Self-Employed Tax Scenarios

Core Principle & Logic Explained: For self-employed individuals whose annual gross sales are less than ₱3,000,000 and who are not registered for Value-Added Tax (VAT), there's a simplified tax option. This option allows you to pay a flat 8% tax on your earnings. However, the government provides every individual with a ₱250,000 annual exemption. This means the first ₱250,000 you earn in a year is not taxed. The 8% rate is only applied to the portion of your income above this ₱250,000 threshold. The tax is paid progressively each quarter based on your year-to-date earnings.

Quarter 1 (Q1) Calculation

Goal: Calculate tax for the first three months.
Q1 Income: ₱100,000
Cumulative Income (Year-to-Date): ₱100,000

Calculation Steps:
1. Apply the Annual Exemption: We check if the cumulative income has exceeded the ₱250,000 threshold.
₱100,000 (Cumulative Income) - ₱250,000 (Annual Exemption) = -₱150,000
2. Determine Taxable Amount: Since the result is negative, it means the threshold hasn't been reached. The taxable amount is ₱0.
3. Calculate Tax: The formula is Tax Due = Taxable Amount * 0.08.
₱0 * 0.08 = ₱0
Q1 Tax Payable: ₱0

Quarter 2 (Q2) Calculation

Goal: Calculate tax for the second quarter, considering the first.
Q2 Income: ₱200,000
Cumulative Income (Year-to-Date): ₱100,000 (from Q1) + ₱200,000 (current Q2) = ₱300,000

Calculation Steps:
1. Apply Exemption to Cumulative Income: Now our year-to-date income is ₱300,000.
₱300,000 - ₱250,000 = ₱50,000
2. Determine Cumulative Taxable Amount: The total amount subject to tax for the year so far is ₱50,000.
3. Calculate Cumulative Tax: This is the total tax for the year so far.
₱50,000 * 0.08 = ₱4,000
4. Calculate Tax for This Quarter: To find what you owe for Q2 only, subtract the tax you already accounted for in previous quarters.
₱4,000 (Cumulative Tax) - ₱0 (Tax from Q1) = ₱4,000
Q2 Tax Payable: ₱4,000

Quarter 3 (Q3) Calculation

Goal: Calculate tax for the third quarter.
Q3 Income: ₱150,000
Cumulative Income (Year-to-Date): ₱300,000 (from Q2) + ₱150,000 (current Q3) = ₱450,000

Calculation Steps:
1. Apply Exemption to Cumulative Income:
₱450,000 - ₱250,000 = ₱200,000
2. Calculate Cumulative Tax:
₱200,000 * 0.08 = ₱16,000
3. Calculate Tax for This Quarter:
₱16,000 (Cumulative Tax) - ₱4,000 (Total Tax from Q1 & Q2) = ₱12,000
Q3 Tax Payable: ₱12,000

Quarter 4 (Q4) Calculation

Goal: Calculate the final tax for the year.
Q4 Income: ₱300,000
Cumulative Income (Year-to-Date): ₱450,000 (from Q3) + ₱300,000 (current Q4) = ₱750,000

Calculation Steps:
1. Apply Exemption to Cumulative Income:
₱750,000 - ₱250,000 = ₱500,000
2. Calculate Cumulative Tax (Total for the year):
₱500,000 * 0.08 = ₱40,000
3. Calculate Tax for This Quarter:
₱40,000 (Total Year's Tax) - ₱16,000 (Total Tax from Q1, Q2, Q3) = ₱24,000
Q4 Tax Payable: ₱24,000

Annual Summary: Example 1

Quarter	Quarterly Income	Cumulative Income	Tax Paid per Quarter
Q1	₱100,000	₱100,000	₱0
Q2	₱200,000	₱300,000	₱4,000
Q3	₱150,000	₱450,000	₱12,000
Q4	₱300,000	₱750,000	₱24,000
Total	₱750,000		₱40,000

