Income Taxation (Individual Taxation)

Individual Taxpayers: Income Taxes for Individual Taxpayer

I. Definition
Individual taxpayers are natural persons with income derived from within the territorial jurisdiction of taxing authority. Under the Tax
Code, individual taxpayers are classified as:
1. Resident citizen (RC)
2. Nonresident citizen (NRC)
3. Resident alien (RA)
4. Nonresident alien (NRA)
Engaged in trade or business (NRA ETB)
Nonresident alien not engaged in trade or business (NRA NETB)
Special alien (SA)

Citizens of the Philippines

A Filipino citizen is a natural person who is/has
Born (by birth) with father and/or mother as Filipino citizens;
Born before January 17, 1973 (1972 Philippine Constitution) of Filipino mother who elects Philippine citizenship upon
reaching the age of majority;
Acquired Philippine citizenship after birth (naturalized) in accordance with Philippine Laws. i

Nonresident Citizen of the Philippines

He is a citizen who:
Establishes, to the satisfaction of the Commissioner of Internal Revenue, the fact of his Physical presence abroad
with a definite intention to reside therein, or
Leaves the Philippines during the taxable year to reside abroad
a. As an immigrant, or
b. For employment on a permanent basis; or
c. For work and derives income from abroad and whose employment thereat requires him to be physically
abroad most of the time during the taxable year.
A citizen of the Philippines who shall have stayed outside the Philippines for one hundred eighty-three days (183
days) or more by the end of the year.

Overseas Contract Worker (OCW)/Overseas Filipino Worker (OFW)

As Filipino citizens employed in foreign countries, commonly referred to as OFWs, who are physically present in a foreign
country as a consequence of their employment thereat. Their salaries and wages are paid by an employer abroad and are
not borne by entities or person in the Philippines. Hence, OFWs are classified as nonresident citizens (NRC) for tax purposes.
To be considered as an OCW or OFW, they must be duly registered as such with the Philippine Overseas Employment
Administration (POEA) with a valid Overseas Employment Certificate (OEC)
Seafarers or seamen are Filipino citizen who citizen who receive compensation for services rendered abroad as a member of
the complement of a vessel engaged exclusively for international trade. To be considered as an OCW or OFW, they must be
duly registered as such with the Philippine Overseas Employment Administration (POEA) with a valid Overseas Employment
Certificate (OEC) with Seafarers Identification Record Book (SIRB) or Seamans Book issued by the Maritime Industry
Authority (MARINA)

II. Kinds of Income of Individual taxpayer

1. Compensation Income. Income arising from personal services under an employer-employee relationship, whether it takes
the form of salaries, honoraria, bonuses, pensions, allowances, representation fees, and other similar incomes, whether paid
in cash or in kind. (Section 24 a; Normal or Basis 5% to 32% progressive tax rate)
2. Business or professional income. Income earned by an individual from the sole proprietorship business or from the practice
of his profession. (Section 24 a; Normal or Basis 5% to 32% progressive tax rate)
3. Passive income. Income earned which are subject to different final withholding tax rates. (proportional tax rates)
4. Capital gain. Gain presumed to have been realized from the sale, exchange or other disposition of real property located in the
Philippines classified as capital asset.

Note:
For married individuals, the husband and wife shall compute separately their individual income tax based on their
respective total taxable income. Provided, that if any income cannot be definitely attribute to or identified as income
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exclusively earned or realized by either of the spouses, the same shall be divided (2) equally between the spouses
for the purpose of determining their respective taxable income.

Regular/Ordinary income refers to income such as compensation income, business income, and miscellaneous
income other than those subject to capital gain taxes and final taxes.

III. Applicable Taxes and Tax rates

1. Graduated rate/Progressive rate. Tax the rate of which increase as the tax base (taxable income) or tax bracket increases.
Examples: income tax (Section 24 a), Estate tax (Section 84), and Donors tax (Section 99 a)
2. Proportional/fixed rate. Tax based on a fixed percentage of the amount of the property, receipts, or other basis to be taxed.
Examples: Value-added tax, 12%ii (Section 106), Corporate Income tax Rate, 30%iii(Section 27), Donors tax, in case
of stranger, 30%iv (Section 99 b)
Note: A regressive tax rate of which decreases as the tax base increases. Not applicable in the Philippine jurisdiction.

