TRAIN Income Tax Sample Computations (from BIR RR 8-2018)
The Bureau of Internal Revenue (BIR) has released Revenue Regulation No. 8-2018 (RR 2018) which details the implementing guidelines governing the Income Tax provisions of the TRAIN tax reform bill recently signed into law by Pres. Rodrigo Duterte.
Although RR 8-2018 was dated January 25, 2018, the complete guidelines was only released to the public, via the official BIR website and Manila Bulletin publication, on February 22, 2018. Still, circulars and memorandum orders issued by the BIR earlier this year mandated the implementation of the TRAIN provisions and tax rates beginning January 1, 2018.
If you’re looking for a copy of RR 8-2018, you’ll be able to find the complete Revenue Regulation below. You may also download a PDF copy of RR-2018 provided below.
* * * UPDATED resources on the approved TRAIN Tax Reform:
- All about TRAIN Tax Law and related BIR Issuances
- What’s included in the approved 2018 TRAIN Tax Reform?
- Personal Income Tax Rates and Income Tax Tables under TRAIN
- New BIR Withholding Tax Rules for Professionals and Self-Employed (2018)
BIR Revenue Regulations No. 8-2018
Implementing the Income Tax Provisions of Republic Act No. 10963, Otherwise Known as the “Tax Reform for Acceleration and Inclusion (TRAIN)” Act
SECTION 1. SCOPE. – Pursuant to Section 244 of the National Internal Revenue Code, as amended, and Section 84 of Repubiic Act (R.A.) No. 10963 otherwise known as the “Tax Reform for Acceleration and Inclusion (TRAIN)” Law, these regulations are hereby promulgated to implement the amended provisions on Title II – Tax on Income of the NIRC.
SECTION 2. DEFINITION OF TERMS. – Words and/or phrases used under these regulations shall mean:
a. Compensation Income – in general, means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code.
The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g. transportation, representation, entertainment and the like); fees including director’s fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits, except those which are subject to the fringe benefits tax under Sec. 33 of the Code and the allowable “de minimis” benefits; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income.
b. Compensation Income Earners – individuals whose source of income is purely derived from an employer-employee relationship.
c. Employee – an individual performing services under an employer-employee relationship. The term covers all employees, including officers and employees, whether elected or appointed, of the Government of the Philippines, or any political subdivision thereof or any agency or instrumentality.
d. Employer – any person for whom an individual performs or performed any service, of whatever nature, under an employer-employee relationship. It is not necessary that services be continuing at the time the wages are paid in order that the status employer may exist. Thus, for purposes of withholding, a person for whom an individual has performed past services and from whom he is still receiving compensation is an “employer”.
e. Employer and Employee Relationship – exists when a person for whom services were performed (employer) has the right to control and direct an individual who performs the services (employee), not only as to the result of the work to be accomplished but also as to the detail, methods and means by which it is accomplished. An employee is subject to the control of the employer not only as to what shall be done, but how it shall be done. It is not necessary that the employer actually exercises the right to direct or control the manner in which the services are performed. It is sufficient that there exists a right to control the manner of doing the work.
f. Fringe Benefits – means any good, service or other benefit furnished or granted in cash or in kind other than the basic compensation, by an employer to an individual employee (except rank and file employee as defined herein) such as, but not limited to the following:
- Expense account;
- Vehicle of any kind;
- Household personnel, such as maid, driver and others;
- Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;
- Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;
- Expenses for foreign travel;
- Holiday and vacation expenses;
- Education assistance to the employee or his dependents; and
- Life or health insurance and other non-life insurance premium or similar amounts in excess of what the law allows.
g. Gross Receipts – refers to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services, and deposits and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, except returnable security deposits for purposes of these regulations. In the case of VAT taxpayer, this shall exclude the VAT component.
h. Gross Sales – refers to the total sales transactions net of VAT, if applicable, reported during the period, without any other deduction. However, gross sales subject to the 8% income tax rate option shall be net of the following deductions:
- Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales; and
- Discounts determined and granted at the time of sale, which are expressly indicated in the invoice, the amount thereof forming part of the gross sales duly recorded in the books of accounts. Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening of a future event, may be excluded from the gross sales within the same month/quarter it was given.
i. Minimum Wage Earner (MWE) – refers to a worker in the private sector who is paid with a statutory minimum wage (SMW) rates, or to an employee in the public sector with compensation income of not more than the statutory minimum wage rates in the non-agricultural sector where the worker/employee is assigned. Such statutory minimum wage rates are exempted from income tax. Likewise, the exemption covers the holiday pay, overtime pay, night shift differential pay, and hazard pay earned by an MWE.
