Income Tax on Compensation Page 1 of 6

TAX

04
TAXATION
Income Tax on Compensation
Kenneth L. Manuel, CPA, J.D.1
2024 ed.

70. Perrie engaged the services of a plumber in fixing the pipelines of her home for a
week for a fee. Jade, on the other hand, has a staff which she pays a monthly salary
of P15,000. Such staff is required to keep Jade updated of her schedule and arrange
work papers for her. Finally, Leigh is the representative of a foreign corporation
here in the Philippines. Leigh is hired as the Philippine manager, and she is in
charge of distributing the salaries of the staff of the foreign corporation. For
purposes of income taxation, who may be considered as an employer?
a. Jade only. c. Jade and Leigh only.
b. Leigh only. d. Perrie, Jade, and Leigh.

71. As a general rule, which of the following items of compensation is not subject to
tax?
a. Fixed communication allowance
b. Holiday pay, if paid due to a regular holiday
c. Separation pay due to retrenchment
d. Commissions by an employee paid on a commission basis

72. Which of the following is not a requisite for the exemption of retirement pay under
RA No. 4917 from income taxation?
a. The retirement plan must be reasonable.
b. The retirement plan must be approved by the BIR.
c. The retiree is in the service of the same employer for at least five (5) years.
d. The retiree is not less than fifty (50) years of age at the time of retirement.

73. 13th month pay and other benefits are exempt from income tax if the amount in a
year does not exceed:
a. ₱ 30,000 c. ₱ 82,000
b. ₱ 75,000 d. ₱ 90,000

74. Which of the following is an inaccurate statement of an item of de minimis benefits?

a. Clothing and uniform allowance not exceeding ₱6,000 a year
b. Employee achievement awards in the form of properties not exceeding
₱10,000 a year
c. Monetized unused vacation leave and sick leave for government employees
up to ten (10) days.
d. Laundry allowance not exceeding ₱300 a month

1 Kenneth L. Manuel is a lawyer and a Certified Public Accountant. He placed 14th in the October 2014 CPA Licensure Examinations
and 6th in the 2019 Philippine Bar Examinations. He graduated with a degree of BS Accountancy magna cum laude from Colegio de San
Juan de Letran and a degree of Juris Doctor cum laude from the University of Santo Tomas (UST). Practicing taxation since 2014, he was
a tax accountant at SGV & Co., a tax lawyer at Divina Law Offices, and a tax professor in numerous accounting schools and Bar review
schools. His current tax work includes being a tax reviewer at the Review School of Accountancy (ReSA), a tax professor at the UST
Faculty of Civil Law, an author of a tax reviewer, and a Court Attorney at the Court of Tax Appeals.

These handouts are not for sale. While private, educational use may be tolerated, unauthorized commercial reproduction and distribution
of this material shall be dealt with by intellectual property laws.
Income Tax on Compensation Page 2 of 6

75. All of the following are exempt compensation for a minimum wage earner, except:
a. Overtime pay c. Commissions
b. Night shift differential d. Hazard pay

76. The fringe benefits tax is computed at:

a. 35% of the monetary value of the fringe benefits.
b. 35% of the grossed-up monetary value of the fringe benefits.
c. 25% of the monetary value of the fringe benefits.
d. 25% of the grossed-up monetary value of the fringe benefits.

For items 194 to 195, refer to the following information:

TWICE Company owns a house and lot in Valle Verde, which TWICE Company allowed
Nayeon to use. The house and lot were acquired for ₱6,000,000. It has a zonal value of
₱6,500,000, and an assessed value of ₱7,000,000.

77. If Nayeon is the Chief Executive Officer of TWICE Company, how much is the
quarterly fringe benefits tax due, if any?
a. ₱ 471,154 c. ₱ 47,115
b. ₱ 94,231 d. ₱ 23,558

78. If Nayeon is a rank-and-file employee of TWICE Company, how much is the

quarterly fringe benefits tax due, if any?
a. ₱ -0- c. ₱ 47,115
b. ₱ 94,231 d. ₱ 23,558

For items 79 to 81, refer to the following information:

Dahyun is a mixed income earner. Her basic compensation income from her employment
as a country manager amounted to P4,000,000 for the taxable year 2022. Dahyun’s
employer, Twice Company, has withheld P1,200,000 from Dahyun’s compensation by
way of creditable withholding tax. As such, Dahyun only received P2,800,000. Dahyun
also received P200,000 worth of 13th month pay and other benefits. Finally, in
consideration for rendering five years of service, Dahyun received a car from her
employer which she may use for personal purposes.

79. Which of the following statements is true regarding Dahyun’s basic compensation
income?
a. Dahyun should declare P4,000,000 as part of her gross income in computing
her income tax due, and subsequently deduct P1,200,000 to compute her
income tax payable.
b. Dahyun should declare P2,800,000 as part of her gross income in computing
her income tax due, and subsequently deduct P1,200,000 to compute her
income tax payable.
c. Dahyun should no longer declare her compensation income as part of her
gross income in computing her income tax due, but nevertheless, she may
subsequently deduct P1,200,000 to compute her income tax payable.
d. Dahyun should no longer declare her compensation income as part of her
gross income in computing her income tax due, and she cannot deduct
P1,200,000 to compute her income tax payable.
Income Tax on Compensation Page 3 of 6

80. Which of the following statements is true regarding Dahyun’s 13th month pay and
other benefits?
a. Dahyun’s 13th month pay and other benefits are exempt.
b. Dahyun’s 13th month pay and other benefits are entirely taxable for breaching
the P90,000 threshold.
c. Dahyun’s 13th month pay and other benefits are exempt up to P90,000.
Accordingly, the excess (P110,000) is subject to tax.
d. Dahyun’s 13th month pay and other benefits are entirely taxable because she
is a country manager.