IV. Other Sources of Income tax

1. The Income subject to Final withholding tax are called Passive income or income in which subject to final taxes as the certain
passive incomes from sources within the Philippinesv such as the prize, winnings, interest and a like. On the other hand,
income subject to capital gain taxesvi

Summary Table
Summary as of the Classification of taxpayer, source of income, and the tax rate applicable.
Individual Taxpayer Tax Base Source of Type of Income Tax Rate
Income
RC Net Income World/ within & Compensation/Business Graduated rate/ Section 24
Without income (a) NIRC
Passive Income Varying final tax rate (7.5%,
10%, 20%)
Capital Gains
Real Property 6% of the Selling price,
Zonal value, and FMV
whichever is higher
Share of stock (Not Net capital gain First
listed in the LSE) 100,000 at 5% and the
excess 10%
NRC (including OCW and Net Income Within only Compensation/Business Graduated rate/ Section 24
Seamen), RA, NRA-ETB income (a) NIRC
Passive Income Varying final tax rate (7.5%,
10%, 20%)
Capital Gains
Real Property 6% of the Selling price,
Zonal value, and FMV
whichever is higher
Share of stock (Not Net capital gain First
listed in the LSE) 100,000 at 5% and the
excess 10%
NRA-NETB Gross Income Within only All income received to 25% Final tax of GIT
(GIT) be considered as part of
Gross income
Capital Gains
Real Property 6% of the Selling price,
Zonal value, and FMV
whichever is higher
Share of stock (Not Net capital gain First
listed in the LSE) 100,000 at 5% and the
excess 10%

2. Capital Gains Tax. Property classification of an asset as Capital or Ordinary is important because of the special tax rules on
gains and losses from sales or exchanges of capital assets which do not apply to gains and losses from sale or exchanges of
ordinary assets. Under the tax code, the following are ordinary assets:

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 Income Taxation (Individual Taxation)

Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of taxable year.
Property used in trade or business subject to depreciation.
Real property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business.
Real property used in trade or business of the taxpayer

Capital assets include all other property held by the taxpayer (whether or not connected with his trade or business) not
included in the definition of ordinary assets above. Capital gains may be:
Subject to basic tax (Dealings in Property); or
Other percentage Taxes; or
Capital gain tax
a. On sale of share of stock of a domestic corporation not through the local stock exchange (also kwon as sale
directly to a buyer); and
b. Sale of real properties in the Philippines classified as capital assets
Types of Capital Gains Tax:
a. Capital Gain Tax on sale of share of stock of a domestic corporation sold directly to buyer computed a tax
rate of:
1) 5% on the 1st P100,000 capital gains
2) 10% on capital gains in excess of P100,000
b. Capital Gain Tax on sale of Real Properties held as a capital asset situated in the Philippines computed at a
rate of 6% of the highest amount among the selling price, fair market value (FMV) and zonal value.

