Taxation Granada Layno

GROSS COMPENSATION
INCOME
LESSON OBJECTIVES
1.Define gross Income

2. Discuss different
classification of gross
compensation income
GROSS INCOME
Gross income means the pertinent
items of income referred to in Section
32(A) of the Tax Code. It includes all
income from whatever source (unless
exempt from tax by law) including,
but not limited to, the following
items:
1. Compensation for services in
whatever form paid including 6. Royalties;
fees, salaries and wages, 7. Dividends;
commissions, and similar
items; 8. Annuities;
2. Gross income derived from 9. Prizes and winnings;
the conduct of trade or
business or the exercise of a 10. Pensions; and
profession; 11. Partners' distributive
3. Gains from dealings in share from the net income
property;
of general professional
4. Interests;
partnership.
5. Rents;
GROSS COMPENSATION INCOME
Gross compensation income means
any remuneration for rendering
personal services. Generally,
compensation income is obtained
from an employer-employee
relationship between payor and
recipient.
Classification of Gross Compensation Income The gross compensation
income may be classified as follows:
1. Basic salary or wage

Salary refers to earnings received periodically for a regular work
other than manual labor, such as a monthly salary of an employee.
Wages, on the other hand, are earnings received usually
according to specified intervals of work, as by the hour, day, or
week.
2. Honoraria
are payments given in recognition for services performed for
which established practice discourages charging a fixed fee. The
honorarium of a guest lecturer is an example.
3. Fixed or variable allowances
In general, fixed or variable transportation, representation, COLA and
other allowances that are received by a public officer or employee or
officer or employee of a private entity, in addition to the regular
compensation fixed for his position or office, are compensation subject
to withholding tax.
4. Commission
is usually a percentage of total sales or on certain quota of sales volume
attained as part of incentive, such as sales commission.
5. Fees
are received by an employee for the services rendered to the employer
including a director's fee of the company, fees paid to the public
officials, such as clerks of court or sheriffs for services rendered in the
performance of their official duty over and above their regular salaries.
6. Tips and gratuities
Tips or gratuities paid directly to an employee (by a customer of
the employer) which are not accounted for by the employee to the
employer are considered taxable income, but not subject to
withholding tax.
7. Hazard or emergency pay
This is an additional payment received due to workers' exposure
to danger or harm while working. This is normally added to the
basic salary together with the overtime pay and night differential
pay to arrive at gross salary. Hazard, overtime, night shift
differential and holiday pay of a minimum wage earner (MWE) is
nontaxable, as long as the MWE has no other reportable income.
(R.A. 9504).
8. Retirement pay
It refers to a lump sum payment received by an employee who has served a
company for a considerable period of time and has decided to withdraw from
work into privacy.
1) SSS or GSIS retirement pays
2) Retirement pay RA 7641) due to old age provided that the following
requisites are met:
a. The retirement program is approved by the BIR Commissioner;
b. It must be a reasonable benefit plan. Its implementation must be fair
and equitable for the benefit of all employees (e.g. from president to
laborer);
c. The retiree should have been employed for 10 years in the said
company;
d. The retiree should have been 50 years old at the time of retirement;
9. Separation pay
Separation pay is taxable if voluntarily availed of. It shall not
be taxable if involuntary. Examples of involuntary separation are:
a. Death;
b. Sickness;
c. Disability;
d. Reorganization/merger of company; and
e. Company at the brink of bankruptcy.
10. Pension
This is a stated allowance paid regularly to a person on his
retirement or to his dependents on his death, in consideration
of past services, meritorious work, age, loss, or injury.
11. Vacation and sick leave
The following rules shall be observed in determining whether
money received for vacation and sick leave is taxable or not:
a. If paid or availed of as salary of an employee who is on
vacation or on sick leave notwithstanding his absence from work,
it constitutes taxable compensation income.
b. Monetized value of unutilized vacation leave credits of ten
(10) days or less which were paid to private employees during the
year are not subject to tax and to the
c. Monetized value of vacation and sick leave credits paid to
withholding tax. government officials and employees are not
subject to income tax and to the withholding tax.
12. Thirteenth month pay and other benefits
As a general rule, thirteenth month pay and other benefits are not
taxable if the total amount received is P30,000 or less. Any
amount exceeding P30,000 is taxable. [NIRC, Sec. 32(7)(e)
13. Fringe benefits and de Minimis
The Tax Code defines fringe benefits as "any good, service, or
other benefit furnished or granted by an employer, in cash or in
kind, in addition to basic salaries of an individual employee.
14. Overtime pay
This refers to premium payment received for working beyond
regular hours of work which is included in the computation of
gross salary of employee. Back pay and overtime pay constitute
compensation.
15. Profit sharing
It is the proportionate share in the profits of the business received by the
employee in addition to his wages.
16. Awards for special services
The amount received as an award for special services of employee, or
suggestions to employer resulting in the prevention of theft or robbery.
Awards for past services and the like are also compensations.
17. Beneficial payments
Beneficial payments such as where an employer pays the income tax owed
by an employee are additional compensation income.
18. Other forms of compensation
Other forms received due to service rendered are compensation paid in
kind. It is to be noted that compensation can be paid in kind but taxes are
generally paid in money.

Taxation Granada Layno

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GROSS COMPENSATION

1.Define gross Income

1. Basic salary or wage

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