INDIVIDUAL

INCOME TAXATION
By Erica Jimenez
CLASSIFICATIONS OF INDIVIDUAL INCOME TAXPAYERS:

▪ Resident Citizen

▪ Non-Resident Citizen

▪ Resident Alien

▪ Non-Resident Alien - ETB

▪ Non-Resident Alien - NETB

CLASSIFICATIONS OF INDIVIDUAL INCOME TAXPAYERS:

▪ Purely Compensation Income Earner

▪ Purely Business Income Earner

/ Professional Income Earner

▪ Mixed Income Earner

 A husband and wife, resident citizens, with one (1)
qualified dependent child, had the following income and
expenses for the year 2020. The husband waived the
additional exemption in favor of his wife.

P 450,000 Salary of the husband, net of P50,000

RETURN OF withholding tax
600,000 Salary of the wife, gross of P60,00
MARRIED withholding tax
1,500,000 Gross professional income, husband,

TAXPAYERS gross of 15% withholding tax

500,000 Cost of services, husband
300,000 Expenses, practice of profession
800,000 Gross sales, wife
300,000 Cost of sales, wife’s business
100,000 Business expenses, wife
700,000 Gross rental income, lease of common
property (Gross receipts, P1,000,000)
200,000 Expenses, leased common property
600,000 Gross business income, Singapore (gross
sales, P800,000)
150,000 Business expenses, Singapore
 Husband Wife
Gross Compensation Income P 500,000 P 600,000 A husband and wife, resident citizens, with one (1)
qualified dependent child, had the following income and
expenses for the year 2020. The husband waived the
Gross Sales/Receipts 1,500,000 800,000
additional exemption in favor of his wife.
Less: Cost of Sales/Services (500,000) (300,000)
P 450,000 Salary of the husband, net of P50,000
Gross Income 1,000,000 500,000 withholding tax
Other Income 600,000 Salary of the wife, gross of P60,00
withholding tax
Rent Income 350,000 350,000 1,500,000 Gross professional income, husband,
Gross Income, Singapore 300,000 300,000 gross of 15% withholding tax
500,000 Cost of services, husband
Total 1,650,000 1,150,000 300,000 Expenses, practice of profession
800,000 Gross sales, wife
Less: Itemized Deductions (300,000) (100,000)
300,000 Cost of sales, wife’s business
Expenses, leased property (100,000) (100,000) 100,000 Business expenses, wife
700,000 Gross rental income, lease of common
Expenses, Singapore (75,000) (75,000) property (Gross receipts, P1,000,000)
Taxable Income from Business P 1,175,000 P 875,000 200,000 Expenses, leased common property
and Profession 600,000 Gross business income, Singapore (gross
sales, P800,000)
150,000 Business expenses, Singapore

Total Taxable Net Income P 1,675,000 P 1,475,000

 MWE

RETURN OF
MARRIED
TAXPAYERS
 PURELY COMPENSATION INCOME

WITHHOLDING TAX ON COMPENSATION

SUBSTITUTED FILING OF TAX RETURN FOR EMPLOYED TAXPAYER

BIR FORM 2316
(from employer)
A. Purely compensation income
B. Only one employer in the Philippines
C. Correct tax withheld
D. Spouse also complies TAX CREDIT
E. Employer files 1601-C and 1604-CF
F. Employer issues 2316 :proof if not substituted filing

CONSOLIDATED / ANNUAL / ADJUSTMENT INCOME TAX RETURNS

BIR FORM 1700
(purely compensation income)
A. Concurrent employment
B. Successive employment
C. Receipts of income subjected to RIT BIR FORM 1701
(mixed income)
D. Mixed Income Earners
Income Tax Due
Less: (TC) Creditable Withholding Tax 2316
Income Tax Due and Payable
 PURELY COMPENSATION INCOME

ILLUSTRATION

Mr. Seo Milo is a sales executive. He received the following compensation and benefits
from his employer:
Gross compensation income P 987,000 RIT
Exempt benefits 84,000 EX
Fringe benefits 81,000 FT
Mandatory deductions 40,000 EX
Total withholding tax deducted (Form 2316) 145,750 CWT
He also received the following other income:
Interest income from bonds, (net 20%) P 72,000 RIT 18,000 CWT

Interest income from bank deposits, (net 20%) 16,000 FT

Gain on sale of arts collection, (held 3 years) 124,000 RIT X 50%
Income Tax Due
Less: (TC) Creditable Withholding Tax
Income Tax Due and Payable
 PURELY COMPENSATION INCOME

