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What is Annual Gross income and how to calculate it?

Updated: Jan 31

Keeping track of your annual gross income in the Philippines is an important part of finances and tax planning. Learn how to calculate it and plan for your annual obligations with our helpful guide!

What is Annual Gross Income?

Annual gross income (AGI) is the total amount of money you have earned in a given year, prior to deductions for taxes and other expenses. It includes salary, wages, bonuses, commissions, tips, professional fees and other forms of compensation. It also includes rental income from property you own or capital gains from investments.


Per Sec. 32 (A) of the NATIONAL INTERNAL REVENUE CODE (NIRC) of 1997, as amended or the Tax Code, gross income means all income derived from whatever source, including (but not limited to) the following items:


(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items;

(2) Gross income derived from the conduct of trade or business or the exercise of a profession;

(3) Gains derived from dealings in property;

(4) Interests;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Annuities;

(9) Prizes and winnings;

(10) Pensions; and

(11) Partner's distributive share from the net income of the general professional partnership.


Additional Factors That Impact Your Annual Gross Income

Aside from the sources of income and allowable expenses, there are several other factors that influence your AGI such as standard deductions and any tax credits available to you. Depending on your particular financial situation, you may qualify for tax relief (such as exemptions or deductions) which will reduce your taxable income and subsequently lower your tax obligation. It is important to make sure that you take into account all applicable taxes, deductions and credits when calculating your annual gross income in the Philippines.


Exclusions from Gross Income

Exclusions from Gross Income are itemized on the Tax Code. Sec 32 (B). These exclusions shall not be included in gross income and shall be exempt from taxation:


(1) Life Insurance. - The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income.


(2) Amount Received by Insured as Return of Premium. - The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract.


(3) Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest, devise, or descent: Provided, however, That income from such property, as well as gift, bequest, devise or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income.


(4) Compensation for Injuries or Sickness. - amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness.


(5) Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines.


(6) Retirement Benefits, Pensions, Gratuities, etc.-

(a) Retirement benefits received under Republic Act No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer.


(b) Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death sickness or other physical disability or for any cause beyond the control of the said official or employee.


(c) The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public.


(d) Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration.


(e) Benefits received from or enjoyed under the Social Security System in accordance with the provisions of Republic Act No. 8282.


(f) Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees.


(7) Miscellaneous Items. –

(a) Income Derived by Foreign Government. - Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments.


(b) Income Derived by the Government or its Political Subdivisions. - Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof.


(c) Prizes and Awards. - Subject to conditions, prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement.


(d) Prizes and Awards in sports Competition. - All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports associations.


(e) 13th Month Pay and Other Benefits. - Gross benefits received by officials and employees of public and private entities which shall not exceed Ninety thousand pesos (P90,000).


(f) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individuals.


(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized from the same or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years.


(h) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor upon redemption of shares of stock in a mutual fund company.


(i) Income Derived from the Sale of Gold Pursuant to Republic Act No. 7076. – Income derived from the following transactions pursuant to Republic Act No. 7076, otherwise known as the “People’s Small-scale Mining Act of 1991”.


How to Calculate Your Annual Gross Income in the Philippines

To calculate your annual gross income in the Philippines, first collect all of your income sources such as wages, earnings from self-employment, rental properties, investments and other sources from the applicable taxable year. Total this amount and deduct any allowable expenses to arrive at an AGI. If you are employed, employers must provide an employee’s BIR Form 2316 which is used for filing taxes and ascertaining taxable gross income and tax due for the taxable year.


Components of an Employee's Gross Income

Let's take a closer look at the different components of an employee's income. Here are some common types of income an employee may be entitled to receive:

  • Salary : This is the regular payment you receive from your employer for the work performed.

  • Wages : These are payments for hourly or daily work.

  • Bonuses : These are additional payments that may be based on performance or other factors.

  • Commissions : These are payments based on sales or other performance metrics.

  • Allowances : These are payments that may be provided to cover expenses such as transportation, meals, or housing.

  • Benefits : These are non-cash payments, such as health insurance or retirement contributions, that the employer may provide.

Each of these types of income may be subject to different tax rates, deductions, and exemptions. It's important to understand each component of your income to accurately calculate your gross income.


What is Taxable Income?

Per Sec. 31 of the Tax Code, the term ‘taxable income’ means the pertinent items of gross income specified in this Code, less the deductions, if any, authorized for such types of income by this Code or other special laws.


The common exclusions from an employee's gross income or compensation income are the following:

  1. 13th Month pay and other benefits (subject to limitations)

  2. GSIS, SSS, Philhealth, PAGIBIG and union dues (employee's share only)

  3. Retirement, pensions and separation pays (subject to conditions)

  4. Compensation income of minimum wage earners (MWEs)

  5. De Minimis benefits (subject to limitations)

In a simple calculation: Taxable income = Gross Income - Allowable exclusions


How to Calculate Employee's Taxable Income in the Philippines

  1. Determine your taxable income: Start by adding up all of your taxable income for the year. This includes your salary, wages, bonuses, commissions, allowances, and other taxable benefits.

  2. Subtract non-taxable income: Next, subtract any non-taxable income you received during the year, such as tax-exempt allowances, benefits, or gifts.

  3. Calculate exclusions: Deduct any allowable exclusions from your taxable income, such as retirement, pensions and separation pays and statutory contributions.

  4. Add any taxable income from other sources: If you received income from other sources, such as rental income or capital gains, add it to your taxable income.

Here's an example:

Let's say you earned a salary of PHP 500,000 for the year, received a bonus of PHP 50,000, and received a non-taxable allowance of PHP 20,000. You also contributed PHP 10,000 to SSS, Philhealth and Pag-ibig.

  • Annual gross income = PHP 500,000 + PHP 50,000 + PHP 20,000 = PHP 570,000

  • Non-taxable income = PHP 20,000

  • Allowable exclusions = PHP 10,000

  • Taxable income = PHP 570,000 - PHP 20,000 - PHP 10,000 = PHP 540,000

In computing for the net compensation income or net pay, simply deduct the corresponding tax due, if any i.e. Net Pay = Taxable income - Tax due. Want to learn more about withholding tax on compensation, please click here.


Avoiding Unnecessary Tax Obligations and Penalties

To avoid paying unnecessary tax obligations and penalties, taxpayers are encouraged to consult a professional accountant or tax expert for assistance. A tax expert can help ensure that you are correctly calculating your gross income, filing accurately and correctly, taking advantage of all applicable deductions and credits, and keeping sufficient documentation of your taxes. They can also guide you on how best to minimize the amount of taxes owed while still complying with current laws.


In AanyaHR, you will no longer have to worry about the annual gross income and corresponding tax due of your employees as these are automatically calculated. Annualization and BIR Form 2316 are available and aligned with the Tax code which was amended by the TRAIN Law. For additional guidance, you may refer to our article on Philippines Payroll Tax Annualization.


Want to know more about other helpful and awesome features of AanyaHR, please send an email to customerfirst@illimitado.com or visit our website


Source: BIR; NIRC, Tax Code


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