity sheet to your teacher/facilitator once
you are through with it.
Explore
Below is an article about Tax Evasion, read the article and answer the questions
that will follow.
BIR files tax raps vs Zoren, 2 others

Zinnia B. Dela Peña (The Philippine Star) – May 9, 2014
MANILA, Philippines - The Bureau of Internal Revenue (BIR) yesterday filed tax
evasion cases against five individuals and corporations led by actor Zoren Legaspi
in line with the governments sustained campaign to run after tax dodgers.
In a complaint lodged before the Department of Justice, the BIR said Legaspi
willfully and deliberately underdeclared his income and failed to provide correct
information in his income tax returns (ITRs) for 2010 and 2012 in violation of
sections 254 and 255 of the National Internal Revenue Code.
Legaspi, registered with the BIR as a professional in the entertainment industry,

was assessed a tax liability of P4.45 million for those two years, inclusive of
surcharges and interest.
An investigation conducted by the BIR showed that Legaspi earned P9.64 million in
2010 and P6.49 million in 2012.
Documents submitted to the BIR, however, revealed that Legaspi declared only
P6.79 million as gross income in his 2010 ITR and P1.82 million in his 2012 ITR.
This means he under-declared his taxable income by P2.85 million or 42 percent in

2010 and P4.67 million or 256 percent in 2012.
Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Legaspi is among several other celebrities and high-profile individuals facing tax
evasion charges following an intensified crackdown on tax offenders.
Reacting to the tax case, Legaspi said, am more than willing to comply and
cooperate regarding the ongoing investigation of my tax liabilities.
He said they would review their tax records to determine what went wrong or if they
had committed any lapses at all.
“Im glad that the BIR brought their initial findings to the DOJ, that means they are
doing their job”, he said. I love my country... I will never evade any tax
obligation.
Aside from Legaspi, the BIR also filed yesterday a criminal complaint against
proprietress Gigi Donaire Chua, who owns Wangler Commercial; and Edgardo
Vazquez, president of Vazquez Building Systems Corp.
Chua had a tax deficiency of P329.79 million for 2007 consisting of P238.41 million
in income tax and P91.38 million in value added tax (VAT).
Vazquez, on the other hand, had a tax liability of P84.35 million for 2008. His firm
is engaged in the construction of buildings and residential houses and supply of
construction materials.
According to the BIR, Chua and Vazquez were served the corresponding Letter
Notice, Letters of Authority, Preliminary Assessment Notices, Final Assessment
Notices and Formal Letters of Demand with details of the discrepancies but they
failed to contest the assessments, making them final, executory and demandable.
The respondents obstinate failure and continued refusal to pay their long overdue
deficiency tax assessments, despite repeated demands, constitute willful failure to
pay the taxes due to the government,the BIR said.
The BIR has so far filed 242 cases against tax dodgers under its Run After Tax
Evaders program since Kim Henares took the reins of the tax collection agency.
The BIR aims to collect P1.46 trillion in revenues this year, 20 percent higher than
the P1.22 trillion collected in 2013.
To achieve its goal, the government has launched several public information
campaigns to encourage self-employed individuals and small businesses to pay the
right taxes.
The campaigns include the Department of Finances, Tax Watch shame campaign,
which involves the weekly publication of lists of individual and corporate taxpayers
in various industries.
Follow-up Questions:
1. Base on the article, what is tax evasion?

2. How is the government handling this kind of cases? What are their
solutions?
Learn (What is it/Discussion of the Topic)
Our topic for this Learning Activity Sheet is closely related to our topic in our
Learning Activity Sheet for week 3 to 4. So be sure to refer always to the previous
LAS while studying our topic here.
COMPUTATION of PERIODIC WITHHOLDING INCOME TAX of a

COMPENSATION INCOME EARNER
Again, taxation is the process by which the government collects revenue from
individuals and non-individuals in order to pay its expenses. There are many forms
of taxes in the Philippines. A few examples of taxes imposed in the Philippines are
Value Added Tax (VAT), income tax, real estate tax, and capital gains tax. We will
limit our discussion in withholding an individual income tax for a pure
compensation earner. A pure compensation earner is an individual whose sole
income comes from an employer-employee relationship.
How do we know if an employer-employee relationship exists? The Four Fold Test