Core Principle & Logic Explained: The Graduated Income Tax system is the default method. It works like a ladder: as your income climbs, the tax rate on the next portion of your income gets higher. To figure out the tax, we must follow three main steps:
1. Determine Taxable Income: We can't apply tax rates to your gross income directly. First, we must determine your "Taxable Income" by subtracting deductions. For this example, we'll use the Optional Standard Deduction (OSD), which is a simplified method where you deduct a flat 40% from your gross income. The formula is: Taxable Income = Gross Income - (Gross Income * 0.40).
2. Apply the Tax Bracket Table: Once we have the taxable income, we find where it falls in the official tax table. The rates are applied to your annual cumulative income.
3. Calculate Progressively: Just like the 8% method, the calculation is cumulative. Each quarter, we calculate the tax on the year-to-date income and subtract the taxes we've already paid.

Annual Graduated Tax Table

Annual Taxable Income Range	Tax Rate Calculation
₱0 - ₱250,000	0%
₱250,001 - ₱400,000	15% of the excess over ₱250,000
₱400,001 - ₱800,000	₱22,500 + 20% of the excess over ₱400,000
₱800,001 - ₱2,000,000	₱102,500 + 25% of the excess over ₱800,000
₱2,000,001 - ₱8,000,000	₱402,500 + 30% of the excess over ₱2,000,000
Over ₱8,000,000	₱2,202,500 + 35% of the excess over ₱8,000,000

Quarter 1 (Q1) Calculation

Cumulative Income: ₱200,000

Calculation Steps:
1. Calculate Deduction (OSD): ₱200,000 * 0.40 = ₱80,000
2. Calculate Taxable Income: ₱200,000 - ₱80,000 = ₱120,000
3. Find Tax Bracket: Our taxable income of ₱120,000 falls into the first bracket (0 - 250,000).
4. Calculate Tax: The rate for this bracket is 0%.
Q1 Tax Payable: ₱0

Quarter 2 (Q2) Calculation

Cumulative Income: ₱200,000 (Q1) + ₱400,000 (Q2) = ₱600,000

Calculation Steps:
1. Calculate Cumulative Deduction (OSD): ₱600,000 * 0.40 = ₱240,000
2. Calculate Cumulative Taxable Income: ₱600,000 - ₱240,000 = ₱360,000
3. Find Tax Bracket: ₱360,000 falls into the 250,001 - 400,000 bracket.
4. Calculate Cumulative Tax: 15% of the excess over ₱250,000 → Excess = ₱110,000 → Tax = ₱16,500
5. Tax for This Quarter: ₱16,500 (Cumulative Tax) - ₱0 (Paid in Q1) = ₱16,500
Q2 Tax Payable: ₱16,500

Quarter 3 (Q3) Calculation

Cumulative Income: ₱600,000 (Q2) + ₱300,000 (Q3) = ₱900,000

Calculation Steps:
1. Calculate Cumulative Deduction (OSD): ₱900,000 * 0.40 = ₱360,000
2. Calculate Cumulative Taxable Income: ₱900,000 - ₱360,000 = ₱540,000
3. Find Tax Bracket: ₱540,000 falls into the 400,001 - 800,000 bracket.
4. Calculate Cumulative Tax: ₱22,500 + 20% of (₱540,000 - ₱400,000) = ₱22,500 + ₱28,000 = ₱50,500
5. Tax for This Quarter: ₱50,500 (Cumulative) - ₱16,500 (Paid in Q1–Q2) = ₱34,000
Q3 Tax Payable: ₱34,000

Quarter 4 (Q4) Calculation

Cumulative Income: ₱900,000 (Q3) + ₱500,000 (Q4) = ₱1,400,000

Calculation Steps:
1. Calculate Cumulative Deduction (OSD): ₱1,400,000 * 0.40 = ₱560,000
2. Calculate Cumulative Taxable Income: ₱1,400,000 - ₱560,000 = ₱840,000
3. Find Tax Bracket: ₱840,000 falls into the 800,001 - 2,000,000 bracket.
4. Calculate Cumulative Tax: ₱102,500 + 25% of (₱840,000 - ₱800,000) = ₱102,500 + ₱10,000 = ₱112,500
5. Tax for This Quarter: ₱112,500 (Total Year's Cumulative) - ₱50,500 (Paid Q1–Q3) = ₱62,000
Q4 Tax Payable: ₱62,000

