Under the Tax Code, individual taxpayer’s items of income are grouped together as follows:
- Compensation Income – derived from employment
- Capital Gains – derived from sales of real property or shares of stocks.
- Passive Income – derived from winnings, cinematographic film, similar works, interest, royalty and dividend.
- Business Income – derived from trade, business or practice of profession.
Excluded from compensation income:
- Proceeds of life insurance policy.
- Amount received by the insured as return of premium.
- Compensation for injuries or sickness received by an employee pursuant to an Accident or Health Insurance under Workmen’s Compensation Act.
- Income exempt under Treaty or International commitments of the Philippine Government.
- Retirement and Separation of Benefits.
- a.Retirement Benefits are taxable as a general rule except when received by an employee under the provisions of Republic Act No. 7641, in which case such benefits are tax exempt. However, the following requisites must be present:
- The private retirement or pension plan must be duly registered and approved by the B.I.R.
- The retiring employee must retire at least at age of 50.
- The retiring employee must have served with the employer for at least 10 years prior to retirement.
- The retiring employee must avail of the tax exemption only once.
- SSS and GSIS benefits.
- Prizes and Awards in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement but only if the recipient was selected without entering such contest or proceedings will not be required to render substantial future services as a condition to receiving the prize or award.
- Prizes and awards in sports competition, whether local or international sanctioned by their National Sports Associations.
- 13TH Month pay and other benefits.
- GSIS, SSS, and Philhealth, Pagibig contributions and Union dues employee’s share.
- De Minimis Benefits.
- Gifts given during Christmas and major anniversary celebrations not exceeding five thousand pesos per employee per annum.
- Flowers, fruits and books or similar items given to employees under certain circumstances.
- Daily meal allowance for overtime work and night or graveyard shift not exceeding 25% basic minimum wage.
- Benefits received by an employee by virtue of a CBA and productivity incentive schemes not exceeding 10 000 pesos per employee per taxable year.
Computation of Tax Base
Gross Compensation Income xxx
Personal and Additional Exemptions xxx
Health and Hospitalization Insurance xxx
Taxable Compensation Income xxx