Method will determine this. An employer-employee relationship exists when:
1. There is power to hire or selection and engagement
2. There is payment of salary or wages
3. There is power to dismiss
4. There is power to control an employee’s conduct
We learned from our previous lesson that Individual Income Tax is a tax on a
person’s taxable income. We also learned that taxable income is arrived at by
deducting exclusions and allowable deductions from the Gross Income. Familiarize
yourselves with these exclusions and allowable deduction prescribed by law in
order to compute properly the Taxable Income and the Income tax due.
The Gross Income of an individual might come from sources such as compensation,
business and/or the exercise of profession. Individuals who derive income solely
from compensation such as employees essentially pay their income tax dues
periodically through payroll deductions. This means, that employers deduct income
tax from their salaries and remit those to the government (BIR) on a monthly basis.
When you hear of employees (probably your parents) talk a lot of their monthly
withholding taxes, they are actually referring to individual income tax due taken
out of their salaries.

We will get the income tax due of the individual by applying the applicable tax rate
on the Taxable Income.
What is this applicable tax rate?
On December 19, 2017, President Rodrigo Duterte enacted into law the Republic
Act no. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion
or the TRAIN law as it is commonly referred to in daily parlance. With the advent of
this bill's signing into law, the government aims to address the decade’s long
inequity in the taxation policies from past administrations that hurt the poor and
the middle class. Personal income tax was diminished and in some cases, even
completely removed.
Naturally, as comes with every bit of change, there is a corresponding need to

adjust our older ways and adapt to changing times. From the broad perspective of
running a company and managing employee payroll, the new taxation policies
effected by the government would mean drastic changes in the manner in which
computations are made in terms of employee deductions and contributions. The
government is not amiss in providing tabular presentations of these new rates and
deductions for various income brackets.
In the next page is a table showing the new matrix for computing 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:
ON COMPENSATION
Compensation Income xxxxxx
Less: Non-taxable Income xxxxxx
13th month pay and other benefits (maximum) 90,000
Taxable Compensation Income xxxxxx
Multiply by tax rate (0% to 35%) xxxxxx
Income Tax Due on Compensation xxxxxx
The deductions in our compensation income refer to the Exclusions from our Gross
Income previously discussed in the Learning Activity Sheet (LAS) for week 3 and 4.
Once the taxable income is already known, you can now compute the withholding
tax or the income tax due based on the withholding tax table.

Telefax: (005) 251-3196 | (055) 543-8268
\|
Let’s have three employees to demonstrate the computation of the monthly
withholding tax on salaries.
Employee 1 Employee 2 Employee 3

Monthly basic compensation (net 19,000 32,000 45,000
of mandatory contributions and
other deductions)
For us to compute their prescribed withholding tax or monthly income tax due, we
need to refer to the BIR revised withholding tax table effective January 1, 2018 to
December 31, 2022 in the previous page.
As you notice on the given table it shows brackets for daily, weekly, semi-monthly
and monthly. For this illustration let us focus our attention to the monthly bracket.
For employee 1, the taxable compensation income is P19,000 which is within

bracket no.1. Base on the withholding tax table, we don’t have any tax on this
amount of compensation.
For employee 2, the taxable compensation income is P32,000. Bracket no.2 will be
applicable. 20% tax rate is applied to the amount over the compensation level.
Therefore, the monthly withholding tax or monthly income tax due for employee 2
is P2,233.40.
(P32,000 – P20,833) x 20% = P2,233.40

Telefax: (005) 251-3196 | (055) 543-8268
\|
For employee 3, the taxable compensation income is P 45,000. Bracket no.3 will be
applicable. We first apply the 25% tax rate to the amount over the compensation
level, the resulting amount is added to the predetermined amount of P2,500.
Therefore, monthly withholding tax or monthly income tax due for employee 3 is
P5,416.75.
P2,500 +[ (P45,000 - P33,333) x 25% ] = Monthly Income tax due

P2,500 + 2,916.75 =P 5,416.75
Lastly, assuming there was proper withholding done by the employer. The employee
is then qualified for a substituted filing wherein the employer being the authorized
withholding agent, will be the one filing the BIR form 1700 which is the income tax
return of the employee. BIR form 2316 shall be issued to employees receiving
salaries, wages and other forms of remuneration by each employer indicating
they’re in the total amount paid and the taxes withheld during the calendar year.
COMPUTATION OF YEAR-END TAX DUE
Even with periodic withholding, income tax is computed at the end of the year
based on all compensation income derived during the year. Again, Taxable Income
is computed after deducting exclusions and/or allowable deductions prescribed.
Applicable tax rate is then applied on the taxable income to get the tax due. The
objective of the periodic withholding is that the tax due computed at the end
of the year will be equal to the total amount withheld. However, this isn’t
always the case. At the end of the year, the employee could have remaining tax
liabilities or have tax refund receivable. The difference between total tax due and
total income tax withheld may be due to changes in salaries during the year which
could result from pay increase, promotion or change of employer.
Let us drop on employee 3 again. It is December 31 and we are computing for the
annual income tax due for this employee. There were no changes in their
compensation income during the year. Compute for the income tax due of employee
3. In computing the year-end tax due, we refer to the table in the next page.

