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II. DEFINITION OF GROSS INCOME - Coggle Diagram

- - - - D. GAINS FROM DEALINGS IN PROPERTY
        
        E. PASSIVE INCOME - INTEREST, ROYALTY, AND DIVIDEND
        
        F. PRIZES AND WINNINGS
        
        G. PENSIONS AND ANNUITIES
  - - - FORMS:
        FEES,
        SALARIES,
        WAGES,
        COMMISSIONS,
        AND SIMILAR ITEMS
        including, but not limited to fees, salaries, wages, commissions, and similar items;
      - B.1 FRINGE BENEFIT
        SEC. 33. Special Treatment of Fringe Benefit. -
        
        35% OF FBT ON GROSSED UP VALUE OF FB GRANTED TO M&S EEs
        (A) Imposition of Tax. – Effective January 1, 2018 and onwards, a final tax of thirty-five percent (35%) [43] is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee [33A]
        
        PAYABLE BY ER
        The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57 (A) of this Code.
        [33A]
        
        SPECIFIC FRINGE BENEFIT RATES
        Provided, however, That fringe benefit furnished to employees and taxable under Subsections (B), (C), (D) and (E) of Section 25 shall be taxed at the applicable rates imposed thereat:
        
        NRA-NETB:
        25% ON ENTIRE (GROSS) INCOME
        (B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines.-
        There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines
        by every nonresident alien individual not engaged in trade or business within the Philippines
        as interest, cash and/or property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income, and capital gains,
        a tax equal to twenty-five percent (25%) of such income.
        
        ALIEN IN HQ OF MULTINATIONAL COMPANIES
        15% ON GROSS INCOME
        (C) Alien Individual Employed by
        Regional or Area Headquarters and
        Regional Operating Headquarters of Multinational Companies. -
        There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by regional or area headquarters and regional operating headquarters established in the Philippines by multinational companies as
        salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, from such regional or area headquarters and regional operating headquarters, a tax
        equal to fifteen percent (15%) of such gross income:
        
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        CG = CGT RATES
        Capital gains realized by a nonresident alien individual not engaged in trade or business in the Philippines from the sale of shares of stock in any domestic corporation and real property shall be subject to the income tax prescribed under Subsections (C) and (D) of Section 24.
        
        DIVISOR = 100%-SPECIFIC RATE
        Provided, further, That the grossed -up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B), (C), (D), and (E) of Section 25.
        
        DIVIDE BY 65%
        The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by sixty-five percent (65%) effective January 1, 2018 and onwards: [44]
        [33A]
        
        FRINGE BENEFITS = IN CASH OR IN KIND
        (B) Fringe Benefit Defined. - For purposes of this Section, the term 'fringe benefit' means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as, but not limited to, the following:
        
        SIR: NOT EXCLUSIVE
        (1) Housing;
        (2) Expense account;
        (3) Vehicle of any kind;
        (4) Household personnel, such as maid, driver and others;
        (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;
        (6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;
        (7) Expenses for foreign travel;
        (8) Holiday and vacation expenses;
        (9) Educational assistance to the employee or his dependents; and
        (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.
        
        NON-TAXABLE FRINGE BENEFITS
        (C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section:
        
        LAW EXEMPTED
        (1) Fringe benefits which are authorized and exempted from tax under special laws;
        
        ER'S CONTRIB TO EE'S RP
        (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans;
        
        R&F's FRINGE BENEFIT, CBA OR NOT
        (3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and
        
        DE MINIMIS
        (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of
        Finance, upon recommendation of the Commissioner.
        
        SOF MAY PROMULGATE RR
        The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, such rules and regulations as are necessary to carry out efficiently and fairly the provisions of this Section, taking into account the peculiar nature and special need of the trade, business or profession of the employer.
        
        NOT RANK AND FILE
        (except rank and file employees defined herein) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer).
        
        FBT = FINAL WITHHOLDING TAX
        RR 3-98, SEC. 2.33. SPECIAL TREATMENT OF FRINGE BENEFITS
        (A) Imposition of Fringe Benefits Tax — A final withholding tax is hereby imposed on the grossed-up monetary value of fringe benefit furnished, granted or paid by the employer to the employee, except rank and file employees as defined in these Regulations...
        