81. Which statement is true regarding the taxability of the car that Dahyun?
a. The car will form part of Dahyun’s compensation income and is subject to
regular income tax.
b. The car will form part of Dahyun’s compensation income but is nevertheless
not subject to regular income tax.
c. The car will not form part of Dahyun’s compensation income but is subject
instead to fringe benefits tax.
d. The car will form part of Dahyun’s compensation income and is exempt from
tax.

82. Irene is a Certified Public Accountant. Due to her exhaustion from her work as an
audit associate in an auditing firm, she tendered her resignation on 30 April 2023,
and her resignation will become effective on 30 May 2023. On 1 August 2023, Irene
started her new work as an accounting manager in a private corporation. Irene
had no employment from 1 August 2023 until 31 December 2023 other than her
employment with said private corporation.

Seulgi is likewise a Certified Public Accountant. Throughout 2023, she taught

part-time at a university. She likewise accepts retainer clients for her accounting
services.

Who among them is qualified for substituted filing of returns?

a. Irene only. c. Both Irene and Seulgi.
b. Seulgi only. d. Neither Irene nor Seulgi.

83. When is the deadline for the remittance of taxes withheld for salaries given or
accrued in April 2023?
a. May 5 c. May 15
b. May 10 d. May 20

84. When is the deadline for the remittance of taxes withheld for salaries given or
accrued in December 2023?
a. January 5, 2024 c. January 15, 2024
b. January 10, 2024 d. January 20, 2024

85. If a corporation follows the calendar year, when is the deadline for the filing and
payment of the quarterly remittance return for fringe benefit taxes for the third
quarter of 2023?
a. October 10, 2023 c. October 31, 2023
b. October 15, 2023 d. November 29, 2023
Income Tax on Compensation Page 4 of 6

For items 200 to 205, refer to the following information:

Minhyuk, a resident citizen and a rank-and-file employee, received the following during
the calendar year 2024 from his sole employer:

Basic pay 1,580,000

Overtime pay 27,000
Commissions 168,000
13th month pay 62,000
14th month pay 62,000
Rice allowance 28,000
Uniform allowance 4,000
Benefits under a collective bargaining agreement 11,500
Christmas gift 10,000
Gross compensation income 1,952,500

During the same year, the following items were deducted from his salaries:

Withholding tax 180,000

SSS deductions 15,000
Philhealth deductions 2,500
Deductions for union dues 13,000
Deductions for the birthday party of the boss 800
Total deductions 211,300

Minhyuk has no other source of income for the year.

86. How much is the exempt de minimis benefits?

a. ₱ 33,000 c. ₱ 43,000
b. ₱ 38,000 d. ₱ 48,000

87. Which of the following statements is true?

Statement 1: The overtime pay is subject to tax.
Statement 2: The commissions are subject to tax.
a. Only Statement 1 is true. c. Both statements are true.
b. Only Statement 2 is true. d. Both statements are not true.

88. How much is Minhyuk’s income tax payable?2

a. ₱ 172,250 c. ₱ 307,250
b. ₱ 174,750 d. ₱ 352,250

2Section 24(A)(2)(a) of the NIRC of 1997, as amended, provides:

Tax Schedule Effective January 1, 2023 and onwards:
Not over P250,000………………………………………………. 0%
Over P250,000 but not over P400,000……………………….. 15% of the excess over P250,000
Over P400,000 but not over P800,000……………………….. P22,500 + 20% of the excess over P400,000
Over P800,000 but not over P2,000,000…………………….. P102,500 + 25% of the excess over P800,000
Over P2,000,000 but not over P8,000,000…………………... P402,500 + 30% of the excess over P2,000,000
Over P8,000,000 ……………………………………………….. P2,202,500 + 35% of the excess over P8,000,000
Income Tax on Compensation Page 5 of 6

89. When should Minhyuk file his second quarter income tax return?
a. May 15
b. July 15
c. August 15
d. The requirement is inapplicable to Minhyuk.

90. Is Minhyuk entitled to avail of the 8% income tax option?

a. Yes, because his gross income did not exceed P3,000,000.
b. Yes, because as a purely compensation income earner, he is considered as a
non-VAT registered taxpayer.
c. No, because he is a resident citizen.
d. No, because he is a purely compensation income earner.

91. Consider this statement: Minhyuk is required to file his annual income tax return
for calendar year 2024 on or before April 15, 2025. Is this statement correct?
a. Yes, in order for Minhyuk to account for the difference between the tax
withheld and the income tax due.
b. Yes, all resident citizens regardless of the number of employers must file their
income tax returns.
c. No, the deadline provided is wrong.
d. No, Minhyuk is qualified under the substituted filing of returns.
Income Tax on Compensation Page 6 of 6

Answers to Selected Items

79. A
80. C
81. C
86. A
Exempt Taxable
Rice allowance 28,000 24,000 4,000
Uniform allowance 4,000 4,000 -
Benefits under a collective bargaining agreement* 11,500 - 11,500
Christmas gift 10,000 5,000 5,000
33,000 20,500
*Benefits under a collective bargaining agreement are entirely taxable if they exceed the
threshold of P10,000.

87. C
88. A
Solutions:
Basic pay 1,580,000
Overtime pay 27,000
Commissions 168,000
Taxable 13th month pay and other
benefits 54,500
Subtotal 1,829,500
Less: Deductions
SSS deductions 15,000
Philhealth deductions 2,500
Deductions for union dues 13,000 (30,500)
Taxable compensation income 1,799,000
(800,000) 102,500
999,000 25% 249,750
Income tax due 352,250
Less: Income tax withheld (180,000)
Income tax payable 172,250

89. D
90. D
91. A

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