Policy and legal purpose
- Republic Act No. 9504 implements income tax amendments affecting statutory minimum wage earners, including exemptions from income tax on their taxable income and related payments.
Definitions added for wage earners
- Section 22 adds a definition under the income tax “Definitions” section by introducing “statutory minimum wage earner” as a worker in the private sector paid the statutory minimum wage, or an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where assigned.
- The definition appears after subsection (FF) and is inserted as subsection (GG) in Section 22.
Income tax rates for individuals
- Section 24(A)(2) provides an income tax computation schedule for individuals using progressive rates and formulas based on taxable income.
- The schedule requires computing tax using the following brackets:
- Not over P10,000: 5%
- Over P10,000 but not over P30,000: P500 + 10% of the excess over P10,000
- Over P30,000 but not over P70,000: P2,500 + 15% of the excess over P30,000
- Over P70,000 but not over P140,000: P8,500 + 20% of the excess over P70,000
- Over P140,000 but not over P250,000: P22,500 + 25% of the excess over P140,000
- Over P250,000 but not over P500,000: P50,000 + 30% of the excess over P250,000
- Over P500,000: P125,000 + 32% of the excess over P500,000
- Section 24(A)(2) requires married individuals to compute separately the income tax of the husband and wife based on their respective total taxable income, subject to Section 51(D).
- Section 24(A)(2) directs that if income cannot be definitely attributed to either spouse, the income is divided equally between the spouses for purposes of determining their respective taxable income.
- Section 24(A)(2) exempts minimum wage earners (as defined in Section 22(HH)) from the payment of income tax on their taxable income.
- Section 24(A)(2) further exempts, for minimum wage earners, the holiday pay, overtime pay, night shift differential pay, and hazard pay from income tax.
Deductions and optional standard deduction
- Section 34 provides deductions from gross income, subject to its stated exceptions, and governs what may be deducted when computing taxable income under Sections 24(A), 25(A), 26, 27(A), (B), (C), and 28(A)(1).
- Section 34(L) creates the Optional Standard Deduction rule for an individual subject to tax under Section 24, other than a nonresident alien.
- Section 34(L) allows the optional standard deduction in an amount not exceeding forty percent (40%) of the individual’s gross sales or gross receipts, as the case may be.
- For corporations subject to tax under Section 27(A) and 28(A)(1), Section 34(L) allows an optional standard deduction in an amount not exceeding forty percent (40%) of the corporation’s gross income as defined in Section 32.
- Section 34(L) requires that unless the taxpayer signifies in the return an intention to elect the optional standard deduction, the taxpayer is considered to have availed of the deductions allowed under the preceding subsections.
- Section 34(L) makes the election, when made in the return, irrevocable for the taxable year for which the return is made.
- Section 34(L) relieves an individual who elects the optional standard deduction from submitting with the tax return the financial statements otherwise required under the Code.
- Section 34(L) requires record-keeping during the taxable year (unless the Commissioner permits otherwise):
- the individual must keep records pertaining to gross sales or gross receipts; or
- the corporation must keep records pertaining to gross income as defined in Section 32, as required by rules and regulations promulgated by the Secretary of Finance upon recommendation of the Commissioner.
Personal exemptions and dependent exemptions
- Section 35(A) provides a basic personal exemption of Fifty thousand pesos (P50,000) for each individual taxpayer for purposes of determining tax under Section 24(A).
- Section 35(A) provides that for married individuals where only one spouse derives gross income, only that spouse is allowed the personal exemption.
- Section 35(B) provides an additional exemption of Twenty-five thousand pesos (25,000) for each dependent not exceeding four (4).
- Section 35(B) requires that the additional exemption for dependents be claimed by only one spouse in the case of married individuals.
- Section 35(B) provides that for legally separated spouses, additional exemptions may be claimed only by the spouse with custody of the child or children.
- Section 35(B) limits the combined additional exemptions that both spouses may claim to the maximum additional exemptions allowed under Section 35(B).
- Section 35(B) defines “dependent” as a legitimate, illegitimate, or legally adopted child chiefly dependent upon and living with the taxpayer if the dependent is:
- not more than twenty-one (21) years of age, unmarried, and not gainfully employed; or
- regardless of age, incapable of self-support because of mental or physical defect.
Individual filing rules and exclusions
- Section 51(A)(1) establishes the general rule that individuals are required to file an income tax return, except as provided in Section 51(A)(2).
- Section 51(A)(2)(b) exempts an individual from filing an income tax return if the individual has pure compensation income (as defined in Section 32(A)(1)) derived from sources within the Philippines and the income tax on such compensation income has been correctly withheld under Section 79.
- Section 51(A)(2)(b) provides a requirement to file an income tax return when an individual derives compensation concurrently from two or more employers at any time during the taxable year.
- Section 51(A)(2)(d) exempts from filing an income tax return:
- a minimum wage earner as defined in Section 22(HH); and
- an individual who is exempt from income tax pursuant to the provisions of the Code and other laws, general or special.
Withholding of income tax at source
- Section 79(A) requires withholding by employers: every employer making payment of wages must deduct and withhold upon such wages a tax determined in accordance with rules and regulations prescribed by the Secretary of Finance upon recommendation of the Commissioner.
- Section 79(A) exempts from the withholding requirement minimum wage earners as defined in Section 22(HH).
Separability, repealing, and effectivity
- Section 7 provides a separability rule: if any provision of Republic Act No. 9504 is declared invalid or unconstitutional, the provisions not affected continue in full force and effect.
- Section 8 provides a repealing rule: laws, presidential decrees or issuances, executive orders, letters of instruction, administrative orders, rules, or regulations contrary to or inconsistent with Republic Act No. 9504 are repealed or modified accordingly.
- Section 9 provides the effectivity rule: fifteen (15) days after publication in the Official Gazette or in at least two (2) newspapers of general circulation.