        ER MAY BE INDIV, PP, CORP
        TAX EXEMPT OR NOT
        ...whether such employer is an individual, professional partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities
        
        NO FB TAXABLE IF
        
        NECESSARY TO T/B
        
        BENEFIT OF ER
        except when: (1) the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or advantage of the employer.
        
        Quarters & Meals (Q&Ms) ADDED TO REMUNERATION
        2.1 If an employee receives a remuneration for services, salaries and/or allowances and in addition thereto living quarters and/or meals, the value to such person of the quarters and meals so furnished shall be added to the remuneration otherwise paid for the purpose of determining the amount of compensation subject to withholding tax.
        
        EXCLUDED: Q Furnished in ER’s business premises
        
        FURNISHED IN ER'S BUSINESS PREMISES
        
        REQUIRED FOR EMPLOYMENT
        2.2 The value of lodging furnished to an employee by or on behalf of the employer shall be excluded from the employee's gross income, if the lodging is furnished in the business premises of the employer; and the employee is required to accept such lodging as a condition of his employment.
        
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        B.2 CONVENIENCE OF THE EMPLOYER TEST
        
        ER-EE RELATIONSHIP FIRST
        SECTION 2.78.1. Withholding of Income Tax on Compensation Income. —
        (A) Compensation Income Defined. —
        In general, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code.
        NAME DOES NOT MATTER
        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; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income.
        BASIS IS IMMATERIAL, PIECE-WORK, PERCENTAGE, OR WHATNOT
        The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation.
        Thus, it may be paid on the basis of piece-work, or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually.
        Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them.
        
        NOT COMPENSATION INCOME:
        LIVING QUARTERS/MEALS
        FURNISHED TO EE FOR BENEFIT OF ER
        (2) Living quarters or meals. —
        If a person receives a salary as remuneration for services rendered, and in addition thereto, living quarters or meals are provided, the value to such person of the quarters and meals so furnished shall be added to the remuneration paid for the purpose of determining the amount of compensation subject to withholding. However, if living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income.
        
        B. 3 DE MINIMIS BENEFITS
        
        RR DEFINES DE MINIMIS BENEFITS
        SEC. 33. Special Treatment of Fringe Benefit. -
        (C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section:
        (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
        The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, such rules and regulations as are necessary to carry out efficiently and fairly the provisions of this Section, taking into account the peculiar nature and special need of the trade, business or profession of the employer.
        
        TRANSPORTATION ALLOWANCE, NOT SUBJECT TO SUBSTANTIAION
        
        PRE-COMPUTED
        
        DAILY
        
        ASSIGNMENT/DUTY
        1) That the taxi/transportation allowance of P100.00/day given by SGS Gulf to any employee who worked overtime beyond 10 p.m. or whose work shift starts at 10 p.m. onwards are not subject to the fringe benefits tax; and
        
        2) That since the said benefits are pre-computed on a daily basis and are paid to the employees, while they are on assignment or duty, they are not subject to the requirements of substantiation and therefore not subject to income tax and to withholding tax.
        
        DE MINIMIS BENEFITS EXEMPT IF:
        
        FURNISHED BY ER
        
        RELATIVELY SMALL VALUE
        
        FOR PROMOTING HEALTH, GOODWILL, CONTENTMENT, OR EFFICIENCY
        (3) Facilities and privileges of a relatively small value. —
        Ordinarily, facilities and privileges (such as entertainment, medical services, or so called "courtesy" discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as compensation subject to withholding if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees.
        
        [Sec. 2.78.1(A)(3), Rev. Regs. No. 2-98 (April 17, 1998)]
        
        PAID IN PROPERTY, NOT CASH = ARRANGEMENTS TO ENSURE WITHHOLDING
        Where compensation is paid in property other than money, the employer shall make necessary arrangements to ensure that the amount of the tax required to be withheld is available for payment to the Commissioner.
        [Sec. 2.78.1(A)(3), Rev. Regs. No. 2-98 (April 17, 1998)]
        
