8 Facts Doctors Need To Know About the TRAIN and How It Will Impact Your Income Tax

Previously, MyFinanceMD, has been clamoring for TAX REFORMS, since our tax system has not been updated to reflect inflation.

See this post:  AlDub and Philippine Tax Reform

In fact, our tax system’s last update was made 20 years ago. Imagine that!  If you are earning more than 500K per year, you are being taxed at the same tax rate as the rich and famous celebrities like Kris Aquino or Manny Pacquiao.

Now, wish granted, probably many of you know there are major changes in the income tax return this year, which we call now the TRAIN Law.  Will it be good or bad for doctors?

Let me break it down to you the most important things I think doctors and non-doctors need to know.

 

 

FACT #1: What is TRAIN again?

TRAIN – Tax Reform for Acceleration and Inclusion or RA No. 10963

Tax Reform – It is basically a tax reform that changes the previous tax system.  It contains major amendments on income tax, estate tax, donor tax, and excise tax.

Acceleration – means, the government wants to add to economic investment.  The 70% of the revenues this law (through excise taxes) will gain will be used in the BUILD, BUILD, BUILD Infrastructure Program.  Building bridges, public schools, hospitals and other government facilities to better provide for the people.  The 30% of which will be used in subsidy of the poorest 10M families of our country.

Inclusion – means our tax system is designed to be inclusive to all.  It aims to simplify the tax system and make it more effective.  The bracket was adjusted for inflation.  Also, the lowest income families will not be taxed, the middle class will be taxed less and the ultra-rich will be taxed higher.

 

 

FACT #2:  About 99.9% of the population will enjoy lower income tax rates.

  • For those earning below 250,000 annually (below 21,000 per month), you will now enjoy tax-free payouts. Included in this bracket is the 83% of the population.
  • Even if you are earning more than 21,000/month, you will still enjoy tax savings. This is good for all unless you belong to the 0.1% of the population who are earning more than 8M per year.

See the new graduated tax rates below:

TRAIN infographic myfinancemd

 

 

FACT #3: This TRAIN tax is a little bad news for those earning more than 8M/year. Those belonging to this bracket, which is about 0.1% of the population will have a higher tax of 35% from previous 32%.

 

FACT #4: The change in tax rates increases the tax savings of both employed and self-employed physicians.

 

 

Case #1: EMPLOYED PHYSICIAN

Doctor C is a resident doctor. He is only earning 21,000 per month in a private hospital. His status is employed. Meaning, he is receiving BIR form 2316 and the hospital files for her income tax return yearly.

What is the difference of her salary now under TRAIN from the previous income tax system?

Doctor C now enjoys an additional Php1,862.80 per month or Php22,353.60 per year.

 

 

Case #2: SELF-EMPLOYED PHYSICIAN (PRIVATE PRACTICE) – earning less than 3M gross per year

For self-employed physicians:

If the gross receipts/income do not exceed Php3M VAT threshold, the taxpayer may opt to be taxed at:

  • 8% of gross receipts in excess of Php250,000 in lieu of the graduated rates and percentage tax;
    OR
  • Use the graduated rates or the new TRAIN tax table above.

 

Note: The personal exemption (50,000) and additional exemptions (25,000 per dependent) are removed in the new TRAIN tax system, in exchange, all taxpayer regardless of the number of dependents are given the first 250,000 as an exemption.

Example:
Dr. Dy is a practicing internist with a total annual gross income of Php730,000 for the entire year, how much would be his tax due as compared with the previous tax code from the new TRAIN graduated rates and if he opts to use the 8% flat tax? Note: He has 2 dependent kids.

Note:  You should decide during the first quarter of the year if you will be using the flat rate 8% because if not, you will be considered to be using the graduated rates under the new tax system.  This will be irrevocable for the entire taxable year.

 

FACT #5: The VAT threshold was raised from Php1,919,500 to 3M total gross receipts/income.  If you earn more than 3M in a year or if you are VAT-registered, you cannot use the 8% flat rate.  You will be using the graduated rate plus 12% VAT.