j. Mixed Income Earner – an individual earning compensation income from employment, and income from business, practice of profession and/or other sources aside from employment.
k. Non-resident alien engaged in trade and business (NRAETB) – refers to a non-resident alien who shall come to the Philippines and stay for an aggregate period of more than one hundred eighty (i80) days during any calendar year.
l. Non-resident alien not engaged in trade and business (NRANETB) – refers to a nonresident alien who shall come to the Philippines and stay for an aggregate period of one hundred eighty (180) days or less during any calendar year.
m. Rank and File Employee – refers to an employee holding neither managerial nor supervisory position as defined under existing provisions of the Labor Code of the Philippines, as amended.
n. Self-employed – a sole proprietor or an independent contractor who reports income earned from self-employment. S/he controls who s/he works for, how the work is done and when it is done. It includes those hired under a contract of service or job order, and professionals whose income is derived purely from the practice of profession and not under an employer-employee relationship.
Professional – a person formally certified by a professional body belonging to a specific profession by virtue of having completed a required examination or course of studies and/or practice, whose competence can usually be measured against an established set of standards. It also refers to a person who engages in some art or sport for money, as a means of livelihood, rather than as a hobby. It includes, but is not limited, to doctors, lawyers, engineers, architects, CPAs, professional entertainers, artists, professional athletes, directors, producers, insurance agents, insurance adjusters, management and technical consultants, bookkeeping agents, and other recipients of professional, promotional and talent fees.
o. Taxable Income – refers to the pertinent items of gross income specified in the Code, less deductions, if any, authorized for such types of income by the Code or other special laws.
p. VAT Threshold – refers to the ceiling fixed by law to determine VAT registrable taxpayers. The VAT threshold is currently set at three million pesos (P3,000,000.00). and the same shall be used to determine the income tax liability of self-employed individuals and/or professionals under Sections 24(A)(2)(b) and 24(A)(2)(c)(2) of the Tax Code, as amended.
SECTION 3. INDIVIDUAL CITIZEN AND INDIVIDUAL RESIDENT ALIEN OF THE PHILIPPINES. – In general, the income tax on the individual’s taxable income shall be computed based on the following schedules as provided under Sec. 24(A)(2)(a) of the Tax Code, as amended:
(A) Income Tax Rates
Effective January 1, 2018 until December 31, 2022:
|Range of Taxable Income||TAX DUE = a + (b x c)|
|Over||Not Over||Basic Amount (a)||Additional Rate (b)||Of Excess Rate (c)|
Effective January 1,2023 and onwards:
|Range of Taxable Income||TAX DUE = a + (b x c)|
|Over||Not Over||Basic Amount (a)||Additional Rate (b)||Of Excess Rate (c)|
(B) Individuals Earning Purely Compensation Income
lndividuals earning purely compensation income shall be taxed based on the income tax rates prescribed under subsection (A) here.
Taxable income for compensation earners is the gross compensation income less nontaxable income/benefits such as but not limited to the Thirteenth (13th) month pay and other benefits (subject to limitations, see Section 6(G)(e) of these Regulations), de minimis benefits, and employee’s share in the SSS, GSIS, PHIC, Pag-ibig contributions and union dues.
Husband and wife shall compute their individual income tax separately based on their respective taxable income; if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income.
Minimum wage earners shall be exempt from the payment of income tax based on their statutory minimum wage rates. The holiday pay, overtime pay, night shift differential pay and hazard pay received by such earner are likewise exempt.
* View here a sample tax computation for Minimum Wage workers.
(C) Self-Employed Individuals Earning Income Purely from Self-Employment or Practice of Profession
Individuals earning income purely from self-employment and/or practice of profession whose gross sales/receipts and other non-operating income does not exceed the value-added tax (VAT) threshold as provided under Section 109 (BB) of the Tax Code, as amended, shall have the option to avail of:
- The graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended; OR
- An eight percent (8%) tax on gross sales or receipts and other non-operating income in excess of two hundred fifty thousand pesos (P250,000.00) in lieu of the graduated income tax rates under Section 24(A) and the percentage tax under Section 1 16 all under the Tax Code, as amended.
Unless the taxpayer signifies the intention to elect the 8% income tax rate in the 1st Quarter Percentage and/or Income Tax Return, or on the initial quarter return of the taxable year after the commencement of a new business/practice of profession, the taxpayer shall be considered as having availed of the graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended. Such election shall be irrevocable and no amendment of option shall be made for the said taxable year.