V. Creditable Withholding Tax versus Final Tax

Normal taxes withheld on certain income payments are creditable because they are intended to equal or at least approximate the
tax due of the payee on said income. The income recipient is still required to file an income tax return to report the income and/or pay
the difference between the tax withheld and the tax due on the incomevii. Final tax is the term used to describe the tax on earnings that
have been subjected to complete withholding tax payment at source. These earnings are no longer included in the determination of
taxable income subject to regular tax.
1. Creditable Withholding Tax (Income subject to Basic/Normal tax or Tabular/Graduated Rates)
Certain regular income incomes (regular income not subject to final taxes) are subject to creditable withholding taxes. Taxes
withheld on payments are intended to equal or at least approximate the tax due of the payee on said income computed using
the tax table under Section 24 A of the Tax Code. The recipient of income is still required to file an income tax return viii, To
report the income and/or the difference between the tax withheld and the tax due on the income. The term creditable means
the taxes, withheld are deductible from the due computed using graduated tax table under Section 24 (A) of the Tax Code.
The most common example of creditable withholding tax for an individual taxpayer is the tax withheld by an employer from his
compensation income of an employee. The amount withheld by the employer will be remitted to the BIR.
As a rule, unless exempt, all other income of an individual taxpayer not subject to final tax, are subject to basic or normal tax.
2. Final Withholding Tax (on Certain income not subject to basic tax)
Taxable income under Section 24B, 24C, and 24D are subject to final taxes (Table 3.2) basic tax or graduated tax rates. This
is a kind of withholding tax which is prescribed on certain income payments and is not creditable against the income tax due
of the payee on other income subject to regular rate of the tax for the taxable year. The payee is not required to file an income
tax return for the particular income. However, the payor is required to issue final withholding tax certificate. Under the final
withholding tax system, the amount of income tax withheld by the withholding agent (payor) is constituted as a full and final
payment of the income tax due from the payee on the said income.
The liability for payment of the tax rest primarily on the payor as withholding agent, thus, in case of his failure to withhold the
tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent. The finality of the
withholding tax limited only to the payees income tax liability on the particular income.

VI. Allowable Deductions from income of individual taxpayers.

The deductions allowed shall depend on the nature of income earned by the taxpayer:
1. Compensation income. Only Personal Exemptions or the basic personal exemptions, additional personal exemptions and the
premiums payments on health and/or hospital insurance. Personal exemptions are arbitrary amount allowed by law to be
deducted from income to cover the personal living or family expenses of the taxpayer.
Kinds of Personal Exemptions
Basic Personal Exemptions. Individual regardless of status are entitled to P50,000 personal exemptions. Individual
taxpayer are now classified as either single or married entitled to a uniform amount of personal deduction of
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P50,000ix. In case of married individuals where only one of the spouse is deriving gross income, only such spouse
shall be allowed personal exemption.
Additional Exemption. Additional exemption of P25,000x for each qualified dependent child not exceeding four (4)
dependents are allowed to qualified individual taxpayer, married or single. Qualified dependent means a legitimate,
illegitimate, or legally adopted child, chiefly dependent upon and living with the taxpayer who is:
a. Not more than 21 years of age
b. Unmarried
c. Not gainfully employed, or
d. Or if such dependent regardless of age, is incapable of self-support because of mental or physical defect.

Chiefly Support
Means principal or main support, regular, and continuing financial or other material support extended to the
dependent; if such support is withdrawn, the dependent will live a destitute life unless similar support or livelihood is
provided by the others.

Living with
The term living with does not necessary mean actual or physical togetherness at all times and under all
circumstances, long as the other requirements of the law are met, the dependent is considered living with the
taxpayer, hence qualified, even if he is not in actual physical togetherness with the taxpayer

Additional exemption for husband and wife

Only one (1) of the spouse may claim additional exemption. as a rule husband is deemed head of the family and
proper claimant of additional exemption. the wife may claim the additional exemption if:
a. Husband explicitly waives his right (in the withholding exemption certificate in favor of his wife)
b. Husband has no income
c. Husband works abroad and has no taxable income in the Philippines.

For legally separated spouses, claimant is the spouse who has the custody of the child/children. Total amount of
additional exemption shall not exceed the allowed maximum amount.

Additional exemption for Foster Parent

The definition of the term dependent including foster childxi. Hence, a foster, under the aforementioned law shall
be allowed to claim as a foster child as qualified dependent subject to following conditions:
a. The total number of dependents, including the foster child qualified to claimed shall not exceed four (4) as
provided for by RA 9504.
b. The period of foster care is continuous period of at least one (1) taxable year.
c. Only the foster parent can treat the foster child as a dependent on a particular taxable year.

