LESSON
2: Income Taxation on Individuals
I.
Classification of Individual Income
Taxpayers
1.
Citizens (at the time of 1987 Const./
father & mother are citizens/ born before Jan 17, 1973/ naturalized by law)
a.
Resident Citizen (RC) (permanently resides in the Philippines)
b.
Non-resident Citizen (NRC) (physical presence is abroad MOST
OF THE TIME)
2.
Aliens
a.
Resident Alien (RA) (resident but not a citizen)
b.
Non-resident Alien (NRA) (not a resident, not a citizen)
1.
ETB (carrying a business/ stayed more
than 180 days)
2.
NETB (stayed 180 days or less)
3.
Employed by:
a.
RAHQ or ROHQ of multinational firms
(taxed at 15% of GI)
b.
OBU’s (taxed at 15% of GI)
c.
Petroleum contractors & sub-con.
II.
Sources of
Income Tax
Base Tax Rates
1.
RC within & without Net Income Sec. 24(A)
2.
NRC within Net Income Sec. 24(A)
3.
RA within Net Income Sec. 24(A)
4.
NRA-ETB within Net Income Sec. 24(A)
5.
NRA-NETB within Gross
Income 25% FWT
6.
RAHQ or ROHQ within Gross
Income 15% FWT
7.
OBU’s within Gross
Income 15% FWT
8.
Petroleum within Gross
Income 15% FWT
III.
CATEGORIES OF INCOME
1.
Compensation income – “compensation”
means all remuneration for services performed by an employee under an employee-employer
relationship.
2.
Business Income – arises from
self-employment/ exercise of a profession.
3.
Passive Income – are subject to FINAL
TAXES from 5% - 25% (see Sec. 24 (B))
4.
Capital Gains on Shares of Stocks
Tax Base: Selling Price less Cost of
Stocks = Capital Gains
Incurrence of capital loss is
non-taxable but it may be carried over until such capital gain is earned.
5.
Capital Gains on sale of real properties
Tax Base: Selling price/ FMV-market/
FMV-BIR/Sound Value whichever is higher.
6.
Fringe Benefits – means any goods,
services or benefits furnished or granted by an employer in cash or in kind in
addition to basic salaries.
IV.
ALLOWABLE DEDUCTIONS
1.
For Compensation Income
a.
Personal Exemptions
b.
Premium payments of Health Insurance
2.
For Business Income
a.
Personal Exemptions
b.
Premium payments of Health Insurance
c.
Itemized Deductions
d.
Optional Standard Deduction (40% of GI)
V.
Individuals EXEMPTED from Income
Tax
1.
Non-resident Citizens (Only exempted
from Income Tax outside the Philippines)
2.
Overseas Filipino Workers including
Seamen
3.
Barangay Micro Business Enterprises (RA
9178 BMBE Law)
4.
Senior Citizens (RA 9257 – Expanded
Senior Citizens Act of 2003)
5.
Minimum Wage Earners (RA 9504 SMWE Law)
GRADUATED
INCOME TAX SCHEDULE (SEC. 24 (A))
If taxable income is
over
|
But not over
|
Tax Due is
|
Plus
|
Of the excess over
|
-
|
10,000.00
|
5%
|
||
10,000.00
|
30,000.00
|
500.00
|
10%
|
10,000.00
|
30,000.00
|
70,000.00
|
2,500.00
|
15%
|
30,000.00
|
70,000.00
|
140,000.00
|
8,500.00
|
20%
|
70,000.00
|
140,000.00
|
250,000.00
|
22,500.00
|
25%
|
140,000.00
|
250,000.00
|
500,000.00
|
50,000.00
|
30%
|
250,000.00
|
500,000.00
|
125,000.00
|
32%
|
500,000.00
|
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