 

 

FACT #6: If you were previously a VAT registered taxpayer (earning above the previous threshold of Php1,919,500), but now you think you will not earn more than 3M total gross receipts/income this year, you can opt to change from VAT to NON-VAT by filing the duly accomplished BIR Form No. 1905 “APPLICATION FOR REGISTRATION INFORMATION UPDATE” of your RDO on or before MARCH 31, 2018.

 

 

FACT #7:   For mixed income earners: meaning you are both employed at the same time has a business or earns as a professional, you shall be taxed as follows:

  • On your compensation income (employment) – at graduated rates; and/or
  • On income from the conduct of a trade or business or practice of profession:
    1. If exceeding the VAT threshold – at graduated rates;
    2. If below VAT threshold – either flat 8% of gross in excess of 250,000 or use the graduated rates plus percentage tax.

 

FACT #8:  Some administrative reforms included in the TRAIN Law:

 

 

All I can say is that this is the tax reform we are all been waiting for.  It may not be perfect, but definitely, it’s an improvement.  Even if there are other prices that increased because of this, we cannot deny the fact that we were given more tax savings, therefore more money to spend or save.  The power is in our hands.  It’s up to us how to use it.  It is up to us if we want to spend all our tax savings. Or is it time to save for our future.

 

If you choose to be the responsible one, you can contact me here, so I can guide you.

 

For your Financial Health,

Dr. Pinky Intal

 

 

 

 

 

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Pinky De Leon-Intal, MD, RFC
Doc Pinky is a licensed Medical Physician, Internationally Registered Financial Consultant, Certified Investment Solicitor and Associate Wealth Planner and Estate Planner of the Philippines. She loves to educate and spread financial literacy. She is a Lactation Consultant. She loves to travel. She is a devoted wife and mother.

38 thoughts on “8 Facts Doctors Need To Know About the TRAIN and How It Will Impact Your Income Tax

  1. Megan

    Dra, yng sa self employed/retainer po kung flat rate na 8% ang piliin po, paano po yng sa 2307? Di po ba aside po sa binabawas ng company may 3% pa po sa percentage tax sa previous tax system po natin. Kapag flat 8% po un na lang po babayaran tama po ba?

    • 2307 is the withholding tax. Part na yun sa 8% flat rate na pwede deduct sayo. When u choose the flat rate 8%, you don’t need to pay the 3% percentage tax. But you still need to file monthly, but you don’t need to pay anything if naka deduct na sayo ng 8%, only those di pa na deduct na tax sayo.

      • Megan

        Paano po filling? Basta ilalagay lang po na no payment. Need po bang magpresent ng 2307 per month po?

  2. Irene Aragon

    Good day!
    I would just like to clarify why we do not need to pay percentage tax if we choose the 8% flat rate as we are required to file 2551M. How is that going to happen? Thank you!

    • There is still no clear answer for that as of now. Since we are still waiting for the RR of that law. Since it’s very new. But I was told that you just file it as “no payment”. Will update you when we have the RR na

  3. Grace Jerusalem

    Hi dra. if Sa graduated rates Ang mapili, Ang Na withheld Na 8% from Hmos, pf from procedures done in hospital , ifile pa rin Sa quarterly. Yung mga pf from walk -in patients from clinics ay Ang masubject Sa 3% monthly tax. Tama po ba?
    Pag Sa flat rate Na 8 percent, lahat ng may 2307 ay Hindi Na matax pero ifile pa rin . Pano po Yung mga pf from walk in patients Sa quarterly po ba ifile pa or Sa annual Na Lang?
    Yung mga ebir downloads po bale Sa Iibahin po Nila?
    At bakit raw po ba Magkaiba Ang total Na tax due Sa graduated rates at Sa flat rates ? Curious Lang po

    Marating salamat po Sa Pag reply nila

    • Withholding 8% is different from that flat 8% rate ha. If you choose the graduated rate, they will still withhold you 8 %, then percentage tax pa na 3% sa gross monthly. And iba pa rin yung annual ITR na subject to graduated rate computation. Ok? 🙂

  4. DIYtaxesMD

    I have always used eBIR for the Monthly Percentage tax (2551M) and always paid through BPI in my RDO area.
    Since (accdg to the comments) there are new rules yet, should I continue to pay the monthly 3% tax? And continue to use eBIR for it?