Senior Citizen
Generally, qualified Senior citizen deriving returnable income during the taxable year, whether from compensation or
otherwise, are required to file their income tax return and pay the tax as they file the return (Pay-as-you-file).
However, if the returnable income of a senior citizen is in the nature of compensation income but he qualifies as a
minimum wage earner under RA 9504, he shall be exempt from income tax on the said compensation income subject
to the rules provided under Revenue Regulation No. 10-2008 applicable to minimum wage earners. Likewise, if the
aggregate amount of gross income earned by the senior citizen during the taxable year does not exceed the amount
of his personal exemptions (basic and additional), he shall exempt from income tax and shall not be required to file
income tax return.
The exemption of a senior citizen granted under RA 9994xii will not extend to all types of income earned during the
taxable year. Hence, he can be liable to for other taxes applicable to a resident citizen taxpayer such as:
a. Final taxes on passive income derived from the Philippine sources
b. Capital gains tax on share of stock of domestic corporation sold directly to a buyer.
c. Capital gain tax on sale of real properties located in the Philippines classified as capital asset
d. Final tax on interest income from pre-termination of long term bank deposit or investment.
e. 20% final withholding tax on prizes derived from Philippines sources except prizes not exceeding P10,000
which shall be subject to income tax rates under section 24A of the tax code

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f. 20% final withholding tax on other winnings derived from Philippine sources except PCSO and lotto winnings
in the Philippines.
g. 7.5% final withholding tax on interest income from a depository bank under expanded foreign currency
system.
h. VAT or OPT on sale of goods or service, as the case may be
i. Donors tax
j. Estate tax
k. Excise tax on certain goods
l. Documentary stamp taxes

Personal Exemptions of Benefactors of Senior Citizens

A benefactor of a senior citizen is entitled to a basic personal exemption of P50,000 which is the allowed basic
personal exemption of all qualified individual taxpayers required to file income tax returns as provided under RA
9504. A senior citizen who is not gainfully employed, living with and dependent upon his benefactor for chief support
will not entitle the benefactor to claim additional personal exemption of P25,000.

Change in Status
Table
Change of Status Summary (RA 9504)xiii
Individual taxpayer Exemption
Change of Status: This Year Next Year
a. Married P50,000 P50,000
b. Died P50,000
c. Widowed with 1 qualified dependent child (P50,000 plus P25,000) P75,000 P75,000
d. Widowed with qualified dependent not his child P50,000 P50,000
e. Widowed without qualified dependent P50,000 P50,000
f. Legally separated with 1 qualified dependent child P75,000 P75,000
g. Legally separated with qualified dependent not his child P50,000 P50,000
h. Legally separated without dependents P50,000 P50,000
i. Not legally separated P50,000 P50,000

Dependent Children (Maximum of four) Additional Exemption

Change of Status: This Year Next Year
a. Born P25,000 P25,000
b. Reaches 21 years old normal child P25,000
c. Reach 21 years old abnormal child and incapable to support himself P25,000 P25,000
d. Marries P25,000
e. Gainfully employed P25,000
f. Dies P25,000

Health and/or Hospitalization Insurance Premium ( )

Premium paid during the taxable year for Health and/or hospitalization insurance shall be allowed as a deduction from the
gross income of resident citizen (RC), Nonresident citizen (NRC) and Resident aliens (RA) provided:
The insurance shall be taken out by the individual taxpayer for him or for his family.
The family gross income is not more than P250,000 for the taxable year.
The amount being claimed shall not exceed P2,400 a year or P200 a month per family.
Note:
This deduction shall be allowed to qualified taxpayer regardless of the taxpayers source of income. The spouse
claiming additional exemption for qualified dependent children shall be the same spouse to claim the deductions for
premium payments.
The premium payments on health and/or hospitalization insurance is allowed on the following individual taxpayers:
1. Those earning purely compensation income, 2. Those earning purely business and/or Professional income
whether they avail itemized or optional standard deduction; and 3. Those earning mixed.
2. Business/Professional. Itemized deductions such as expenses, interest, taxes, losses, bad debts, depreciation, depletion,
charitable and other contributions etc., in case of Optional Standard deduction, in lieu of itemized deductions, an individual
taxpayer (except NRA) may elect a standard deduction in an amount not exceeding forty percent (40%) of his gross sales or
receipts as the case may be, will be discussed to the next chapter.
3. Passive. No deduction allowed because these incomes are subject to final withholding tax.
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 Income Taxation (Individual Taxation)