ILLUSTRATION

Mr. Seo Milo is a sales executive. He received the following compensation and benefits
from his employer:
Gross compensation income P 987,000 RIT P 987,000
Exempt benefits 84,000 EX (84,000)
Fringe benefits 81,000 FT (40,000)
TCI P 863,000
Mandatory deductions 40,000 EX
Other Income 152,000
2316
Total withholding tax deducted (Form 2316) 145,750 CWT
Taxable Income P1,015,000
He also received the following other income: *tax table
Interest income from bonds, (net 20%) 2307 P 72,000 RIT 18,000 CWT
Tax Due P 194,500
(145,750)
Interest income from bank deposits, (net 20%) 16,000 FT (18,000)
Gain on sale of arts collection, (held 3 years) 124,000 RIT X 50%
P 30,750
 PURELY COMPENSATION INCOME

ILLUSTRATION

Mr. A, works for ABC., Inc. He is not engaged in business nor has any other source of
income other than his employment. For 2020, Mr. A earned a total taxable compensation
income of P1,060,000. How much is his income tax liability?

Taxable Compensation Income P 1,060,000

Tax Due:
On P800,000 P 130,000
On Excess (P1,060,000 – P800,000) x 30% 78,000
Tax Due P 208,000
PURELY BUSINESS/ PROFESSIONAL INCOME

BIR FORM 1701Q

BIR FORM 1701A

Income Tax Due

Less: (TC) Creditable Withholding Tax 2307 1701Q
Income Tax Due and Payable
MIXED INCOME

BIR FORM 1701Q For Business / Professional Income ONLY

BIR FORM 1701A Business / Professional Income + Taxable Compensation

Income

TAX TABLE

Income Tax Due

Less: (TC) Creditable Withholding Tax 2316 2307 1701Q 5% PERA
Income Tax Due and Payable
8%
option
PURELY BUSINESS/ PROFESSIONAL INCOME

MIXED INCOME

• For NON-VAT TAXPAYERS ONLY

✓ PURELY BUSINESS / PROFESSION ✓ MIXED INCOME (BUSINESS + COMPENSATION)

Gross Sales or Gross Receipts Gross Sales or Gross Receipts ON BUSINESS
+ Other income subject to RIT + Other income subject to RIT
Less: P 250,000

ILLUSTRATION ILLUSTRATION

Assume a taxpayer who is purely engaged in Assume a mixed income earner realized P920,000 from
business has sales of P2,000,000, P100,000 other compensation, 2,000,000 in sales, P100,000 other income
income subject to regular tax and expenses of subject to regular tax and incurred P480,000 in expenses.
P840,000.
 PURELY BUSINESS/ PROFESSIONAL INCOME

ILLUSTRATION

Ms. B operates a convenience store while she offers bookkeeping services to her clients. In 2020, her
gross sales amounted to P800,000, in addition to her receipts from bookkeeping services of P300,000.
She already signified her intention to be taxed at 8% income tax rate in her 1st quarter return. How much
is the income tax liability for the year?

Gross Sales – Convenience Store P 800,000

Gross Receipts – Bookkeeping 300,000
Total Sales/Receipts P 1,100,000
Less: Amount allowed as deduction (250,000)
Taxable Income P 850,000
Tax Due (8% x P850,000) P 68,000
 PURELY BUSINESS/ PROFESSIONAL INCOME

ILLUSTRATION

Ms. B operates a convenience store while she offers bookkeeping services to her clients. In 2020, her
gross sales amounted to P800,000, in addition to her receipts from bookkeeping services of P300,000.
She failed to signify her intention to be taxed at 8% income tax rate in her 1st quarter return, and she
incurred direct costs and operating expenses amounting to P600,000 and P200,000, respectively, or a
total of P800,000. How much is the income tax?

Gross Sales – Convenience Store P 800,000

Gross Receipts – Bookkeeping 300,000
Less: Direct Costs (600,000)
Total Sales/Receipts P 500,000
Less: Amount allowed as deduction (200,000)
Taxable Income P 300,000
Tax Due – on excess over P250,000 (P300,000 – P250,000) x 20% P 10,000
 MWE