    • If you choose to pay with graduated rates and percentage tax, it is still the same as of now. But with flat rate 8%, if you choose this one, we can wait for further RR. You can go ahead still with the percentage tax as you used before.

  5. Cheryl

    Good am Dra.
    How much is the deduction for non vat for in patients still 10% , if vat 15% whichi will reflect on the 2307? How about walk in patients with senior card or PWD, how much tax deduction if filed monthly? Quarterly? Salamat doc!

    • The withholding tax is now at 8%. The 10-15% before is changed to 8% withholding. For Vat registered, you still need to add 12% for your output vat.

    • Vat if 12% not 15%. Still at 12%. For senior and Pwd still will not be given 12% vat, they are vat exempt

  6. Megan

    Medyo naguluhan po ako sa tanong ng iba? If yng pf mo is from one company lang po pero di ka nila employee and they with held 8%tax (seen in 2307). Mag file ka lang po ng no payment and wala na po yng 3%percentage tax monthly tama po ba? Kung ang gagamitin po is the 8%flat rate, tama po ba yng intindi ko. Thank you po.

  7. Valerie

    Hi Dra. Intal!

    Same situation here. I am registered as self-employed, receiving professional fee from only one company for 4 years. I have been withheld 10% monthly in the past years and given BIR 2307 form. I pay monthly percentage tax of 3% (2551M). Annually, I file my ITR deducting the 10% withheld and attaching the 2307 forms.

    What will be now the procedure if I want the 8% flat rate as it seems to be saving more? February 20 will be the deadline for filing 2551M. If I filed for it, then it will be my tax system for the whole year. What forms do I need to submit to BIR if I want the flat rate and not to pay the momthly percentage tax anymore?

    Thank you for enlightening us

  8. Valerie

    Hi Dra. Intal!
    Another question, I noticed that there will be no more 250,000 exemption/personal deduction in the graduated tax system of self-employed for 2018-2022 as compared to the flat rate 8% and the previous year. Will there be none already of this is the tax system used?

    Thank you!
    Valerie

    • Look at the new graduated rates, the first 250K taxable income is exempted already. So, it has din. On the table.

  9. Valerie

    Hi Dra. Intal!

    Sorry for another question. I just want to know how will the total monthly 8% withholding tax be equal to the annual 8% tax less the 250,000 personal exemption? I mean, the company is withholding 8% monthly without the consideration of the less 250,000 in the year end. Should it be that the company will deduct 20,833 (250,000/12 months) on the monthly gross income before computing for the 8% withholding tax?

    Thank you very much Dra.!

    • Well that would be an effect when you file annual income tax the following year, where you get to consolidate the withholding that you paid and other tax that you paid. If at the end of the year, you paid more that what is due, you get to do refund or tax credit.

    • Actually if you really compute it, there would be around 20K excess that they have to return to us at the end of the year. Since they did not consider the 250K exemption. Let’s see what they will do if they see this.

  10. Tarobs

    Clarification lang po:

    For Mixed Income Earners, ang nabasa ko dun sa nakapost na text ng TRAIN Law, walang minus 250,000 sa gross receipts na subject to 8%. Naisip ko na wala yun kasi may minus 250,000 ka na dun sa compensation part.

    • The RR is still not out. Revenue Regulations. Final rules still not clear to all up to now. But I think you are right. But let’s see once the RR is out.

  11. Red

    Hi Dr. Intal.
    Regarding annual ITR, can we still deduct the taxes withheld in our 2307 just like before?
    Thank you.

  12. StillLearningTaxes

    Is the awaited new RR not out yet?

    If I start paying the usual way (3% monthly percentage tax, 2551M) for my mixed income, will that make me disqualified from being able to be taxed the 8% flat rate?