Employee No. 3
The Compensation Income from January to December (net of mandatory
contributions and other deductions) is P540,000 (45,000 x 12).
The P540,000 is the Taxable Income and it falls in the 400,000 to 800,000
bracket.
Tax Due (P30,000 +{ [ P540,000 – 400,000] x 25%}) 65,000

Less: Tax Withheld (P 5,416.75 x 12) 65,000
Tax Payable P -0-
As you notice in the above computation. Annual income tax due is equal the Total
Tax withheld during the year, so Tax Payable for employee 3 is zero.
Let us have other illustrations in the computation of year-end tax due, this time
taking into account the three classifications of individual income taxpayers.
1. Pure Compensation Earner (employee)
2. Business Income Earner or Professional Income Earner (self-employed)
3. Mixed Income Earner (an individual earning compensation income from
employment, and income from business, practice of profession and/or other
sources aside from employment).
Let us first discuss the Income Tax Rates in computing the year-end tax for
Individual Citizens and Resident Aliens Earning Purely Compensation Income and
individuals engaged in Business and Practice of Profession.
A. Graduated Income Tax Rate under Section 24(A)(2) of the Tax Code of 1997,
as amended by R.A. no. 10963. This is the new Income Tax Table for the
year 2018-2022.
B. For purely self-employed individuals and/or Professionals whose Gross
Sales/Receipts and other Non-operating Income Do Not Exceed the VAT
Threshold of P3,000,000, the tax shall be, at the taxpayers option:
1. 8% Income Tax on Gross Sales or Gross Receipts in excess of

P250,000 in lieu of the Graduated Income Tax Rates and the
Percentage Tax; or
2. Income Tax based on the Graduated Income Tax Rates.

C. For Individuals earning both Compensation Income and Income from
Business and/or Practice of Profession, their income taxes shall be (Mixed
Income Earners):
1. For Income from Compensation based on Graduated Income Tax

Rates; and
2. For Income from Business and/or Practice of Profession:
a. If the Total Gross Sales/Receipts Do Not exceed VAT threshold

of P3,000,000, the individual taxpayer may opt to avail:
i. 8% Income Tax on Gross Sales or Gross Receipts and
other Non-operating Income in lieu of the Graduated
Income Tax Rates and the Percentage Tax; or
ii. Income Tax based on Graduated Income Tax Rates.
b. If the Total Gross Sales/ Receipts Exceed VAT Threshold of P
3,000,000
i. Income Tax Based on Graduated Income Tax Rates
How is Annual Income Tax due of individuals computed?
A. Based on Graduated Income Tax Rate
Gross Income xxx

Less: Allowable Deductions (Itemized or Optional) xxx
Net Taxable Income xxx
Multiply by Tax Rate (0% to 35%) xxx
Income Tax Due xxx
B. Based on Preferential Tax Rate of 8%

i. Taxpayers source of income is purely from self-
employment.
Gross Sales/Receipts xxxxxx
Add: Non-operating Income xxxxxx
Gross Taxable Income xxxxxx
Less: Amount allowed as deduction under Sec 24 (A)
(2) (b) of NIRC, as amended 250,000
Net Taxable Income xxxxxx
Multiply by Tax Rate 8%
Income Tax Due xxxxxx
ii. Mixed Income Earner

ON COMPENSATION
Total Compensation Income xxxxxx
Less: Non-taxable Income xxxxxx
13th month pay and other benefits (maximum) 90,000

Taxable Compensation Income xxxxxx
Multiply y tax rate (0% to 35%) xxxxxx
Income Tax Due on Compensation xxxxxx
ON BUSINESS INCOME
Gross Sales/ Receipts xxxxxx
Add: Non-operating income xxxxxx
Taxable Business Income xxxxxx
Multiply by tax rate 8%
Income Tax Due on Business Income xxxxxx
Total Income Tax Due

(Compensation + Business) xxxxxx
ILLUSTRATION 1:
A minimum wage earner, who isn’t engage in business nor has any other source of
income other than from employment, earned a total annual compensation income
of P 135,000.00
The taxpayer contributed SSS, Philhealth, and HDMF totalling P5,000.00 and
received 13th month pay of 11,000.00 The income tax liability is computed as
follows.
Total Compensation Income 135,000

