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How to compute Income Taxes in the Philippines

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Year after year, April 15 is a date millions of Filipinos dread. It is because this date is the annual deadline to file income tax returns.

If you were able to make your own Income Tax Return (ITR) because you fully understand Philippine taxation laws, then good for you. But for the majority who rely on accountants or their companies to prepare their ITRs, here is a simple and concise explanation of the income tax law in the Philippines.

Who are required to file Income Tax Returns (ITR)?

According to the Bureau of Internal Revenue (BIR), the following are required to submit Income Tax Returns:

  • Filipino citizens residing in the Philippines receiving income from sources within or outside the Philippines
  • Filipino citizens not residing in the Philippines receiving income from sources within the Philippines
  • Resident or non-resident aliens receiving income from sources within the Philippines
  • Domestic corporations receiving income from sources within and outside the Philippines
  • Foreign corporations receiving income from sources within the Philippines
  • Taxable partnerships
  • Estates and trusts engaged in trade or business

What is Taxable Income?

Taxable income is the gross income of the taxpayer less any deductions and/or personal and additional exemptions authorized by the Tax Code or other special laws.

Gross income means all income derived from whatever source. It includes, but is not limited to, Compensation for services, in whatever form paid; Gross income derived from the conduct of trade or business or the exercise of profession; Gains derived from dealings in propert; Interest; Rents; Royalties; Dividends; Annuities; Prizes and winnings; Pensions; and Partner’s distributive share from the net income of the general professional partnerships.

Exclusions from Gross Income include Life insurance; Amount received by insured as return of premiu; Gifts, bequests and devise; Compensation for injuries or sickness; Income exempt under treaty; Retirement benefits, pensions, gratuities, etc; Miscellaneous item; income derived by foreign government; income derived by the government or its political subdivision; prizes and awards in sport competition; prizes and awards which met the conditions set in the Tax Code; 13th month pay and other benefits; GSIS, SSS, Medicare and other contributions; gain from the sale of bonds, debentures or other certificate of indebtedness; and gain from redemption of shares in mutual fund.

What are allowable deductions from gross income?

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Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships, a taxpayer may opt to avail either of the following allowable deductions from gross income:

  • Optional Standard Deduction – an amount not exceeding 40% of the net sales for individuals and gross income for corporations; or
  • Itemized Deductions – which include the following:  Expenses; Interest; Taxes; Losses; Bad Debts; Depreciation; Depletion of Oil and Gas Wells and Mines; Charitable Contributions and Other Contributions; Research and Development; and Pension Trusts

A maximum of P2,400 premium payments on health and/or hospitalization insurance may also be claimed as deduction, provided the annual family gross income is not be more than P250,000 and for married individuals, the spouse claiming this deduction is the one claiming additional exemptions for the qualified dependents.

What are allowable personal and additional exemptions?

Individuals who are earning compensation income, engaged in business or deriving income from the practice of profession are entitled to the following Personal Exemptions:

  • For single individual or married individual judicially decreed as legally separated with no qualified dependents – P50,000
  • For head of family – P50,000
  • For each married individual – P50,000 (to be claimed only by the spouse deriving gross income)

Taxpayers may also claim an Additional Exemption of P25,000 for each qualified dependents, up to four (4) dependents.

How is income tax payable computed?

The formula to compute the income tax payable is:

  • Gross Income
  • Less: Allowable Deductions (Itemized or Optional)
  • Net Income
  • Less: Personal & Additional Exemptions
  • Net Taxable Income
  • Applicable Tax Rate (see Tax Rate Table below)
  • Income Tax Due
  • Less: Tax Withheld
  • Income Tax Payable

What is the income tax rate in the Philippines?

For individuals earning purely compensation income and those engaged in business and practice of profession, the applicable tax rate table is as follows:

Taxable Income Tax Rate
More than But less than  
0 P10,000 5%
P10,000 P30,000 P500 + 10% of the Excess over P10,000
P30,000 P70,000 P2,500 + 15% of the Excess over P30,000
P70,000 P140,000 P8,500 + 20% of the Excess over P70,000
P140,000 P250,000 P22,500 + 25% of the Excess over P140,000
P250,000 P500,000 P50,000 + 30% of the Excess over P250,000
P500,000   P125,000 + 32% of the Excess over P500,000 in 2000 and onward

For domestic corporations, the corporate tax rate is 30% of the Net taxable income from all sources starting January 1, 2009.

For proprietary educational institutions and non-stock, non-profit hospitals, the tax rate is 10% of the Net taxable income, provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income.

For GOCCs, agencies & instrumentalities, the tax rate is 32% of the Net taxable income from all sources.

For all taxable partnerships, the tax rate is also 32% of the Net taxable income from all sources.

International Carriers are taxed 2.5% on their Gross Philippine Billings.

For Regional Operating Headquarters (ROHQ), the tax rate is 10% of Taxable Income.

