EXERCISES

1. The following are the types of taxpayers, except:

a. Individuals c. Corporations
b. Estates and Trusts d. None of the above

2. Which of the following statements is false?

a. Individuals may earn compensation income in a taxable year.
b. Individuals may earn business income in a taxable year.
c. Individuals cannot earn both compensation income and business
in a taxable year.
d. Individuals may earn both compensation income and business in
a taxable year.

3. What is the threshold amount in determining the taxability of other

income (other than salaries and wages)?
a. 90,000 c. 50,000
b. 84,000 d. 100,000

4. Uniform and clothing allowance is:

a. Taxable in full
b. Taxable, but only on the excess of P6,000 Quarter 2 Week 5 – A
c. Not taxable in its entirety (ABM_FABM12-Iih-j-19)
d. Taxable only for government employees
The learner expresses:
a. explain the procedure in the computation of gross
5. Which of the following statements is false?
a. Rice subsidy may be in the form of P2,000 cash per month taxable income and tax due
b. Rice subsidy may be in the form of one 50-kg sack of rice per
month worth not more than P2,000
c. Rice subsidy is a de minimis benefit within a specified limit Writer:
d. Rice subsidy is a de minimis benefit regardless of the amount MARY ANN N. COLONIA
Layout Artist:
KRISHEA MAE P. JARUDA
EPS I - Mathematics
KIM S. ARCEÑA, EdD
Key in or click the link:
https://www.khanacademy.org/math/engageny-alg2/alg2-3
 GENERALIZATION
Pure Compensation Income
INCOME TAXATION
The income for compensation earners consists of:
There are three types of taxpayers: 1. Salaries/Wages
1. Individuals 2. Other Forms of Compensation (such as overtime pay and holiday
2. Corporations pay)
3. Estates and Trusts 3. Other Income In Excess of the Php90,000 Threshold, including:

Tax on Individuals A. 13th month pay and other bonuses

Income taxation for individuals is covered by the provisions of Section B. Amount in Excess of De Minimis Benefits, such as:
24 to Section 26 of the National Internal Revenue Code (NIRC). The
income may come from: employment (compensation income), business • Monetized unused vacation leave credits of private
or profession (business income), both employment and business employees not exceeding 10 days during the year;
(mixed income) and other sources (such as passive income). • Medical cash allowance to dependents of employees, not
exceeding P1,500 per employee per semester or P250 per
Except for passive income, the tax shall be computed in accordance month;
• Rice subsidy of P2,000 or one 50-kg sack of rice per month
with the rate provided under Section 24 of the NIRC:
worth not more than P2,000;
• Uniforms and clothing allowance not exceeding P6,000 per
annum;
• Actual medical assistance not exceeding P10,000 per
annum;
• Laundry allowance not exceeding P300 per month;
• Employees’ achievement awards, which must be in the form
of tangible personal property other than cash or gift
certificates, with an annual monetary value not exceeding
P10,000 received by the employee under an established
written plan which does not discriminate in favor of highly
paid employees;
• Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per
annum;
• Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage; and
• Benefits received by an employee by virtue of a Collective
Bargaining Agreement (CBA) and productivity incentive
schemes, provided the total annual monetary value
received from both CBA and productivity incentive schemes
combined do not exceed P10,000 per employee per taxable
year.
 EXERCISES

Jess Dimaunahan is a full-time and regular employee of ABC

Corporation. The following items were reflected in his records for the
taxable year:

Salary (30,000/month for 12 mos.) 360,000

Overtime Pay 12,000
Yearly Laundry Allowance 9,000
Rice allowance (4,000 x 12 mos.) 48,000
Clothing allowance 8,000
Productivity Bonus 45,000
Christmas Bonus 35,000
13th Month Pay 30,000
Mandatory Contributions:
SSS Contribution (900 x 12 mos.) 10,800
Philhealth Contribution (500 x 12 mos.) 6,000
Pag-Ibig Contribution (100 x 12) 1,200

Solve for the following:

Quarter 2 Week 5 – B
1. Taxable Income (ABM_FABM12-Iih-j-19)
2. Tax Due for the year The learner expresses:
a. explain the procedure in the computation of gross
taxable income and tax due

Writer:
MARY ANN N. COLONIA
Layout Artist:
KRISHEA MAE P. JARUDA
EPS I - Mathematics
KIM S. ARCEÑA, EdD
Key in or click the link:
https://www.khanacademy.org/math/engageny-alg2/alg2-3
 GENERALIZATION
Illustration 1 Total Gross Income 516,400
Less: SSS Contribution 10,800
Compensation Income Computation for Individual taxpayer Philhealth Contribution 6,000
Pag-Ibig Contribution 1,200 18,000
Juana Cruz is a full-time employee of ABC Corporation. For the taxable year Taxable Income 498,400
2020, the following items were reflected in her records:
The Income tax due is:

Salary (40,000/month for 12 mos.) 480,000 Tax on 400,000 30,000

Overtime Pay 15,000 Add: Tax on Excess (98,400 x25%) 24,600
Yearly Laundry Allowance 10,000 Income Tax Due 54,600
Rice allowance (5,000 x 12 mos.) 60,000
Clothing allowance 10,000 The tax table under Section 24 of the NIRC, otherwise known as the
13th Month Pay 40,000 graduated tax table, is utilized because Juana Cruz is purely a compensation
Mandatory Contributions: income earner. Her taxable income of 498,400 belongs to the third row
SSS Contribution (900 x 12 mos.) 10,800 (over 400,000 but not over 800,000). Any excess of the taxable income
Philhealth Contribution (500 x 12 mos.) 6,000 from 400,000 is taxed at a rate of 25%.
Pag-Ibig Contribution (100 x 12) 1,200
Productivity Bonus 25,000 Business Income

The taxable income of Juana Cruz includes: 1st Option. A self-employed individual/proprietor may use the graduated
income tax; or
1. Salary 480,000
2. Other Forms of Compensation (Overtime Pay) 15,000 2nd Option. Said self-employed individual can avail of the 8% Income Tax
3. Other Income In Excess of the P 90,000 Threshold: Rate on Gross Sales/Receipts, in excess of ₱250,000. The only condition is
that its gross sales/receipts for the year do not exceed P3,000,000 (which is
A. 13th month pay and other bonuses: the VAT Threshold).
13th Month Pay 40,000
Productivity Bonus 25,000 Mixed Income (Compensation Income and Business Income)

B. In Excess of De Minimis Benefits: 1st Option. The total income or combined income (Compensation income
Laundry Allowance (10,000-3,600) 6,400 and Business Income) shall be taxed using the graduated tax rates; or
Rice Allowance (60,000-24,000) 36,000
Clothing Allowance (10,000-6,000). 4,000 2nd Option. The mixed income earner will have to use: (i) the graduated
Total 111,400 income tax rate for his compensation income and (ii) eight percent (8%) of
Less: 90,000 21,400 the gross sales or gross receipts on his business income. As such, the tax
liabilities from compensation income and business income shall be
Total Gross Income 516,400 determined separately. The total of the two income taxes shall refer to the
total tax liability of the taxpayer.
Under the 2nd Option, the taxpayer cannot anymore deduct 250,000 from
Write the final answer for the given problem here GIT tax computation (from business income), since said amount is already
deemed deducted from his graduated income tax computation (from
compensation income).
2nd Option – Graduated Income Tax on Compensation Income and
Gross Income Tax on Business Income

Basic Salary 720,000

Excess from 90,000 threshold
13th Month Pay 60,000
Productivity Bonus 70,000
Christmas Bonus 90,000
Total 220,00
Less: 0 130,000
Gross Compensation Income 90,000
Less: Mandatory Contributions 850,000
SSS Contribution (900 x 12 mos)
Philhelath Contribution (550 x 12) 10,800
Pag-IBIG Contribution (100 x 12) 6,600 18,600
Total Compensation Income 1,200
Income Tax Due: 831,400
Tax on 800,000
Tax on Excess (831,400-800,000) x 30% 130,000
Total Tax Due 9,420
139,420

Sales 900,000
X GIT rate 8%_
Tax Due 72,000
Total tax due (139,420+72,000) = 211,420 Quarter 2 Week 5 – C
(ABM_FABM12-Iih-j-19)
The learner expresses:
EXERCISES a. explain the procedure in the computation of gross
taxable income and tax due
From the given example about Jess Dimaunahan in the previous
exercise, assume that Mr. Dimaunahan has a small business, in Writer:
addition to his employment, with the following data: MARY ANN N. COLONIA
Sales 900,000 Utilities Expense. 50,000
Cost of Sales 150,000 Salaries Expense
100,000 Layout Artist:
KRISHEA MAE P. JARUDA
Compute for the taxable income and tax due using both options
(Option 1 and Option 2).
EPS I - Mathematics
KIM S. ARCEÑA, EdD
Key in or click the link: https://www.khanacademy.org/math/engageny-
alg2/alg2-3
 GENERALIZATION
Illustration 2 Illustration 3
Business Income Computation for Individual taxpayer Mixed Income Computation for Individual Taxpayer
AAA, an individual, owns a gift shop. For 2019, AAA has the following Assuming that aside from the gift shop earnings, AAA also derives
figures for his business: income as employee of a private corporation. His records show the
following data:

Sales 900,000 Salary (60,000/month for 12 mos) 720,000

Cost of Sales 350,000 Mandatory Contributions:
Transportation Expense 12,000 SSS Contribution (900 x 12 mos) 10,800
Salaries Expense 100,000 Philhelath Contribution (550 x 12) 6,600
Rent Expense 36,000 Pag-IBIG Contribution (100 x 12) 1,200
Communication Expense 22,000 13th Month Pay 60,000
Utilities Expense 15,000 Productivity Bonus 70,000
Christmas Bonus 90,000
AAA’s taxable income and tax due are as follows:
The taxable income of AAA is computed as follows:
1st Option - Graduated Income Tax
Sales 900,000 1st Option - Graduated Income Tax
Cost of Sales 350,000 Basic Salary 720,000
Gross Income 550,000 Excess from 90,000 threshold
Less – Expenses: 13th Month Pay 60,000
Transportation Expense 12,000 Productivity Bonus 70,000
Salaries Expense 100,000 Christmas Bonus 90,000
Rent Expense 36,000 Total 220,000
Communication Expense 22,000 Less: 90,000 130,000
Utilities Expense 15,000 185,000 Gross Compensation Income 850,000
Taxable Income 365,000 Less: Mandatory Contributions
SSS Contribution (900 x 12 mos) 10,800
Income Tax Due: Philhelath Contribution (550 x 12) 6,600
Tax on Excess (365,000-250,000) x 20% 23,000 Pag-IBIG Contribution (100 x 12) 1,200 18,600
Total Compensation Income 831,400
2nd Option – Gross Income Tax Add: Taxable Business Income 365,000
Sales 900,000 Taxable Income 1,196,400
X GIT rate 8%_
Tax Due 72,000 Income Tax Due:
Tax on 800,000 130,000
Tax on Excess (1,196,400-800,000) x 30% 118,920
Total Tax Due 248,920
 Illustration:

AA is a resident citizen who earned 50,000 interest income from a Metro

Bank.
• What is the final tax rate and tax due on his interest income?
Interest Income 50,000
Tax rate 20%
Tax Due 10,000
• Assuming that AA earned the 50,000 from a foreign currency deposit
system, what is his final tax rate and tax due?
Interest Income 50,000
Tax rate 15%
Tax Due 7,500
• Assuming that AA is a non-resident citizen who earned 50,000
interest income from a foreign currency deposit system, what is his
final tax rate and tax due?
Interest Income 50,000
Tax rate exempt
Tax Due -0-

EXERCISES
Determine the final tax rate and tax due of the following passive income
earned by a resident citizen taxpayer:
Quarter 2 Week 5 – D
1. Lotto winnings of 1,000,000 (ABM_FABM12-Iih-j-19)
2. Property Dividend of 250,000 The learner expresses:
3. Interest Income from trust funds of 10,000 a. explain the procedure in the computation of gross
4. Royalties as musical composer of 500,000 taxable income and tax due
5. Cash prize of 15,000
6. PCSO winnings of 9,000
7. Royalties in general of 90,000 Writer:
8. Interest Income from a foreign currency deposit of 50,000 MARY ANN N. COLONIA
9. Cash Dividend of 150,000
10. Share in the net income after tax of a joint venture of 25,000 Layout Artist:
KRISHEA MAE P. JARUDA
EPS I - Mathematics
KIM S. ARCEÑA, EdD
Key in or click the link:
https://www.khanacademy.org/math/engageny-alg2/alg2-3
 GENERALIZATIO
Passive Income
Passive Income RC NRC RA NRA-
ETB
Passive income are those earned with little or no effort on the part of the
taxpayer. This type of income is subject to final tax.
Prizes (in general) 20% 20% 20% 20%
Final tax refers to a tax withheld at source. As such, the taxpayer receives
the income at net amount (that is, after final tax is withheld). Prizes amounting to Sec Sec Sec Sec
10,000 or less 24(A) 24(A) 24(A) 24(A)
The following are examples of passive income and their corresponding NIRC NIRC NIRC NIRC
rates:

Winnings (including PCSO 20% 20% 20% 20%

Passive Income RC NRC RA NRA- and lotto winnings above
ETB 10,000)
Interest Income from Prizes/PCSO and lotto
any currency deposit 20% 20% 20% 20% winnings amounting to Exempt Exempt Exempt Exempt
and yield and from trust 10,000 or less
funds Cash and/or property
Interest Income from a dividends actually or
depositary bank under 15% Exempt 15% Exempt constructively received
the Foreign Currency from a domestic
Deposit System corporation, joint stock
company, insurance, 10% 10% 10% 20%
Interest Income from mutual fund companies
long term deposit with Exempt Exempt Exempt Exempt and regional operating
at least 5-year term headquarters of a multi
national company
If however the deposit
is pre-terminated before Share of a/(an):
the 5th year, the tax is: • Partner in the
4 years to < 5 years 5% 5% 5% 5% distributable net income
3 years to < 4 years 12% 12% 12% 12% after income tax of a
< 3 years 20% 20% 20% 20% partnership
• Individual in the net 10% 10% 10% 20%
Royalties (in general) 20% 20% 20% 20% income after tax of an
association joint
Royalties on literary account, joint venture
works, musical 10% 10% 10% 10% or consortium taxable
composition or books as a corporation

Write the final answer for the given problem here