RR No. 8-2018: Implements the amended provisions on Income Tax pursuant to RA No. 10963 (TRAIN Law)

Key points

1. Individual graduated rates. From January 1, 2018 to December 31, 2022, no tax applies up to P250,000, then rates run 20%, 25%, 30%, 32% and 35%, with a 35% rate over P8,000,000. From January 1, 2023, the rates are 15%, 20%, 25%, 30% and 35% over the same brackets.
2. Compensation, spouses, minimum wage. Compensation earners are taxed on gross compensation less non-taxable benefits, such as 13th month pay, de minimis benefits and SSS, GSIS, PHIC and Pag-ibig contributions. Spouses compute tax separately, and income that cannot be attributed to one spouse is split equally. Minimum wage earners are exempt on their statutory minimum wage, and on holiday, overtime, night shift differential and hazard pay.
3. 8% option for self-employed. Purely self-employed individuals and professionals whose gross sales, receipts and other non-operating income do not exceed the VAT threshold of P3,000,000 may choose graduated rates or 8% on the amount above P250,000. The election is made in the 1st quarter return or initial quarterly return and is irrevocable for the year. It is not available to VAT-registered taxpayers, those subject to other Percentage Taxes under Title V (except Section 116), or GPP partners on their distributive share.
4. Mixed income earners. Compensation is taxed at the graduated rates. Business income may use the graduated rates or 8% if the VAT threshold is not exceeded, and the P250,000 deduction under the 8% option does not apply to mixed income earners.
5. Passive income and fringe benefits. Final tax rates include 20% on bank deposit interest and royalties (10% on books, literary works and musical compositions), 10% on dividends, 15% on capital gains on unlisted shares, and 6% on capital gains on Philippine real property. Fringe benefits of non-rank-and-file employees are taxed at 35% on the grossed-up value, found by dividing the actual value by 65%.
6. Deductions, filing and registration. Taxpayers on graduated rates may use itemized deductions or a 40% Optional Standard Deduction, with the choice made in the first quarter return. Quarterly returns are due May 15, August 15 and November 15, and the annual return April 15, with two installments allowed if tax due exceeds P2,000, the second due on or before October 15. Existing VAT-registered taxpayers under the P3,000,000 threshold could update to non-VAT until March 31, 2018.

Who is affected

• Individuals earning compensation
• Self-employed individuals and professionals
• Mixed income earners
• Non-resident alien individuals
• Employers granting fringe benefits

Deadlines and effectivity

• Regulations effective: January 1, 2018
• Graduated rates change: January 1, 2023
• Quarterly returns: May 15, August 15, November 15
• Annual return: April 15