The option to be taxed at 8% income tax rate is not available to a VAT-registered taxpayer, regardless of the amount of gross sales/receipts, and to a taxpayer who is subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except those subject under Section 116 of the same Title. Likewise, partners of a General Professional Partnership (GPP) by virtue of their distributive share from GPP which is already net of cost and expenses cannot avail of the 8% income tax rate option.
A taxpayer who signifies the intention to avail of the 8% income tax rate option, and is conclusively qualified for said option at the end of the taxable year [annual gross sales/receipts and other non-operating income did not exceed the VAT threshold (P3,000,000.00)] shall compute the final annual income tax due based on the actual annual gross sales/receipts and other non-operating income. The said income tax due shall be in lieu of the graduated rates of income tax and the percentage tax under Sec. 116 of the Tax Code, as amended. The Financial Statements (FS) is not required to be attached in filing the final income tax return. However, existing rules and regulations on bookkeeping and invoicing/receipting shall still apply.
A taxpayer shall automatically be subject to the graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended, even if the flat 8% income tax rate option is initially selected, when taxpayer’s gross sales/receipts and other non operating income exceeded the VAT threshold during the taxable year. In such case, his income tax shall be computed under the graduated income tax rates and shall be allowed a tax credit for the previous quarter/s income tax payment/s under the 8% income tax rate option.
In addition, a taxpayer subject to the graduated income tax rates (either selected this as the income tax regime, or failed to signify chosen intention or failed to qualify to be taxed at the 8% income tax rate) is also subject to the applicable business tax, if any, subject to the provisions of Section 8 of these Regulations, an FS shall be required as an attachment to the annual income tax return even if the gross sales/receipts and other non-operating income is less than the VAT threshold. However, the annual income tax return of a taxpayer with gross sales/receipts and other non-operating income of more than the said VAT threshold shall be accompanied by an audited FS.
Taxable income for individuals earning income from self-employment/practice of profession shall be the net income, if taxpayer opted to be taxed at graduated rates or has failed to signify the chosen option. However, if the option availed is the 8% income tax rate, the taxable base is the gross sales/receipts and other non-operating income.
* View here a sample tax computation for Self-Employed and Professionals.
(D) Individuals Earning Income Both from Compensation and from Self-Employment (business or practice of profession)
For mixed income earners, the income tax rates applicable are:
1. The compensation income shall be subject to the tax rates prescribed under Section 24(A)(2)(a) of the Tax Code, as amended; AND
2. The income from business or practice of profession shall be subject to the following:
a. lf the gross sales/receipts and other non-operating income do not exceed the VAT threshold, the individual has the option to be taxed at:
- a.1 Graduated income tax rates prescribed under Section 24(A)(2)(a) of the Tax Code, as amended; OR
- a.2 Eight percent (8%) income tax rate based on gross sales/receipts and other non-operating income in lieu of the graduated income tax rates and percentage tax under Section 116 of the Tax Code, as amended.
b. If the gross sales/receipts and other non-operating income exceeds the VAT threshold, the individual shall be subject to the graduated income tax rates prescribed under Section 24(A)(2)(a) of the Tax Code, as amended.
The provision under Section 24(A)(2)(b) of the Tax Code, as amended, which allows an option of 8% income tax rate on gross sales/receipts and other non-operating income in excess of P250,000.00 is available only to purely self-employed individuals and/or professionals.
The P250,000.00 mentioned is not applicable to mixed-income earners since it is already incorporated in the first tier of the graduated income tax rates applicable to compensation income. Under the said graduated rates, the excess of the P250,000.00 over the actual taxable compensation income is not deductible against the taxable income from business/practice of profession under the 8% income tax rate option.
The total tax due shall be the sum of:
- (1) tax due from compensation, computed using the graduated income tax rates; and
- (2) tax due from self-employment/practice of profession, resulting from the multiplication of the 8% income tax rate with the total of the gross sales / receipts and other non-operating income.
Mixed income earner who opted to be taxed under the graduated income tax rates for income from business/practice of profession, shall combine the taxable income from both compensation and business/practice of profession in computing for the total taxable income and consequently, the income tax due.
* View here a sample tax computation for Mixed Income Individuals.
Download here an official PDF copy of BIR Revenue Regulation No. 8-2018.
Source: Bureau of Internal Revenue (BIR www.bir.gov.ph), Department of Finance (DOF www.dof.gov.ph) Philippines
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