VII. Minimum Wage Earnersxiv (Marginal Income Earners or MIEs)

The term Statutory Minimum Wage (SMW) shall refer to a worker in the private sector paid 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. The rate is fixed by the Regional Tripartite Wage and Productivity Board (RTWPB) as defined by the Bureau
of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). RTWPB of each region determine
the wage rates in the different regions based on established criteria and shall be the basis of exemption from income tax. Minimum
Wage Earners are exempt from income tax on: (1) Minimum wage, (2) Holiday pay, (3) Overtime pay, (4) Night shift differential, (5)
Hazard pay.
1. MWE with additional compensation income. An employee who receives/earn additional compensation such as
commission, honoraria, fringe benefits, benefits in excess of the allowable P82,000, taxable allowances and other taxable
income other than the statutory minimum wage, overtime pay, night shift differential, hazard pay shall not enjoy the privilege of
being a minimum wage earner. Thus, his entire earnings are not exempted from income tax and consequently to creditable
withholding tax.
2. MWE with additional business income. Minimum wage earner receiving other income such as income from the conduct of
trade, business or practice of profession, except income subject to final tax, in addition to compensation income are not
exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, statutory
minimum wage, overtime pay, holiday pay, night shift differential, and hazard pay shall still be exempt from income tax
consequently to withholding tax.
3.
Table
Applicable Taxes of MWEs (RR 10-2008)
Taxpayer Income tax Creditable Withholding tax
1. Purely MWE Exempt Exempt
2. MWE with additional compensation Not Statutory minimum wage earner, hence Subject to creditable withholding
income exceeding tax-exempt subject to income tax tax on compensation income
thresholds such as the P82,000 limit
3. MWE with additional business Statutory Minimum Wage Earner = exempt SMW = exempt
income Business income = Taxable Business income = subject to
creditable withholding tax

IX. Filing of Income Tax Returns

An income tax return is a sworn written instrument in which the taxpayer discloses the nature and extent of his tax liability by
formally making a report of his income and allowable deductions for the taxable year in the prescribed form xv
1. Person Required to file Income Tax Return
Individual deriving compensation from two or more employers concurrently or successively at any time during taxable
year.
Employees deriving compensation income, regardless of the amount whether from a single or several employers
during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax
withheld) resulting to a collectible or refundable return.
Individuals deriving other non-business, non-profession-related income in addition to compensation income not
otherwise subject to final tax.
Individuals receiving purely compensation income from a single employer, although the income tax of which has been
correctly withheld, but whose spouse is required to file income tax return
Nonresident alien engaged in trade or business in the Philippines deriving purely compensation income, or
compensation income and other non-business, non-profession-related income.

2. Person not required to file Tax Return

An individual whose gross income does not exceed his total personal and additional exemption for dependents.
Individual taxpayer receiving purely compensation income, regardless of the amount mount, from only one employer
in the Philippine for the calendar year, the income tax of which has been withheld correctly by the said employer
(substituted filing)
Substituted Filing of Income Tax returns
Under RA 9504 and RR 10-2008, individual taxpayers may no longer file the income tax return on or before April 15 xvi
Of the following taxable year provided (the taxpayer is/has)
a. Received purely compensation income, regardless of what amount.
b. The amount of income tax withheld by the employer is correct ( tax due = tax withheld)
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c. Only one employer during the taxable year.