        DE MINIMIS EXEMPT FROM BOTH M&S
        
        P1500 RICE SUBSIDY
        
        P4000 UNIFORM & CLOTHING
        Section 1. Section 2.78.1 (A)(3)(c) and (d) of RR 2-98, as last amended by RR 10-2000, is hereby further amended to read as follows:
        “Sec. 2.78.1 Withholding of Income Tax on Compensation Income.-
        
        (A)(3) Facilities and privileges of relatively small value. –
        The following shall be considered as “de minimis” benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees:
        (c) Rice subsidy of P1,500.00 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500.00
        (d) Uniform and Clothing allowance not exceeding P4,000.00 per annum;
        
        REPEAT
        Section 2 . Section 2.33(C) of RR 3-98, as last amended by RR 10-2000, is hereby further amended to read as follows:
        “Sec. 2.33. Special Treatment of Fringe Benefits.
        (C) Fringe Benefits Not Subject to Fringe Benefit Tax – In general, the fringe benefit tax shall not be imposed on the following fringe benefits:
        The term “DE MINIMIS” benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees such as the following:
        (c) Rice subsidy of P1,500.00 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500.00;
        (d) Uniform and Clothing allowance not exceeding P4,000.00 per annum;
        
        DE MINIMIS
        The following shall be considered as "de minimis" benefits, which are not subject to Fringe Benefit Tax and Income Tax as well as Withholding Tax on compensation income of both managerial and rank and file employees:
        
        PRIVATE! EE - MONETIZED UNUSED VL of
        -10 DAYS MAX
        Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;
        
        PUBLIC! EE - MONETIZED VL
        Monetized value of vacation and sick leave credits paid to government officials and employees;
        
        MEDICAL CASH DEPENDENT'S ALLOWANCE
        -750/6Mos
        -125/Mo
        Medical cash allowance to dependents of employees, not exceeding P 750 per employee per semester or P 125 per month;
        
        1.5K/month RICE SUBSIDY
        -50kg
        Rice subsidy of P 1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P 1,500;
        
        4K/year UNIFORM & CLOTHING
        Uniform and clothing allowance not exceeding P 4,000 per annum;
        
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        B.4 MINIMUM WAGE EARNERS
        
        TAX-EXEMPT COMPENSATION INCOME
        Sec. 2.78.1(B)(13), Rev. Regs. No. 02-98, as amended
        (B) Exemptions from Withholding Tax on Compensation
        The following income payments are exempted from the requirements of withholding tax on compensation:
        x x x x x x x x x
        (13) Compensation income of MWEs who work in the private sector and being paid the Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity Board (RTWPB/National Wages and Productivity Commission (NWPD), applicable to the place where he/she assigned.
        
        EXEMPT FROM INCOME TAX
        The aforesaid income shall likewise be exempted from income tax.
        
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        MWE = STAT MINIMUM WAGE
        NIRC Section 22. (HH)
        The term “minimum wage earner” shall refer to a worker in the private sector paid the statutory minimum wage or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the
        non-agricultural sector where he/she is assigned.
        
        What's the significance of being in the non-agricultural sector?
        
        NOT OVER 250K = 0% INCOME TAX
        (2) Rates of Tax on Taxable Income of Individuals. –
        The tax shall be computed in accordance with and at the rates established in the following schedule: [12]
        (a) Tax Schedule Effective January 1, 2018 until December 31, 2022 [4]:
        Not over P250,000……………………………………………… 0%
        x x x
        Tax Schedule Effective January 1, 2023 and onwards:
        Not over P250,000………………………………………………. 0%
        x x x
        
        B.5 13th MONTH PAY AND OTHER BENEFITS
        
        90K LIMIT
        (BOTH PUBLIC & PRIVATE)
        NIRC SEC. 32. Gross Income. -
        (B) Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt from taxation under this Title: (7) Miscellaneous Items. –
        (e) 13th Month Pay and Other Benefits. - Gross benefits received by officials and employees of public and private entities:
        Provided, however, That the total exclusion under this subparagraph shall not exceed Ninety thousand pesos (P90,000) [41] which shall cover: [4]
        (i) Benefits received by officials and employees of the national and local government pursuant to Republic Act No. 6686;
        (ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986;
        (iii) Benefits received by officials and employees not covered by Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and (iv) Other benefits such as productivity incentives and Christmas bonus.
        
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