Income Taxation on Individuals

Personal exemptions arbitrary amounts allowed by the law as a deduction from the gross compensation income and/or net business income and/or professional income as the case may be, for personal, living, or family expenses

equivalent of the minimum subsistence Personal exemptions equivalent of the minimum subsistence

Kinds personal exemptions Basic personal exemption Additional exemption

Basic personal exemption is a deductible allowance whose amount allowed by the law shall depend upon the status of the individual taxpayer himself

Basic personal exemption basic personal exemption for individual taxpayer amounts to P50,000 whether he/she is married, head of the family or single

Basic personal exemption Example: Jash, a Filipino Citizen, and married to Aizel, an American citizen residing in USA, has compensation income of P150,000 in the Philippines. He would like to know their personal exemptions.

Basic personal exemption The personal exemption of Jashobeam is P50,000.

Basic personal exemption As a Filipino citizen with income derived within, only Jash is allowed to have a basic personal exemption. His wife has no personal exemption because she is not a Filipino citizen and has no income derived within the Philippines.

Additional personal exemption deductible allowance in addition to the basic personal exemption allowed for qualified dependent children of an individual taxpayer

Additional personal exemption The new R.A. 9504 provides that the amount of additional exemption for each qualified dependent child (not exceeding four) is P25,000.

Additional personal exemption Not more than 21 years old Not gainfully employed Seeking for chief support

Additional personal exemption Example: For the taxable year 2009, Lorenzo, married with six qualified dependent children has a compensation income of P200,000. Assuming that Mr. Cruz is a Filipino citizen, how much is his total personal exemption?

Additional personal exemption The total personal exemption allowed to Lorenzo would be: Basic personal exemption P 50,000 Add: Additional exemptions (P25,000 x 4 children) 100,000 Total personal exemptions P 150,000

Comprehensive example Compute the personal exemption of Mr. Weygan, a Filipino legally separated with the following dependents: Children: A, 30 years old and jobless; B, 19 years old student but gainfully employed; C, 22, years old mentally retarded, 55-year old father, 12 year-old illegitimate son, and Supporting a senior citizen.

Comprehensive example The total personal exemption would be; Basic personal exemption – head of the family P 50,000 Add: Additional exemptions P 25,000 Child – mentally retarded 25,000 50,000 Total personal exemptions P100,000

Classification of Taxes Normal (Tabular) graduated tax Passive Income Tax Capital Gains Tax

Normal (Tabular) Tax Individual taxpayer’s taxable income subject to normal (tabular) tax is income derived from compensation, business and profession.

Normal (Tabular) Tax Rate on Individual Taxpayer Not over P10,000 > P10,000 < = P30,000 > P30,000 < = P70,000 > P70,000 < = P140,000 > P140,000 <= P250,000 > P250,000 < = P500,000 Over P500,000 5% P500 + 10% of the excess over P10,000 P2,500 + 15% of the excess over P30,000 P8,500 + 20% of the excess over P70,000 P22,500 + 25% of the excess over P140,000 P50,00 + 30% of the excess over P250,000 P125,000 + 32% of the excess over P500,000

Taxable Income Taxable Income means the pertinent items of gross income, less the deductions and/or basic personal and additional exemptions, and special deductions, if any, authorized for such types of income by the NIRC of other special laws. The amount of taxable income is the basis of income tax rate to arrive at income tax due.

Income Tax Due The income tax due of an individual taxpayer is based on his/her net taxable income. The income tax rate to be used is the normal (tabular) income tax rate. The tax due on the respective income earned by husband and wife should be computed separately.

Withholding Taxes on Salaries Withholding taxes on salaries are income taxes that are temporarily based on estimate. The exact amount of taxable salary would not only be determined at the end of the year when the last pay for the year is computed and paid.

Withholding Taxes on Salaries Ms. Ramirez earns Php 20,000 per month as a private employee. On May 31, 2017, she was promoted and in effect, her salary was increased to Php 24,000 per month.

Withholding Taxes on Salaries If the only source of the taxpayer’s income is from his sole employment, his annual ITR is no longer necessary. BIR 2316 reported by the employer would be enough as compliance.

Withholding Taxes on Salaries Example: Mr. Jowel Awingan is single and employed with a monthly salary of P20,140 and P2,000 Personnel Economic Relief Allowance. He pays monthly P1,812.60 for his GSIS personal share, P100 for Home Mutual Development Fund, and P 250 for Philhealth Insurance. How much is his taxable income and income tax in a year?

ALLOWABLE DEDUCTIONS Optional Standard Deduction Itemized Deductions 40% of net sales for individuals 40% of gross income for corporations Itemized Deductions

ALLOWABLE DEDUCTIONS Itemized Deductions Depreciation Expenses Depletion Interest Charitable Contributions Losses Research and Development Bad Debts

Self-employed Individuals Example: Assume the Mr. Joel Yap is a single proprietor of a trading business. His proprietorship has business sales for the year of P670,000. Cost of sales was PP250,000. The operating expense amounted to P150,000. Depreciation of machines was P25,000 for the year. P30,000 of his collectibles were written off due to insolvency of the customer. Interest expenses for the year amounted to P60,000. How much is his taxable income and income tax for the year if he opted for the optional standard deduction?

Self-employed Individuals Example: Assume the Mr. Joel Yap is a single proprietor of a trading business. His proprietorship has business sales for the year of P670,000. Cost of sales was PP250,000. The operating expense amounted to P150,000. Depreciation of machines was P25,000 for the year. P30,000 of his collectibles were written off due to insolvency of the customer. Interest expenses for the year amounted to P60,000. How much is his taxable income and income tax for the year?

Self-employed Individuals Mr. Joel Awingan is single and employed with a monthly salary of P20,140 and P1,000 Personnel Economic Relief Allowance. He pays monthly P1,812.60 for his GSIS personal share, P100 for HDMF, and P 250 for PHIC. Mr. Awingan also owns a trading business. His proprietorship has business sales for the year of P870,000. Cost of sales was PP350,000. The operating expense amounted to P180,000. Personally, his expenses would amount to 175,000. Depreciation of machines was P28,000 for the year. Estate taxes paid for the inheritance this year was 10,000. Interest expenses for the year amounted to P45,000. He paid an employee of the government an amount of P13,000 as bribe for prioritizing his transactions. How much is his taxable income and income tax for the year?

PENALTIES AND SURCHARGES 50% of the deficiency tax Willful neglect to file within the period prescribed. False or fraudulent return is willfully made 20% per annum Unpaid taxes