    Also, how convenient/unconvenient is it to file for “no payment” in the RDOs (mine is 039)? I may have to take more than a month’s leave so I wont actually be earning for that month…
    Can i file for “no payment” at designated banks?

    Thank you for your patience and time!!

    • The new advisory said that you don’t need to use the 2551M, just the 2551Q. And yes, if you use the percentage tax of 3% you can no longer use the 8%flat rate.

  13. Glen

    Is there change when paying the 3% in 2251m in the new tax reform or train this 2018

  14. Angela Amores

    Hello, thank you for this article. I have a question, if you are VAT REGISTERED MD, and you receive pf from senior citizens, should the amount they gave you be included in the computation of your VAT payable monthly? For example, monthly total sales is 100,000, but 50,000 is from senior citizen patients, shud the VAT payable monthly be p10,417 12% inclusive in 100,000) or shud we compute only the 50,000, hence only p5357 VAT PAYABLE due for that month? Thank you!

  15. Giselle

    Thank you for this informative post. What are the advantages and disadvantages of using the flat 8% as against the graduated rates?

    • As of now, I don’t see disadvantage in using the 8%. It’s cheaper, simpler. Let’s see if the future RR will tell us otherwise.

  16. Elbonia

    If I choose the 8% flat rate, how can i file my 2551M as no payment? Is there other form for it? Do i have to submit my no payment form to my designated RDO branch?.Thanks.

  17. Doc Aga

    hi doc, same question here..may Tax Advisory sa bir website regarding percentage tax payers, from momthly 2551M,to Quartely Percentage payment na(2551Q)..no need to file and pay the 2551M, kasi nga 2551Q na..question ko ay

    1..if i decide to choose the 8% flat rate(if i understand it right para sa Income tax Payments eto(Quarerly income tax 1701Q and Annual Income Tax 1701), hindi na ako mag file/pay ng percentage tax (now quarterly perc.tax2551Q)..?

    2..Registered NON VAT ako(therefore percentage tax payer,quarterly and annual income tax payer( as stated in my Cert.of Reg.2303)…if i choose na nga 8% flat rate, paano malalaman ng bir na 8% na nga pinili ko? may forms ba na isasubmit sa kanila,or kelangan papalitan yung c.o.r ko,anong communication ba gagawin sa kanila?eh sa c.o.r nakasulat dun percentage tax payer

    3.at kung 8% nga pinili ko( deadline of which ng pagpili whether 8% 0r graduated is until March 31 ba?), hindi na nga rin talaga magfile and pay ng 2551Q?..at paano mag fafile ng no payment? using 2551Q(ilagay dun 0.00 amount no payment, sa offline package na finifilup wala naman space dun for writing words, puro amount lang)..

    4. For the Taxable year 2017(last year na income, deadline of which ng filing/payment is this coming Apil 15,2018, hindi pa applicable ang TRAIN Law sa kanya, right?/ so luma or previous system system pa sa offline package ang mag aaply?

    5. First Quarter 2018(jan-Feb-Mar) , quartely income tax filing/payment deadline is April 15,2018, may binago na kaya ang bir sa offline package system na finifill up sa computer,?kasi nag cocompute na ng sarili yun right, pag nag entry ka.

    Thanks a lot.Dami tanong

    • Latest advisory says the following:
      For Payment of percentage tax – it is already Quarterly using form 2551Q (no need to file and pay monthly)
      For those availing the 8% flat tax – use 1701Q to be filled quarterly, no need to file the 2551Q.

      please refer to BIR advisory.

  18. Anna Tiangco

    Good Day! Just to clarify, if I choose the 8% flat rate, I don’t need to file any percentage tax forms (2551M/2551Q)? Not even as “no payment”? Just the quarterly ITR (1701Q)? Thanks.

    • Latest advisory says the following:
      For Payment of percentage tax – it is already Quarterly using form 2551Q (no need to file and pay monthly)
      For those availing the 8% flat tax – use 1701Q to be filled quarterly, no need to file the 2551Q.

      please refer to BIR advisory.

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