Less: Mandatory Contributions* 5,000
Non-taxable benefits* 11,000 16,000
Taxable Income 119,000
Income Tax Due *NONE
 Please refer to Exclusions from Gross Income in the LAS for week 3 and 4.
 Minimum wage earners are exempt from income tax (refer to LAS week 3-4).
ILLUSTRATION 2:
Mr. Malubay operates a drug store while he offers his medical services to his
patients in a clinic located inside the drugstore. In 2019, his gross sales amounted
to P800,000, in addition to his receipts from his medical services of P 300,000. He
already signified his intention to be taxed at 8% income tax rate in his 1 st quarter.
Mr. Malubay is a purely self-employed individual and a professional at the
same time.
Gross Sales – Convenience Store P800,000

Gross Receipts - Bookkeeping 300,000
Total Sales/Receipts 1,100,000
Less: Amount allowed as deduction 250,000
under sec. 24 (A) (2) (b)
Taxable Income P850,000
Tax due: P 850,000 x 8% = P 68,000

ILLUSTRATION 3: Mr. Malubay failed to signify his intention to be taxed at 8%
income tax rate on gross sales in his initial quarterly income tax return, this means
that he opted for the Income Tax based on Graduated Income Tax Rates. He
incurred Cost of Sales and Operating Expenses amounting to P 600,000 and P
200,000 respectively, or a total of P 800,000.
Referring to the New income tax table, the P 300,000 taxable income falls to the
250,000 to 400,000 bracket. Therefore, the total income tax shall be computed as
follows:
Gross Sales/Receipts P1,100,000

Less: Cost of Sales 600,000
Gross Income 500,000
Less: Operating Expenses 200,000
Taxable Income P300,000
Tax Due:
On excess (P 300,000 – P 250,000) x 20% = P 10,000
ILLUSTRATION 4: Mr. LMNO signified his intention to be taxed at 8% income tax

rate on gross sales in his 1 st Quarter Income Tax Return. He has no other source of
income. His total sales for the first three quarters amounted to P 3.000,000 with 4 th
quarter sales of P 3,500,000. Mr. LMNO is a Pure self-employed individual or a
business income earner.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total Sales P 500,000 500,000 P2,000,000 P3,500,000
Less: Cost of Sales 300,000 300,000 1,200,000 1,200,000
Gross Income 200,000 200,000 800,000 2,300,000
Less: Operating Expenses 120,000 120,000 480,000 720,000
Taxable Income P 80,000 P 80,000 320,000 1,580,000
Year-end Income Tax due shall be computed as follows:
Total Sales P 6,500,000

Less: Cost of Sales 3,000,000
Gross Income 3,500,000
Less: Operating Expenses 1,440,000

Taxable Income P 2,060,000
Income Tax due

Tax due under the graduated rates P509,200
Less: Income tax previously paid (Q1
to Q3) (P 3,000,000 – P 250,000) x
8% 220,000
Annual Income Tax Payable 289,200
Gross Sales or Total Sales of P6,500,000 for the 4 th Quarter Exceeded the VAT
Threshold of P3,000,000, the taxpayer shall be liable to pay Income Tax under the
Graduated Income Tax rates pursuant to section 24 (A) (2a) of the Tax Code as
amended. Taxpayer shall also be allowed an income tax credit of quarterly payment
initially made under the 8% income tax option computed net of the allowable
deduction of P 250,000 granted for purely business income.
In this illustration taxpayer is also liable for business taxes in addition to income
tax.
The Taxable Income of P2,060,000 for the 4th Quarter falls under P2,000,000 to
P8,000,000 bracket in the New Income Tax Table.
P490,000 + (32% x [P2,060,000 – P2,000,000])= Tax under the graduated rates
509,200 = Tax under the graduated rates
ILLUSTRATION 5: Mr. Ku Rapt, a financial controller of PDWH Company, earned

an annual compensation in 2019 of P 1,500,000 inclusive of 13 th month and other
benefits in the amount of P 120,000 but net of mandatory contributions to SSS and
Philhealth. Aside from employment income, he owns a convenience store, with
gross sales of P 2,400,000. His Cost of Sales and operating expenses are
P 1,000,000 and P600,000, respectively, and with non-operating income of
P 100,000. Mr. Ku Rapt is a mixed-income earner.
a. Assuming he opted to be taxed at 8 % income tax rate on his

gross sales for his income from business, his tax due for 2019
is:
Total Compensation Income P1,500,000