Annual Summary: Example 2

Quarter	Quarterly Income	Cumulative Taxable Income	Tax Paid per Quarter
Q1	₱200,000	₱120,000	₱0
Q2	₱400,000	₱360,000	₱16,500
Q3	₱300,000	₱540,000	₱34,000
Q4	₱500,000	₱840,000	₱62,000
Total	₱1,400,000		₱112,500

Core Principle & Logic: Itemize actual expenses. Taxable Income = Cumulative Gross Income − Cumulative Itemized Expenses. Apply the graduated tax table cumulatively each quarter, subtract prior tax paid to get the quarter’s due.

Quarter 1 (Q1)

Cumulative Income: ₱300,000
Cumulative Expenses: ₱100,000
Taxable Income: ₱200,000 → 0% bracket
Q1 Tax Payable: ₱0

Calculation Steps:
1. Compute Cumulative Taxable Income: ₱300,000 − ₱100,000 = ₱200,000
2. Find Tax Bracket: ₱0 − ₱250,000 → 0% bracket
3. Compute Tax: ₱200,000 × 0% = ₱0

Quarter 2 (Q2)

Cumulative Income: ₱800,000
Cumulative Expenses: ₱300,000
Cumulative Taxable Income: ₱500,000
Cumulative Tax: ₱22,500 + 20% of (₱500,000 − ₱400,000) = ₱42,500
Q2 Tax Payable: ₱42,500

Calculation Steps:
1. Compute Cumulative Taxable Income: ₱800,000 − ₱300,000 = ₱500,000
2. Find Tax Bracket: ₱400,001 − ₱800,000 → base ₱22,500
3. Compute Tax: ₱22,500 + 20% × (₱500,000 − ₱400,000) = ₱42,500
4. Quarter Due: ₱42,500 − ₱0 (Q1) = ₱42,500

Quarter 3 (Q3)

Cumulative Income: ₱1,000,000
Cumulative Expenses: ₱450,000
Cumulative Taxable Income: ₱550,000
Cumulative Tax: ₱22,500 + 20% of (₱550,000 − ₱400,000) = ₱52,500
Q3 Tax Payable: ₱52,500 − ₱42,500 = ₱10,000

Calculation Steps:
1. Compute Cumulative Taxable Income: ₱1,000,000 − ₱450,000 = ₱550,000
2. Find Tax Bracket: ₱400,001 − ₱800,000 → base ₱22,500
3. Compute Tax: ₱22,500 + 20% × (₱550,000 − ₱400,000) = ₱52,500
4. Quarter Due: ₱52,500 − ₱42,500 (Q1–Q2) = ₱10,000

Quarter 4 (Q4)

Cumulative Income: ₱1,600,000
Cumulative Expenses: ₱700,000
Cumulative Taxable Income: ₱900,000
Cumulative Tax: ₱102,500 + 25% of (₱900,000 − ₱800,000) = ₱127,500
Q4 Tax Payable: ₱127,500 − ₱52,500 = ₱75,000

Calculation Steps:
1. Compute Cumulative Taxable Income: ₱1,600,000 − ₱700,000 = ₱900,000
2. Find Tax Bracket: ₱800,001 − ₱2,000,000 → base ₱102,500
3. Compute Tax: ₱102,500 + 25% × (₱900,000 − ₱800,000) = ₱127,500
4. Quarter Due: ₱127,500 − ₱52,500 (Q1–Q3) = ₱75,000

Annual Summary: Example 3

Quarter	Quarterly Income	Quarterly Expenses	Cumulative Taxable Income	Tax Paid per Quarter
Q1	₱300,000	₱100,000	₱200,000	₱0
Q2	₱500,000	₱200,000	₱500,000	₱42,500
Q3	₱200,000	₱150,000	₱550,000	₱10,000
Q4	₱600,000	₱250,000	₱900,000	₱75,000
Total	₱1,600,000	₱700,000		₱127,500

💼 Employment Income Calculation

🏢 Business Income Calculation (8% Flat Tax)

📊 Combined Tax Bracket Analysis

💰 Final Summary

Core Principle & Logic: Cumulative method works even if the business starts mid-year. No income → no tax until first earnings.

