Compensation Income PDF
Compensation Income PDF
Compensation Income PDF
Duration: 3 hours
Objectives:
Lesson:
c. Passive income – Earnings from sources in which the taxpayer is not actively involved,
including the following:
· Rents
· Royalties
If you’re earning one or more of these types of income, all of them are included in your income
tax computation.
You can calculate your income tax on your own, whether you’re curious about how your
employer computes it or you need to file and pay your tax by yourself.
Income tax due = Taxable income (Gross income – Allowable deductions) x Tax rate – Tax
withheld
Scenario 1: Employee with a gross monthly salary of Php 30,000 and receiving
13th-month pay of the same amount.
3. Get the taxable income by deducting the total annual contributions from the annual salary:
Php 360,000 – Php 16,200 = Php 343,800.
4. Refer to the BIR’s graduated tax table above to find the applicable tax rate. The taxable
income of Php 343,800 falls under the second bracket, which means the tax rate is 20% of the
excess over Php 250,000.
a. Subtract the non-taxable Php 250,000 from the taxable income: Php 343,800 – Php 250,000
= Php 93,800.
b. Multiply the difference by 20%: Php 93,800 x 0.20 = Php 18,760.
If the income tax due is the same as the total amount the employer has withheld from the
employee’s salary (Php 18,760 during the taxable year or Php 1,563.33 per month), then the
employee doesn’t have to pay and file an ITR by the end of the year.
Scenario 2: Employee with a gross monthly salary of Php 100,000 and receiving
13th-month pay of the same amount.
2. Since the 13th-month pay is higher than the tax-exempt Php 90,000, the excess of that
amount is taxable. Deduct the tax-exempt Php 90,000 from Php 100,000: Php 100,000 – Php
90,000 = Php 10,000. Then add the difference to the annual salary to get the gross income: Php
10,000 + Php 1,200,000 = Php 1,210,000.
4. Get the taxable income by deducting the total annual contributions from the annual gross
income: Php 1,210,000 – Php 21,600 = Php 1,188,400.
5. Refer to the BIR’s graduated tax table above to find the applicable tax rate. The taxable
income of Php 1,188,400 falls under the fourth bracket, which means the tax rate is Php
130,000 + 30% of the excess over Php 800,000.
a. Subtract the non-taxable Php 800,000 from the taxable income: Php 1,188,400 – Php
800,000 = Php 388,400.
Since the annual tax due of an employee earning Php 100,000 monthly is Php 246,520, the
employer should have withheld Php 20,543.33 from the monthly salary. If the annual income tax
due is the same as the total amount withheld for the year, the employee is not required to file an
ITR on his/her own.
Scenario 3: Freelance web developer with total gross receipts worth Php 840,000 who
opted to use the graduated rates and the 40% optional standard deduction in computing
his income tax.
1. Determine the standard deduction by multiplying the gross income by 40%: Php 840,000 x
0.40 = Php 336,000.
2. To get the taxable income, subtract the OSD from the gross income: Php 840,000 – Php
336,000 = Php 504,000.
3. Refer to the BIR’s graduated tax table to find the applicable tax rate. The taxable income of
Php 504,000 falls under the third bracket, which means the tax rate is Php 30,000 + 25% of the
excess over Php 400,000.
a. Subtract the non-taxable Php 400,000 from the Php 504,000 taxable income: Php 504,000 –
Php 400,000 = Php 104,000.
This means that the self-employed taxpayer must declare Php 56,000 as income tax due when
paying and filing an ITR.