Less: Non-taxable 13 month pay & other
benefits (maximum) 90,000
Annual Taxable compensation income P1,410,000
Year-end Income Tax Due:

1. On Compensation:
P130,000 + (30% x [1,410,000 – 800,000]) = Year-end Income Tax due
P 313,000 = Year-end Income Tax due on compensation
2. On Business Income
Gross Sales P2,400,000
Add: Non-operating income 100,000
Taxable Business Income 2,500,000
Multiplied by income tax rate 8%
Income Tax due on business income P 200,000
TOTAL ANNUAL INCOME TAX DUE (Compensation + Business) = P 513,000
The option of 8% income tax rate on Gross Sales or receipts is applicable only to
taxpayers whose earning income purely from self-employment or practice of
profession.
Practice Exercises/Activity
Practice Exercise No.1
Refer to BIR Withholding Income Tax Table. Determine the withholding

income tax deduction for each pay period of the taxpayers in the following
scenario (Provide solutions):
1. Mimi Yuhh is paid a monthly compensation of P20,000 (net of mandatory
contributions).
2. Ms. Everything’s salary is P 18,000 (net of mandatory contributions) paid
semi-monthly.
3. Alex Gogaga is paid a weekly salary of P 2,500 (net of mandatory
contributions of SSS, Philhealth, and Pag-ibig Fund).

Mr. Prince, a Certified Public Accountant offers his service as a financial consultant
to big companies like GHJ Company. At the same time, he also owns and operates
a grocery store in town. Her gross sales from operations during the year amounted
to P 500,000, while his Gross Receipt as a financial consultant amounted to P
430,000.
Requirement (Provide solutions):

1. Compute for her Taxable Income and Income Tax Due, assuming he opted to
be taxed at 8% income tax rate in her 1st quarter.
2. Compute for her Taxable Income and Income Tax due, assuming he didn’t
intend to be taxed at 8% income tax rate.
Ta Bees Restaurant is a sole proprietorship owned and managed by Ernalyn T.

Jones. Based on his accounting books on 20x9, Gross Sales amounted to
P 750,000 while Non-Operating Income amounted to P 150,000. Her Cost of Sales
and other Operating Expenses are, P 300,000 and P 200,000 respectively.
Ernalyn is also fully employed as a Senior Accountant at Coca-Cola Corporation. As

an employee, she receives a gross annual salary of P 500,000, inclusive of
mandatory contributions and 13th month pay of P 9,800 and P 110,000,
respectively.
Requirement:
1. Compute for the income tax due, assuming she failed to signify her intention
to be taxed at 8% income tax rate (Provide solution).
2. Compute for the income tax due, assuming she signified her intention to be
taxed at 8% income tax rate (Provide solution).
Practice Exercise No. 4
Ms. May Yongs is a sole proprietorship who owns and operates a bakery store in
town. Her Total Sales for the first three (3) quarters amounted to P 2,500,000. On
the 4th quarter, sales amounted to the same amount. Ms. May Yongs signified his
intention to be taxed at 8% income tax rate on the first three quarters.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total Sales 500,000 1,000,000 1,000,000 2,500,000
Less: Cost of
Sales 300,000 500,000 400,000 600,000
Gross Income 200,000 500,000 600,000 1,900,000
Less: Operating
Expenses 150,000 150,000 150,000 150,000
Net Income 50,000 350,000 450,000 1,750,000
Requirement:
1. Compute for the Taxable Income (Provide solution).

2. Compute for the annual income tax due (Provide solution).
Practice Exercise No. 5
Mr. Orlys works as a Sales Supervisor in a private firm. He is earning an annual

compensation of P 500,000, inclusive of mandatory contribution and 13th month
pay amounting to P10,000 and P110,000, respectively.
He is also Paediatrician and provides services in his own clinic. His gross receipt
from such activity in a year is P 3,300,000.
Requirement:
1. Compute for the Taxable Income (Provide solution).
2. Compute for the annual income tax due (Provide solution).
Engage (What I Learned/Generalizations)
Directions: Answer the following questions. Write your answer on a

separate sheet of paper.
1. How is monthly withholding income tax determined?
2. How is a pure compensation earner taxed?
3. How is a mixed income earner taxed?