RETURN OF
MARRIED
TAXPAYERS

OSD
 PURELY BUSINESS/ PROFESSIONAL INCOME

ILLUSTRATION

Ms. C operates a convenience store

while she offers bookkeeping services to Gross Sales – Convenience Store P 1,800,000

her clients. In 2020, her gross sales Gross Receipts – Bookkeeping 400,000
amounted to P1,800,000, in addition to Total P 2,200,000
her gross receipts from bookkeeping Less: OSD (P2,200,000 x 40%) 880,000
services of P400,000. Her recorded cost Net Taxable Income P 1,320,000
of goods sold and operating expenses
were P1,325,000 and P320,000, Tax Due:
respectively.
On P800,000 P 130,000
1. How much is Ms. C’s taxable income On Excess (P1,320,000 – P800,000) x 30% 156,000
and income tax due if she opted to avail Tax Due P 286,000
of the OSD?
 PURELY BUSINESS/ PROFESSIONAL INCOME

ILLUSTRATION

Ms. C operates a convenience store

while she offers bookkeeping services to
her clients. In 2020, her gross sales Gross Sales – Convenience Store P 1,800,000
amounted to P1,800,000, in addition to
Gross Receipts – Bookkeeping 400,000
her gross receipts from bookkeeping
services of P400,000. Her recorded cost Total P 2,200,000
of goods sold and operating expenses Less: Amount allowed as deduction (250,000)
were P1,325,000 and P320,000, Net Taxable Income P 1,950,000
respectively. Tax Due: 8% of P1,950,000 P 156,000
2. How much is her income tax liability if
she signifies her intention to be taxed at
8% income tax rate in her 1st Quarter
return?
 MIXED INCOME
Total Compensation Income P 1,500,000
Less:
ILLUSTRATION Non-taxable 13th month pay and other benefits (90,000)
Taxable Compensation Income P 1,410,000
In 2021, Mr. D, a Financial Comptroller of
ABC Company, earned annual compensation Tax Due:
of P1,500,000, inclusive of 13th month and (a) On Compensation:
other benefits in the amount of P120,000 but On P800,000 P 130,000
net of mandatory contributions to SSS and On Excess (P1,410,000 – P800,000) x 30% 183,000
Tax Due on Compensation Income P 313,000
Philhealth. Aside from employment income,
he owns a convenience store, with gross (b) On Business Income
sales of P2,400,000. His cost of sales and Gross Sales P 2,400,000
operating expenses are P1,000,000 and Add: Non-Operating Income 100,000
P600,000, respectively, and with non- Taxable Business Income P 2,500,000
Multiplied by Income Tax Rate 8%
operating income of P100,000.
Tax Due on Business Income P 200,000
1. How much is his tax due for 2021 if he
Total Income Tax Due P 513,000
opted to be taxed at 8% income tax rate of (Compensation and Business)
his gross sales for his income from business?
 MIXED INCOME

Total Compensation Income P 1,500,000

ILLUSTRATION Less:
Non-taxable 13th month pay and other benefits (90,000)
In 2021, Mr. D, a Financial Comptroller of
Taxable Compensation Income P 1,410,000
ABC Company, earned annual compensation
of P1,500,000, inclusive of 13th month and Add: Taxable Income from Business
other benefits in the amount of P120,000 but Gross Sales P 2,400,000
net of mandatory contributions to SSS and Less: Cost of Sales 1,000,000
Gross Income P 1,400,000
Philhealth. Aside from employment income,
Less: Operating Expense (600,000)
he owns a convenience store, with gross Net Income from Operation P 800,000
sales of P2,400,000. His cost of sales and Add: Non-Operating Income 100,000
operating expenses are P1,000,000 and Total Taxable income from Business P 900,000
P600,000, respectively, and with non-
Total Taxable Income P 2,310,000
operating income of P100,000.

1. How much is his income tax due for 2021 if Tax Due:
On P2,000,000 P 490,000
he did not opt for the 8% income tax based
On Excess (P2,310,000 – P2,000,000) x 32% 99,200
on gross sales/receipts and other non- Tax Due P 582,200
operating income?
 MWE
ESTATE
AND TRUST
RETURN OF
MARRIED
TAXPAYERS

OSD
 ESTATE ✓ file separate returns
AND TRUST ✓ BIR consolidates
✓ estate is a taxpayer if it is under several trusts with
settlement or administration common grantor and a
common beneficiary
✓ trust is a taxpayer if the fiduciary
(a) must accumulate the income,
(b) may accumulate or distribute the income, in his discretion.

estate or a trust is a taxpayer, distribution of income to an heir or beneficiary is:

✓ special item of deduction for the estate/trust; Gross Income
Less: Deductions
✓ special item of income to the heir/beneficiary Business Expenses
Distribution of year’s income
to the heir/beneficiary
Taxable Net Income
Tax Due
ILLUSTRATION

