Separation Pay – TAXABLE if Voluntarily Availed, NOT
TAXABLE if NOT Voluntarily Availed. A. Gross Income Defined - Pertinent items of income referred in the Tax Code. 10. Pension – TAXABLE unless law exempts or BIR - ALL Income from WHATEVER source (unless exempt from approves the pension plan. tax by law) ***Gain from redemption of shares on mutual fund is exempt from income tax. B. Gross Compensation Income - Remuneration for rendering personal services. 11. Vacation and Sick Leave - Employer-employee relationship (payor-receipient). a. TAXABLE CI – if paid/availed as a salary of **Basis of payment is immaterial. employee in vacation or sickleave inspite absence **There is no compensation until service is rendered. from work. b. NOT SUBJECT TO TAX & WITHOLDING TAX General Rule: – Monetized value of unutilized vacation leave credits of 10 Every form of compensation income is TAXABLE days or less paid to private employees – Monetized value of vacation and sick leave paid to **EXCEPTION: The compensation income including government officials and employees overtime pay, holiday pay, night shift differential pay, & hazard pay earned by MINIMUM WAGE EARNERS (MWE), 12. 13th month pay and other benefits who has NO other returnable income, are NOT TAXABLE, – NOT TAXABLE if 90,000 or less NO SUBJECT TO WITHOLDING TAX on wages. 13. Fringe Benefits and De Minimis *******MWE – Not Taxable, No subject to Withholding Tax. – NOT SUBJECT TO INCOME TAX AND WITHHOLDING TAX GROSS COMPENSATION xxx Less: Non Taxable Compensation ( xxx ) 14. Overtime Pay/ Back Pay Gross Taxable Compensation xxx Less: Deductions ( xxx ) 15. Profit Sharing – received by employee as proportionate TAXABLE COMPENSATION XXX share in the profit of the business ** No business and personal EXPENSES are allowed as DEDUCTIONS from GROSS COMPENSATION INCOME. 16. Awards for special services ** Only to RC, RA, NRC, NRA w/ business in PH. Not on NRA w/o business. 17. Beneficial Payment – employer pays the income tax Not on CORPO, ESTATE, TRUST because compensation is owed by an employee are additional compensation income. a personal service. 18. Other Forms of Compensation C. CLASSIFICATION OF GROSS COMPENSATION INC. - paid in kind but paid in money - ex. Insurance premium paid by employer for insurance 1. Basic Salary Wages coverage where the heirs of employee are beneficiaries of 2. Honoraria the employees income. 3. Fixed or Variable Allowances/RATA /COLA -General: subject to WITHOLDING TAX. D. SHARES OF STOCKS RECEIVED AS COMPENSATION -Exceptions: In performance of duties, pursuit of employer’s trade, employee liquidation, is - it is treated as if the corporation sold its stock at its market NOT SUBJECT TO WITHHOLDING TAX. value and paid the employees in cash. **Taxable Income, if excess is not returned to employer. - Compensations in a form of shares of stock treats FAIR NOT TAXABLE COMPENSATION MARKET VALUE OF THE SOS AT THE TIME RECEIVED is 1. Call Centers – Transportation and CP allowances the BASIS OF TAX. 2. Rank and File – Transportation of 1500 on daily basis 3 Supervisory – Transportation of 3000 on daily basis Stock Option – privilege to a avail shares of stock at a CP allowance of 1200 certain price. 4. Night Shift Employee – Transportation/Night Shift Allow 5. Field Workers – Meal/Out of Town, NOT subject to FBT, Equity settlement Income Tax, and WITHHOLDING TAX. Cash settlement – received Cash = Actual Fair 6. BPOComp/beyond-start10pm – 100 taxi/transportation, market value LESS Fixed nominal value. EXEMPT FROM TAX.