Apply (What I Can Do)
Instruction: Source copies of the National Internal Revenue Code. Discuss the
importance of your familiarity with this code.
Post Test
TEST I. TRUE OR FLASE

Direction: Determine if the statement is True or False. Write T if true F if
False.
1. The Tax reform for Acceleration or TRAIN law is otherwise known as
Republic Act no. 10964.
2. The income tax computed at the end of the year is always equal to the total
amount withheld.
3. To be considered as a mixed income earner, an individual must be an
employee, business owner and a professional exercising his/her profession.
4. For an individual who is a mixed income earner, Income Tax Rate is based
on the Graduated income tax if the Total Gross Sales/Receipts exceed the
VAT threshold of P 3,000,000.

5. The option of 8% income tax rate is applicable to both business and
compensation earners.
TEST II. Computation

A. Direction: Using the BIR withholding tax table, compute for the withholding
income tax deduction of the following individuals (Provide solutions).
Taxpayer Monthly gross compensation(net of

mandatory contributions)
Vice 18,000
Bayani 28,000
Luis 24,000
B. Direction: Using the same information above and assuming no changes occurred
during the year, compute for the annual income tax due for the above three
taxpayers.
REFERENCES:
Frias, S. (2016). Fundamentals of ABM: A textbook in Basic

Accounting 2, Phoenix Publishing House Inc.
Salazar, D. Fundamentals of ABM 2, REX bookstore Inc. Sampalok

Manila,2017
Monfero, R.P., Andres C., Salazar, D.R. (2016). Fundamentals ABM

2. Quezon City: CHED
https://www.youtube.com/watch?v=ay7zlG0QTgY
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-
https://www.bir.gov.ph/index.php/tax-information/income-
tax.html

https://www.youtube.com/watch?v=5dkPPFL84bw


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12

Gross Taxable Income and

First Edition, 2021

Borrowed materials (i.e., songs, stories, poems, pictures, photos,

Published by the Department of Education Secretary: Leonor Magtolis

Printed in the Philippines by

Address: Purok 4, Barangay Payao, Maharlika Highway, Catbalogan City, Samar

BIR files tax raps vs Zoren, 2 others

Legaspi, registered with the BIR as a professional in the entertainment industry,

This means he under-declared his taxable income by P2.85 million or 42 percent in

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Learn (What is it/Discussion of the Topic)

COMPUTATION of PERIODIC WITHHOLDING INCOME TAX of a

How do we know if an employer-employee relationship exists? The Four Fold Test

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

What is this applicable tax rate?

Naturally, as comes with every bit of change, there is a corresponding need to

The computation of the deductible tax depends on whether an employee is paid

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Employee 1 Employee 2 Employee 3

For employee 1, the taxable compensation income is P19,000 which is within

(P32,000 – P20,833) x 20% = P2,233.40

Address: Purok 4, Barangay Payao, Maharlika Highway, Catbalogan City, Samar

P2,500 +[ (P45,000 - P33,333) x 25% ] = Monthly Income tax due

COMPUTATION OF YEAR-END TAX DUE

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Tax Due (P30,000 +{ [ P540,000 – 400,000] x 25%}) 65,000

1. 8% Income Tax on Gross Sales or Gross Receipts in excess of

2. Income Tax based on the Graduated Income Tax Rates.

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

1. For Income from Compensation based on Graduated Income Tax

2. For Income from Business and/or Practice of Profession:

a. If the Total Gross Sales/Receipts Do Not exceed VAT threshold

How is Annual Income Tax due of individuals computed?

A. Based on Graduated Income Tax Rate

Gross Income xxx

B. Based on Preferential Tax Rate of 8%

ii. Mixed Income Earner

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Total Income Tax Due

Total Compensation Income 135,000

Gross Sales – Convenience Store P800,000

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Gross Sales/Receipts P1,100,000

ILLUSTRATION 4: Mr. LMNO signified his intention to be taxed at 8% income tax

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Year-end Income Tax due shall be computed as follows:

Total Sales P 6,500,000

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

Income Tax due

P490,000 + (32% x [P2,060,000 – P2,000,000])= Tax under the graduated rates

509,200 = Tax under the graduated rates

ILLUSTRATION 5: Mr. Ku Rapt, a financial controller of PDWH Company, earned

a. Assuming he opted to be taxed at 8 % income tax rate on his

Total Compensation Income P1,500,000

Year-end Income Tax Due:

Address: Purok 4, Barangay Payao, Catbalogan City, Samar

TOTAL ANNUAL INCOME TAX DUE (Compensation + Business) = P 513,000

Practice Exercise No.1

Refer to BIR Withholding Income Tax Table. Determine the withholding

Practice Exercise No.2