Duplicate copy of BIR FORM 2316

Under Section 2.83 of RR 2-98, as amended, every employer is required to furnish its employees (including Minimum Income
Earners) BIR Form 2316 on or before January 31 of the succeeding calendar year, or if employment is terminated before the
close of such calendar year, or if employment is terminated before the close of such calendar year, on the day on which last
payment of compensation is made. Failure to furnish BIR Form 2316 shall be grounds for the mandatory audit of payors
income tax liabilities (including withholding tax) upon verified complaint of the payee.
The BIR now requires that all employers submit the duplicate copy of BIR Form 2316 to the BIR not later February 28 following
the close of the calendar year. Failure to submit/file BIR Form 2316 on or before February 28 following the close of the
calendar year will merit a penalty of P1,000 for each failure, or a maximum amount of P25,000 for all such failures during a
calendar year. In case the employer fails to comply with the filing or submission of BIR Form 2316 for two (2) consecutive
years, the employer shall be liable to a fine in the amount of P10,000 and suffer imprisonment of not less than one (1) year but
not more than 10 years upon conviction, in accordance with section 255 of the tax code. This is in addition to other penalties
provided by law. In settlement, a compromise fee of P1,000 for each BIR Form 2316 not filed without any maximum threshold
shall be collected by the BIRxvii.
3. An individual whose sole income has been subjected to final withholding tax.
4. An individual who is exempt from income tax pursuant to the provisions of the tax code and other laws, general or
special.

Place, Date of filing Return and Payment of Tax

The income tax return shall be filed and paid with any of the following
a. Authorized agent banks;
b. Revenue District Officer
c. Collection agent;
d. Duly authorized City or Municipal Treasurer in which the taxpayer has his legal residence or principal place of
business in the Philippines or if there be no legal residence or place or place of business in the Philippines, with the
office of the Commissioner of Internal Revenue.

Filing of income tax returns shall be made on:

a. Basic Tax
1) For purely compensation income earners: on or before April 15 of the succeeding year.
2) For business income earners including income from practice of profession:
The Individual taxpayer is required to file a quarterly tax return (regardless of the results of operation) as
follows:
1st Quarters April 15 (45 days aster end of Quarter)
2nd Quarters Aug. 15 (45 days aster end of Quarter)
3rd Quarters Nov. 15 (45 days aster end of Quarter)
Final adjusted (annual) return April 15 of the succeeding year (same with 1st quarter return)
b. Final withholding Tax on Passive income (manual Filing)
January to November 10th day of the month following the month the withholding was made
December January 15 of the succeeding year
c. Capital Gains Tax
1) Share of stock
Ordinary Return 30 days after each transaction
Final consolidated Return on or before April 15 of the following year
2) Real Property 30 days following each sale or other disposition

Manner of filing
Filing of Tax Returns may be made through:
a. Manual filing
b. Electronic Filing and Payment System (EFPS)
c. eBIR Forms

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Appendix Personal Income Tax Table for Resident Citizens,

NRC (including OCW and Seamen), RA, NRA-ETB

i
Article 4, Section 1, 1987 Philippines Constitution
ii
Section 106, National Internal Revenue Code (NIRC), effective January 1, 2006
iii
Section 27, National Internal Revenue Code, (NIRC), effective January 1, 2009
iv
Section 99, B, National Internal Revenue Code, (NIRC)
v
Section 24, B, National Internal Revenue Code, (NIRC)
vi
Section 24, C, National Internal Revenue Code, (NIRC)

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 Income Taxation (Individual Taxation)

vii
Income Taxation, Principles and Laws with Accounting Application, 2016 2017 edition, 7th edition, Edwin Valencia and Gregorio
Roxas.
viii
Section 51 and 52 of National Internal Revenue Code, NIRC
ix
RA 9504, (RR 1 2009), which took effect July 6, 2008
x
Ibid.
xi
Section 35 (B), National Internal Revenue Code, NIRC as amended under RA 10165 ( An Act to Strengthen and Propagate Foster
Care)
xii
Republic Act No. 9994 Expanded Senior Citizen Act of 2010
xiii
Income taxation, Principles and Law with Accounting Application, 2016-2017, 7th edition, Edwin Valencia and Gregorio Roxas.
xiv
Revenue Regulation 10-2008
xv
Teodoro and De Leon. Op. cit. 425
xvi
Authors Birthday April 15, 1981, Bansalan, Davao Del Sur 8005
xvii
RR No. 11-2013, June 6, 2013

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