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How to compute Income Taxes in the Philippines

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’re able to make your own Income Tax Return (ITR) because you fully understand taxation laws, then good for you. But for the majority of us who still rely on accountants or our companies to prepare our ITRs, here’s 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 people 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

As you can see, almost everyone who makes money is required to file and pay income tax.

What is Taxable Income?

Taxable income is the amount of gross income received by the taxpayer minus any deductions and/or personal and additional exemptions, as 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?

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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About this post: tax table philippines 2012, bir tax TABLE 2011, income taxation, tax table 2012 philippines, tax table philippines

123 thoughts on “How to compute Income Taxes in the Philippines”

  1. Car Suerte says:

    Hi,Question lang. if this January mguupdate ako nang TAX status from s1 to s2 may tax refund pa ba ko na matatanggap on End of DEC 2017?

  2. Juvenal Juvenal says:

    Hi may tanong po ako. Ano po ba ibig sabihin ng nakalagay sa payslip ko excemption 50,000. Im single pwd work as full time professor

    1. Eiyk Generalao Tandog says:

      that’s basic personal
      exemption of 50,000 per individual, whether single, married or divorced. 25,000 additional exemption for every legitimate child under 21 years old, dependent to the parents.

    2. Macs says:

      Hello sir yung total ko po last year is less than 50k, 47k to be precise tapos yung lumalabas na income tax due is 0. Ibig sabihin wala akong babayaran?

    3. Eiyk Generalao Tandog says:

      If nag zero out yung tax due and tax withheld mo for the annual return, yes, wala ka babayaran :)

  3. Thomas Alibadbad says:

    my husband and I have a separate business…Mine was classified as marginal taxpayer..that is why BIR required us to file ITR separately………for ITR computation..
    are we allowed each of 50,000. personal exemption?

    1. ynel riola says:

      yes you are allowed to have 50k personal exemption individually but if you have children your husband can also claim the additional exemption of 25k per child up to 4 dependents.

  4. Mervin Mercader says:

    Ganu po katagal ang process kapag nagpa-update ng Status ng TAX from S to S2? At magkano kaya mababawas sa Tax ko nun? Dati kase lageng nasa 900 per cut off. Magkano nalang kaya kapag naka S2 na status ng Tax ko? Sana may makapansin. Salamat po!!!

    1. ynel riola says:

      para po mag update ng tax info..kelangan po magsubmit sa bir ng BIR form 2305. Or if nagpaprocess ung employer mu ng ganito s HR nyo po ng company nyo ibigay ung BIR form 2305 nyo para mapareceive nila sa BIR office,,and after nun pede magiging updated na ung tax info nyo..baba na po ung tax nyo,,Ung amount po ng pagbaba is depende sa taxable income nyo..:)

  5. Brian Ken says:

    Question lang po, freelancer po ako gusto ko mga 4 years na. Balak ko po mag autoloan sa bank and isa sa mga requirements po nila is ITR. Net income ko po per month is 50k, single and walang dependent. Balak ko po mag loan mga October this year (2017) pwede pa po ba ako mag bayad ng tax and mga nasa magkano po kaya ang babayaran ko. Pls help po, salamat ng marami.

    1. ynel riola says:

      kung freelancer ka po 4 yrs na.. tapos di ka po nag sasubmit ng ITR sa penalty na po kayo. filing and payment of ITR for year 2016 was on April 15, 2017..kung blak nyo po mag auto loan on October 2017.Im sure ung hihingin ng bank na ITR is for year 2016.

    2. ynel riola says:

      the amount will be your total tax due + interest + compromise penalty + amount po is depende sa computation ng BIR officer. My computation table po ang lahat ng yan.

  6. arman says:

    ilang percent po ng tax ang binabayaran sa bir and municipal for local business.
    ang alam ko po kasi sa bir ay 12% of your gross profit. municipal tax 12 percent po rin ba?

  7. ada says:

    Tanong ko lng po, paano po malalaman if tama ung kinakaltas na tax ng company ni hubby sa kanya? CC agent po cia inbound & ang sahod lng po nia ay basic 26k nagtataka po kc kami kng paano computation ng tax dahil every cut off po 3k pinaka mababa na naka lagay sa payslip nia na tax pwera papo ung ss,phlhlt pagibig,etc. Minsan po kng kelan pa mababa ang sahod nia saka po umaabot ng 4k ang tax.. Pls enlighten us po.. Slamat..

  8. Ma.cristina says:

    Tanong ko lang po magkano po tax na ang salary nasa 45k.. may tatlo po kaming anak ang laki po kasi ng kinakaltas sa asawa ko..

  9. daisy says:

    my tanong po ako paano po kng late kna mg pass ng annual income tax sa bussiness kc bgo lng po un 2016 sept. plng aq ng start mg bussiness pero hnd ko po alam n mgbabayad n pla ko nun ng income tax tpos pti quarterly ang income ko nun ay nsa nsa 70,000 gross sales

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