On December 1, 2020, Mr. A created a trust for his son B and appointed X as the trustee. On December 26, 2020, another
trust was created by Mr. A for the benefit of the same son, B, single. Y was appointed as the trustee. The following data
pertain to the two trusts:
Trust under X Trust under Y
Gross Income P 500,000 P 600,000
Expenses 100,000 300,000
Income distributed to B, gross of 15% withholding tax 50,000 100,000

Compute the tax due from:

1. Each trust

Trust under X Trust under Y

Gross Income P 500,000 P 600,000
Less: Expenses (100,000) (300,000)
Income Distribution (50,000) (100,000)
Taxable Net Income P 350,000 P 200,000
Tax Due [Sec 24(a)] P 20,000 Exempt
ILLUSTRATION

On December 1, 2020, Mr. A created a trust for his son B and appointed X as the trustee. On December 26, 2020, another
trust was created by Mr. A for the benefit of the same son, B, single. Y was appointed as the trustee. The following data
pertain to the two trusts:
Trust under X Trust under Y
Gross Income P 500,000 P 600,000
Expenses 100,000 300,000
Income distributed to B, gross of 15% withholding tax 50,000 100,000

Compute the tax due from:

1. Each trust
2. The consolidated income

Consolidated Gross Income P 1,100,000

Less: Consolidated Expenses (400,000)
Consolidated Income Distribution (150,000)
Taxable Net Income P 550,000
Tax Due [Sec 24(a)] P 67,500
ILLUSTRATION

On December 1, 2020, Mr. A created a trust for his son B and appointed X as the trustee. On December 26, 2020, another
trust was created by Mr. A for the benefit of the same son, B, single. Y was appointed as the trustee. The following data
pertain to the two trusts:
Trust under X Trust under Y
Gross Income P 500,000 P 600,000
Expenses 100,000 300,000
Income distributed to B, gross of 15% withholding tax 50,000 100,000

Compute the tax due from:

1. Each trust
2. The consolidated income
3. Each trust after share in the consolidated income tax

Trust under X Trust under Y

Share in the Consolidated Income Tax P 44,955* P 24,545**
Less: Income already paid (20,000) ( - )
Tax Payable P 22,955 P 24,545

* (P350,000/P550,000) x P67,500 = P44,955

** (P200,000/P550,000) x P67,500 = P24,545
ILLUSTRATION

On December 1, 2020, Mr. A created a trust for his son B and appointed X as the trustee. On December 26, 2020, another
trust was created by Mr. A for the benefit of the same son, B, single. Y was appointed as the trustee. The following data
pertain to the two trusts:
Trust under X Trust under Y
Gross Income P 500,000 P 600,000
Expenses 100,000 300,000
Income distributed to B, gross of 15% withholding tax 50,000 100,000

Compute the tax due from:

1. Each trust
2. The consolidated income
3. Each trust after share in the consolidated income tax
4. The beneficiary

Income Distribution received P 150,000

Tax Due [Sec 24(a)] -

Less: CWT (15% x 150,000) (22,500

Tax Payable (Overpayment) (P 22,500)
ILLUSTRATION

Ms. E, a rich business woman, established on December 2019 a trust for the benefit of her daughter Z, 18
years old, single. She transferred to the trust two (2) income producing properties with the following gross
rentals:
(a) Vacant lot leased for P600,000 annually, gross of withholding tax
(b) Office building with monthly rental income of P25,000, gross of withholding tax

The appointed trustee was Mr. J. During the year 2020, ordinary trust expenses amounted to P350,000 and
income distributed to the beneficiary amounted to P150,000.

The beneficiary has gross sales from her trading business amounting to P500,000 and business expenses
totaling P100,000.
Gross Sales for trading business P 500,000
Compute the taxable net income of the: Less: Business Expenses (100,000)
1. Trust using optional standard deduction Gross Income P 400,000
2. Beneficiary using itemized deduction Add: Income Distribution Received 150,000
Taxable Net Income P 550,000

Gross Rentals – vacant lot P 600,000

Gross Rentals – office building (P25,000 x 12) 300,000
Total Gross Rentals P 900,000
Less: Optional Standard Deduction (40% x P900,000) (360,000)
Taxable Net Income P 540,000
 INSTALLMENT
MWE PAYMENT
ESTATE 1ST – Upon Filing
AND TRUST 2nd – On or
RETURN OF Before OCT 15

MARRIED
TAXPAYERS
FILING
APRIL 15
ATTACHMENTS
OSD - Certificate of Ind. CPA
- Financial Statements
- Itemized Deductions
- Proof for Tax Credits