MODULE 3: INCOME TAX ON INDIVIDUALS – ACTIVE INCOME

A. CLASSIFICATION OF INDIVIDUALS
1. Resident Citizen – Pilipino residing in the Philippines
2. Non-Resident Citizen- Pilipino who stays more than 183 days or more outside the Philippines.
3. Resident Alien – An individual residing in the Philippines but not a citizen.
4. Non-Resident Alien - Not a resident and not a citizen.
a. Engaged in Trade or Business in the Philippines – an alien who comes and stays in the
Philippines for more than 180 days.
b. Not engaged in Trade of Business in the Philippines – an alien who comes and stays in the
Philippines for less than 180 days.
c. Alien individuals employed by Philippine Offshore Gaming Operators (POGO) and/or Offshore
Gaming Licensee (OGL)
B. SOURCES OF INCOME, TAX BASE AND TAX RATE
C. BASIC FORMAT OF COMPUTATION – PURE COMPENSATION INCOME

D. TAX TABLE
 E. EXCLUSIONS FROM GROSS INCOME

Exclusion from gross income of special significance to an employee

1. 13th month pay and other benefits such as Christmas bonus, productivity incentive bonus, loyalty award,
gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both
public and privates entities. Provided that the total exclusion shall not exceed ₱90,000. (RA10963)
2. GSIS, SSS, PhilHealth and Pag-ibig contributions, and union dues of individuals.
3. Benefits received from or enjoyed under the Social Security System in accordance with the provisions
of Republic Act No. 8282. Benefits received from the GSIS under Republic Act No. 8291, including
retirement gratuity received by government officials and employees. (Sec. 32[B]6 NIRC)

F. DE MINIMIS BENEFIT

1. Monetized unused vacation leave credits (private employees)- max 10 days during the year;
2. Monetized value of vacation and sick leave credits paid to government officials and employees;
3. Medical cash allowance to dependents of employees, not exceeding ₱1,500 per employee per semester
or ₱250 per month; (RR 11-2018 on TRAIN RA 10693)
4. Rice subsidy of ₱2,000 or one (1) sack of 50 kg. rice per month amounting to not more than ₱2,000; (RR 11-2018
on TRAIN RA 10693)
5. Uniform and clothing allowance not exceeding ₱6,000 per annum; (RR 11-2018 on TRAIN RA 10693)

6. Actual medical assistance not exceeding ₱10,000 per annum;

7. Laundry allowance not exceeding ₱300 per month;
8. Employees achievement awards (must be in the form of a tangible personal property other than cash or gift
certificate) with an annual monetary value not exceeding ₱10,000 received by the employee under an established
written plan which does not discriminate in favor of highly paid employees;
9. Gifts given during Christmas and major anniversary celebration not exceeding ₱5,000 per employee
per annum;
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum
wage on a per region basis;
11. Benefits by an employee by virtue of a collective bargaining agreement (CBA) and productivity
incentive schemes provided that the total monetary value received from both CBA and productivity
incentive schemes combined do not exceed ₱10,000 per employee per taxable year.

If the employee is given benefits that exceed the maximum limits, the excess is added to the 13th month pay and
other benefits such as productivity incentives and Christmas bonus if the total of the computation is greater than
₱90,000, it becomes taxable as part of the employee's gross income.

G. BASIC FORMAT OF COMPUTATION – BUSINESS OR PROFESSIONAL INCOME

Note: For Purely Self-Employed Individuals and/or Professionals

Gross Sales/Receipts Do Not Exceed the VAT Threshold of ₱3,000,000, the tax shall be, at the taxpayer’s
option: a. 8% Income Tax on Gross Sales or Gross Receipts in Excess of ₱250,000 in Lieu of the Graduated
Income Tax Rates and the Percentage Tax; Or
b. Income Tax Based on the Graduated Income Tax Rates
 H. BASIC FORMAT OF COMPUTATION – MIXED INCOME EARNERS

Note: For Individuals Earning Both Compensation Income and Income from Business and/or Practice of Profession, their income taxes shall be:
a. For Income from Compensation: Based on Graduated Income Tax Rates; and
b. For Income from Business and/or Practice of Profession:
(1) If the total Gross Sales/Receipts Do Not Exceed VAT Threshold of ₱3,000,000, the Individual Taxpayer May Opt to Avail:
a) 8% Income Tax on Gross Sales/Receipts and Other Non-Operating Income in Lieu of the Graduated Income Tax Rates
and the Percentage Tax; Or b) Income Tax Based on Graduated Income Tax Rates
(2) If the total Gross Sales/Receipts Exceed VAT Threshold of ₱3,000,000, Income Tax Based on Graduated Income Tax Rates