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  • grace

    hope you can help me, almost 3 years po ako nagtrabaho sa work ko then nagresign po ako oct. 3. ang alam ko po may makukuha pa ako , pero sabi po ng accntg. namin wala na daw po ako makukuha dahil nakapagcompute na daw po sila. tama po ba yun? hindi ko na po ba pwede ipaglaban yun? may right po ba ako?
    it will be very much appreciated if you can help me with this. thanks

    • jhe

      Anong nacompute nila? Ano ang makukuha mo? Medyo malabo ang tanong. Kung ang sinasabi mo na matatanggap mo ay last salary mo, siyempre dapat mo talaga kunin un. If tax refund tinutukoy mo na matatanggap mo, depende un sa salary na natanggap mo from january to oct. 3. kasi kapag nasa minimum wage ka lang at binawasan ka ng tax, dapat irefund un sayo ng employer mo dahil wala ka dapat bayarang tax. If above minimum salary mo, taxes mo ay dapat iwithheld ng employer mo. Hindi mo na yun makukuha except kung me sobra sa ibinawas na tax mo which, more often, sinasama/idinagdag na doon sa last salary na natanggap mo.

  • cathcath

    Hi, meron po akong tanong regarding sa 2316 ko, nanganak po ako last April 2015 meron nman pong nabaaws sa tax ko sa monthly payroll pero ang tanong ko po kase nung magkapirmahan ng ng 2316 50,000.00 pa rin ung exemption n nkalagay sa form di po ba dapat 75,000.00 na dahil may dependent na po ako? kailangan ko po bang magreklamo sa employer ko regardin dun? kaya lng o napirmahan ko na ung 2316 form ko.. ano po maganda kong gawin please advise po. thanks

    • jhe

      Nagwowork po ba ang asawa mo? Kung oo, tingnan mo sa 2316 niya baka nagclaim din siya ng additional exemption. If hindi, ang sunod na tanong, nagpasa ka ba sa employer mo ng waiver of claim ng asawa mo? if not, hindi ka talaga babawasan kasi hindi automatic sa isang babae ang additional exemption. If nagpasa ka ng waiver ng asawa mo, ask mo employer mo why and file necessary tax refund within two years.

  • Ryan Miclat

    good evening. mayroon po ba akong pweding pagkuhanan ng industrial, or business taxes of region3, NCR and ARMM? dably neede that for our requirement in school. I can’t find any from my research. any help will be appreciated much. tnx in advance.

  • JhayJhay Santos

    I am a freelancer po I make 18-25 a month, my salary po is galing pa sa ibang bansa using paypal at skrill gusto ko po sana magbayad ng tax para makakuha rin sana ako ng mga loans tanong ko lang po kung makakasuhan ba ako kasi I have been freelancing for one year na. Nabasa ko rin po sa forum na as freelancer mapupunta ako sa category ng business I have live in partner pero single kasi hindi pa kami kasal. Magbabayad po ba ako ng tax monthly? or quarter and annualy? mga magkano po kaya babayaran kung tax?

    • JhayJhay Santos

      18-25k pesos a month po yan

    • muddygoose

      Mag register ka sa BIR as self-employed professional. After that kelangan mo magbayad monthly ng percentage tax na 3% gross income. Kelangan mo din magbayad ng quarterly income tax (check mo yung tax table sa taas) and then annual income tax. Yung quarterly at annual income tax, pede mo bawas ng deductions bago i-compute. Ang standard deductions is 40%.

    • leah

      hi sir, ask ko lang po ofw po ako at for good na ditto sa pinas.balak po naming mag register sa grab car at need ng ITR. what form po ang dapat ko I fill up?at since wala pa income ang grab car ano pong bracket ng amount ang ilalagay ko?thanks

    • muddygoose

      I believe pede ka naman magfile ng ITR na zero tax. Punta ka or tawag ka muna sa Revenue District Office (RDO) mo.

      Kung di mo alam RDO mo, hanapin mo TIN mo (I assume nagwork ka before dito bago mag-OFW so may TIN ka na). Tawag ka sa 981-8888 para i-inquire RDO mo. Hihingin nila TIN mo when you call.

  • MsTMolina

    Hey, nice to be here! I need your precious help. Please tell me if my computation is correct. I am a single teacher, earned 81,020 in 2015, total tax withheld per bir2307 was 8,094. Less 50,000 exemption?, Income tax due 2,650?, Do I get a 5,444 refund? Thanks a lot for your help, I truly truly appreciate it. More power to your site! Kudos!!

  • Harold Cab’z

    Good day.. Tanong ko po..i am a dealer ng isang direct selling company and I am earning commission po from.the sales of my dealers. I am earning p15000-p25000 a month.. Pano.po mg bayad ng tax?

  • tomatoandcheese

    Sa exclusions po sa gross income, Anong ibig sabihin ng ” income derived by foreign government”?

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  • Floraida Balanao Peñaflor

    Tanong ko lang, hindi po ba nagbabayad na ako ng monthly percentage? Kailangan pa din ba akong magbayad ng quarterly? At magkano naman ang babayadan ko 77500.00 php ang kita ko sa tatlong buwan.Patulong naman po sa pagcompute.salamat.

    • Drmodify

      Iaawas po yung nacompute ayon sa halaga ng “tax witheld”