Personal and Additional Exemptions 1

Both employees and employers are allowed to deduct personal and additional exemptions from their gross incomes. It's in this article. Read it also in conjunction with this one. This article will show you how it's done.

These exemptions are arbitrary amounts allowed for the taxpayer's personal, living or family expenses and based roughly on the minimum of subsistence.

Every person, whether single, widowed or married but legally separated with no qualified dependent can claim a personal exemption of Php50,000.00. The same is true for the head of a family and a married individual. The additional exemption is Php25,000.00 for each qualified child or dependent (maximum of 4.)  So a family can claim up to Php200,000.00 in personal and additional exemptions. "Head of a family" is not the same as a "married individual."

Head of the Family

A head of the family refers to any single or legally separated man or woman who has the following kinds of dependents enumerated below:

1.) One or both of the taxpayer's parents living with him and dependent on him for chief support.

2.) One or more brothers and sisters who are living with the taxpayer; not more than 21 years old; not married; and not gainfully employed; or incapable of self-support because of mental or physical defect, regardless of age.

3.) One or more children who are legitimate, illegitimate or adopted; living with the taxpayer; married; not dependent on him for chief support; not more than 21 years old; and not gainfully employed; or incapable of self-support because of physical or mental defect, regardless of age.

4.) One or more senior citizens, whether relatives or not, who are living with the taxpayer; dependent on him for chief support; at least 60 years old and have an annual income of not more than Php60,000.00.

"Living with the taxpayer" doesn't necessarily mean the dependent lives with the taxpayer. A dependent studying in another place can be considered living with the taxpayer due to support. "Chief support" means that the dependent has other sources of income but his main support comes from the taxpayer. This is connected to "not gainfully employed;" which means that the dependent's income isn't enough to support himself. Note: a person with an annual income that doesn't exceed Php50,000.00 is not considered gainfully employed.

For a married couple with a family, the general rule is that the husband claims the additional exemptions for dependent children. These are the exceptions:

1.) The husband is unemployed

2.) The husband is a non-resident citizen whose income is from foreign sources

3.) If the husband waives his right to claim the exemptions of the children (should be for all the children)

In the third instance, the waiver should be in a sworn statement attached to his Application for Registration (BIR Form 1902) and that of his wife's in accordance to procedure. 

Both husband and wife compute their incomes and expenses separately but file only 1 return unless it's impractical for them to do so.

In case the spouses are legally separated, the spouse who is awarded the custody of the children can claim the exemption.

In case of a change of status, the following rules are to be observed:

1.) If the taxpayer marries or has additional dependents during the taxable year, he can claim the corresponding additional /personal exemption in full for that year.

2.) If he dies during the taxable year, his estate can still claim the personal and additional exemptions for himself and his dependents as if he died at the end of the taxable year.

3.) If the spouse or any of the dependents die within the taxable year, or if any of the dependents marry, become 21 years old or become gainfully employed during the taxable year, the taxpayer can still claim the same exemptions for that taxable year.

The following taxpayers are allowed to avail of personal and additional exemptions:

1.) Resident Citizens
2.) Non-resident Citizens
3.) OCWs/OFWs
4.) Non-resident aliens engaged in trade or business in the Philippines if there is reciprocity
5.) Estates and trusts (Php20,000.00 only)
6.) Resident Aliens

The following aren't allowed to claim personal and additional exemptions:

1.) Non-resident aliens engaged in trade or business if there is no reciprocity
2.) Non-resident aliens not engaged in trade or business
3.) Partnerships and corporations

Reciprocity

If the country of the alien grants similar exemptions to Filipinos, the Philippines grants exemptions in return. If there is reciprocity, the amount to be deducted can't exceed the limits of Philippine tax law. In case one exemption is lower the lower one is preferred, even if the foreign country's exception is the lower one.