**Transpo allowance precomputed on a daily basis and paid -------------Grant of Options:
when employees are in duty, NOT subject to SUBSTANTIATION/ INCOME TAX/ WITHHOLDING TAX Granted by/for: a. Employer Employee Realationship w/o cash received – 4. Commission Employer cannot claim deductions for the grant of options 5. Fees b. Price – full consideration is subject to CAPITAL GAINS 6. Tips and Gratuities – if not accounted by employee to TAX. employer are TAXABLE Income, but NOT subject to WITHHOLDING TAX. -------------Sale or Transfer of Options: 7. Hazard or Emergency Pay – for MWE, NOT TAXABLE. 8. Retirement Pay a. Sale/Barter/Exchange by Grantee is treated as -General: TAXABLE. Sale/Barter/Exchange not listed on the stock exchange - -Exceptions: 1. SSS/GSIS CAPITAL GAINS TAX if transferred for a consideration. 2. Retirement Pay approved by BIR, Reasonable benefit plan (fair/equitable), employed 10 years, b. Sold/Transferred without consideration – donation 50 yrs old at time of retirement, availed for first time. subject to DONOR’S TAX -------------Exercise of Options: - Difference between BV/FMV of shares (wc is higher) at the GAINS FROM DEALINGS IN PROPERTY time of stock exercise and the grant fixed price shall be taxed - Income from sale/exchange of assets. Rank and File INCOME & WITHHOLDING ON COMPE. GERULE: Entire Amount of the Gain or Loss is a TAXABLE. Supervisory/Mangerial FRINGE BENEFIT TAX Suppliers WITHHOLDING TAX @ SOURCE Person (natural/juridical) who DONOR’S TAX A. PASSIVE INCOME (PI) isn’t employee/supplier - Final Tax in PI of Citizens and Residents Alien. - Waits to be realized. E. INCOME TAX RECEIVED AS COMPENSATION - BASIS OF TAX is the AMOUNT PAID. 1. Yield from deposit substitute and trust fund. 2. Interest Income F. CONVENIENCE OF THE EMPLOYER’S RULE 3. Royalty Income **GENERAL RULE: NOT TAXABLE if 4. Dividend Income - If it is furnished to the employee for necessary performance 5. Prizes and Winnings of duties. RULE: Subject to FINAL TAX. LIVING QUARTERS MEAL SUBSIDIZED ------Deductions and personal exemptions are NOT allowed Taxable, income - furnished Taxable, income - value of to reduce the tax based on PI – FINAL TAX in addition to cash salary any board/loding furnished and exclusive benefit of by employer. INTEREST INCOME employee. TAX EXEMPT Interest Earnings received from: Not part of Compensation Exclusion – when furnished - Cooperatives, income – furnished for the for the convenience of the - BSP prescribed form of investments convenience of the employer employed and incidental to (More than 5 years), the requirements of his work. - Expanded foreign currency deposit system earned by NON RESIDENT R/A, G. REMUNERATION FOR CASUAL LABOR - Land under tenant-purchaser, CARP - Not considered compensation if it is NOT in the course of FINAL TAX - Financing companies (20% FWT), employers business. - Not BSP prescribed form Investments - Compensation if paid for casual labor. (5% 4l5, 12% 3l4, 20% l3 FWT) - Compensation if performed for a corporation. - Expanded foreign currency deposit system earned by RESIDENT (7.5% FWT) GROSS INCOME FROM BUSINESS AND PROFESSION -With co-depositor (50% of 7.5%) NORMAL TAX - Principal business activity A. The Cost of Sales - Incidental interest earnings NOT subject -- Net Sales less Cost of Sales = Gross income to Final Withholding Tax
1. Cost of Goods Manufactured ---- Normal Tax of Corporation is 30%
- Cost of Finished Goods equals RM, DL, FOH ---- Normal Tax of Individual is 20% to 35%
2. Cost of Goods Sold of Trading/Merchandising Concern ROYALTY INCOME
- Invoice COGS plus Import duties and Freight in -In general, 20% Final Tax transporting goods. -In books literary works music composition, 10% Final Tax
3. Cost of Services DIVIDEND INCOME
- Gross Receipts less Returns, Allowance, Discount, COS. TAX -Received from DC by DC and RFC a. Salaries EXEMPT -Received from a COOPERATIVE- b. Benefits of personnel, consultants, specialists - PURE STOCK DIVIDEND directly rendering the service - PURE LIQUIDATING DIVIDEND (RETURN c. Cost of facilities directly utilized in service OF CAPITAL) (depreciation, rental, cost of supplies)’ FINAL -Received from DC d. Banks – Cost of services includes interest TAX ----by C/RA 10% income. ----by NRA doing business in PH 20% ----by NRA not doing business in PH 25% B. Telegraph and Cable Services ----by NR FC 15% 1. Foreign Corporation NORMAL - Not tax exempt Included – Services WITHIN the PH only TAX - Not final tax - Originating in PH - Distributive shares of partner in professional Not Included – Originating OUTSIDE PH partnership
C. Rental Income a. Prepaid Rental b. Security Deposit with Restriction c. Security Deposit with an Acceleration Clause