Taxable Income: Gross Income and Exclusions

• Taxable income is the relevant gross income items specified in the tax code.
• It is calculated after authorized deductions for those income types, as per the tax code and special laws.

Gross Income

• Gross income encompasses all income, regardless of its origin, unless the tax code specifies otherwise.
• This includes (but isn't limited to) compensation for services like fees, salaries, wages, and commissions.
• Also includes income from trade, business, or professional practice, property dealings, interests, rents, royalties, dividends, annuities, prizes, winnings, and a partner's share in a general professional partnership's net income.

Exclusions from Gross Income

• Certain items are excluded from gross income and are tax-exempt.
• Life insurance proceeds paid to heirs or beneficiaries upon the insured's death are excluded, however, interest payments on such amounts are included.
• Returns of premiums paid under life insurance, endowment, or annuity contracts are excluded, whether during the term, at maturity, or upon surrender of the contract.
• Value of property acquired by gift, bequest, devise, or descent is excluded, however, income from such property is included in gross income, especially in cases of divided interest transfers.
• Compensation for injuries or sickness received through insurance or under Workmen's Compensation Acts and damages for such injuries or sickness are excluded.
• Income exempt under treaty obligations binding on the Philippine government is excluded.
• Retirement benefits received under Republic Act No. 7641, and those from private firms under a reasonable benefit plan are excluded if the employee has worked for at least 10 years and is at least 50 years old, with the benefits availed of only once.
• "Reasonable private benefit plan" includes pension, gratuity, stock bonus, or profit-sharing plans.
• Amounts received by an official/employee or their heirs from the employer due to separation caused by death, sickness, disability, or reasons beyond their control are excluded.
• Social security benefits, retirement gratuities, pensions, and similar benefits received by resident/non-resident citizens/aliens residing permanently in the Philippines from foreign government entities/institutions are excluded, despite any existing laws.
• Payments of benefits due/to become due to a person residing in the Philippines under U.S. laws administered by the U.S. Veterans Administration are excluded.
• Benefits received/enjoyed under the Social Security System, per Republic Act No. 8282, ar excluded.
• Benefits from the GSIS under Republic Act No. 8291, including retirement gratuity for government officials/employees are excluded.

Miscellaneous Items Excluded

• Income derived by foreign governments from investments in the Philippines (loans, stocks, bonds) or interest on bank deposits is excluded.
• Income derived by the government or its political subdivisions from public utilities or essential governmental functions is excluded.
• Prizes/awards for religious, charitable, scientific, educational, artistic, literary, or civic achievements are excluded if the recipient didn't enter the contest/proceeding and isn't required to render future services.
• Prizes/awards to athletes in local/international sports competitions sanctioned by national sports associations are excluded.
• 13th-month pay and other benefits received by public/private employees are excluded up to P90,000, covering benefits under Republic Act No. 6686, Presidential Decree No. 851, and productivity incentives/Christmas bonuses.
• GSIS, SSS, Medicare, Pag-Ibig contributions, and union dues of individuals are excluded.
• Gains from the sale/exchange/retirement of bonds, debentures, or certificates of indebtedness with a maturity over five years are excluded.
• Gains realized by investors upon redemption of shares of stock in a mutual fund company, as defined in Section 22 (BB) of the tax code are excluded.
• Income derived from the sale of gold pursuant to Republic Act No. 7076 is excluded, including sales to the Bangko Sentral ng Pilipinas by registered small-scale miners/accredited traders, and sales by registered small-scale miners to accredited traders for eventual sale to the Bangko Sentral ng Pilipinas.

Special Treatment of Fringe Benefits

• A final tax of 35% is imposed on the grossed-up monetary value of fringe benefits provided to employees (excluding rank and file) by the employer, unless the benefit is required by the nature of the employer's trade, business, or profession or for the employer's convenience/advantage, effective January 1, 2018.
• The employer pays the tax in the manner provided under Section 57 (A) of the tax code.
• The grossed-up monetary value of the fringe benefit is determined by dividing the actual monetary value by 65% (effective January 1, 2018).
• Fringe benefits taxable under Subsections (B), (C), (D), and (E) of Section 25 are taxed at the rates imposed thereat.
• The grossed-up monetary value of the fringe benefit is determined by dividing the actual monetary value by the difference between 100% and the applicable income tax rates under Subsections (B), (C), (D), and (E) of Section 25.

Fringe Benefit Defined

• Fringe benefit includes any good, service, or benefit furnished/granted in cash/kind by an employer to an individual employee (excluding rank and file), such as housing, expense account, vehicles, and household personnel.

The following also apply as fringe benefits:

• Interest on loans at less than market rate (to the extent of the difference).
• Membership fees, dues, and expenses borne by the employer for the employee in social/athletic clubs.
• Expenses for foreign travel.
• Holiday and vacation expenses.
• Educational assistance to the employee/dependents.
• Life/health insurance and other non-life insurance premiums exceeding what the law allows.

Fringe Benefits Not Taxable

• Fringe benefits authorized/exempted from tax under special laws are not taxable.
• Employer contributions for the employee's retirement, insurance, and hospitalization benefit plans are not taxable.
• Benefits given to rank and file employees, whether granted under a collective bargaining agreement or not, are not taxable.
• De minimis benefits as defined by the Secretary of Finance's rules and regulations are not taxable.
• The Secretary of Finance can issue rules and regulations to implement these provisions.