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DIGEST OF NEWLY APPROVED RA 9504
AN ACT AMENDING SECTIONS 22, 24, 34, 35, 51 & 79 OF R.A. 8424, AS AMENDED, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997

  By: JOEL C. ROMANO
REDOR, EMERSON & CO. CPAs
July 2008

On June 17, 2008, R.A. 9504, AN ACT AMENDING SECTIONS 22, 24, 34, 35, 51 & 79 OF R.A. 8424, AS AMENDED, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, was signed into law.

The new law exempts minimum wage earners from paying income tax, increases tax exemption for all earners and additional exemptions for individuals with dependents.

Section 22 as amended shall now include and define statutory minimum wage as the rate fixed by the Regional Tripartite Wage and Productivity Board and the minimum wage earner shall be the worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned.

In Section 24, a MINIMUM WAGE EARNER as defined in Section 22 shall be EXEMPT from the payment of INCOME TAX on their taxable income: provided further, that the HOLIDAY PAY, OVERTIME PAY, NIGHT SHIFT DIFFERENTIAL PAY AND HAZARD PAY received by such minimum wage earners shall LIKEWISE be EXEMPT from income tax.

Section 34 on Optional Standard Deduction (OSD), In lieu of the allowed itemized deductions of this Code, an individual subject to tax under Sec. 24, may elect a standard deduction in an amount not exceeding forty percent (40%) of his gross sales or gross receipts. In the case of corporation subject to tax under Sections 27.A and 28.A.1, may also elect a standard deduction in an amount not exceeding forty percent (40%) of its gross income. It is important to signify in the taxpayers return that he is availing for the OSD, otherwise he is considered as having availed himself of the allowed itemized deductions, such election in the return shall be irrevocable for the taxable year for which the return is made. Provided, that a taxpayer entitled to and claimed for the OSD shall not be required to submit with his return such financial statements, otherwise required by this Code.

Under Section 35 as amended for PERSONAL EXEMPTION shall now be FIFTY THOUSAND PESOS (P50,000.00) for each individual taxpayer. In the case of married individuals where only one of the spouses is deriving gross income, only such spouse shall be allowed the personal exemption.

ADDITIONAL EXEMPTION of TWENTY-FIVE THOUSAND PESOS (P25,000) shall also be allowed for each dependent NOT EXCEEDING FOUR (4). The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals. In the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children, provided that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemption herein allowed.

DEPENDENT means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.

Section 51 as emended will not require an individual to file an income tax return receiving pure compensation income and minimum earner as defined by this Code, provided that income tax on pure compensation income has been correctly withheld by the employer.

Section 79 as amended requires every employer making payment of wages, except in the case of a minimum wage earner, shall deduct and withhold upon such wages a tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.