Quarters 1 & 2

Income ₱0 → Tax ₱0.

Quarter 3 (Q3)

Cumulative Income: ₱400,000
OSD: ₱160,000
Taxable Income: ₱240,000 → 0% bracket
Q3 Tax Payable: ₱0

Quarter 4 (Q4)

Cumulative Income: ₱1,000,000
OSD: ₱400,000
Taxable Income: ₱600,000
Cumulative Tax: ₱22,500 + 20% of (₱600,000 − ₱400,000) = ₱62,500
Q4 Tax Payable: ₱62,500

Annual Summary: Example 5

Quarter	Quarterly Income	Cumulative Taxable Income	Tax Paid per Quarter
Q1	₱0	₱0	₱0
Q2	₱0	₱0	₱0
Q3	₱400,000	₱240,000	₱0
Q4	₱600,000	₱600,000	₱62,500
Total	₱1,000,000		₱62,500

Scenario Recap:
Tax Choice: Graduated Tax with Itemized Deductions
Q1: Income ₱800,000, Expenses ₱300,000
Q2: Income ₱100,000, Expenses ₱200,000 (net quarterly loss ₱100,000)
Q3: Income ₱600,000, Expenses ₱250,000
Q4: Income ₱900,000, Expenses ₱350,000

Core Principle & Logic: A quarterly loss reduces cumulative taxable income and can create an overpayment credit for subsequent quarters.

Quarter 1 (Q1)

Taxable Income: ₱800,000 − ₱300,000 = ₱500,000 → Tax = ₱22,500 + 20% of ₱100,000 = ₱42,500
Q1 Tax Payable: ₱42,500

Quarter 2 (Q2)

Cumulative Income: ₱900,000
Cumulative Expenses: ₱500,000
Cumulative Taxable Income: ₱400,000 → Tax = 15% of (₱150,000) = ₱22,500
Quarterly Tax: ₱22,500 − ₱42,500 = −₱20,000 → Overpayment credit
Q2 Tax Payable: ₱0 (carry ₱20,000 credit)

Quarter 3 (Q3)

Cumulative Tax: ₱22,500 + 20% of (₱750,000 − ₱400,000) = ₱92,500
Quarterly Tax: ₱92,500 − ₱42,500 = ₱50,000
Q3 Tax Payable: ₱50,000

Calculation Steps (Q3):
1. Cumulative Taxable Income: ₱1,500,000 − ₱750,000 = ₱750,000
2. Find Tax Bracket: ₱400,001 − ₱800,000 → base ₱22,500
3. Compute Cumulative Tax: ₱22,500 + 20% × (₱750,000 − ₱400,000) = ₱92,500
4. Quarter Due: ₱92,500 − ₱42,500 (Q1) − ₱0 (Q2 overpayment) = ₱50,000

Quarter 4 (Q4)

Cumulative Taxable Income: (₱2,400,000 − ₱1,100,000) = ₱1,300,000
Cumulative Tax: ₱102,500 + 25% of (₱1,300,000 − ₱800,000) = ₱227,500
Quarterly Tax: ₱227,500 − ₱92,500 = ₱135,000
Q4 Tax Payable: ₱135,000

Calculation Steps (Q4):
1. Cumulative Taxable Income: ₱2,400,000 − ₱1,100,000 = ₱1,300,000
2. Find Tax Bracket: ₱800,001 − ₱2,000,000 → base ₱102,500
3. Compute Cumulative Tax: ₱102,500 + 25% × (₱1,300,000 − ₱800,000) = ₱227,500
4. Quarter Due: ₱227,500 − ₱92,500 (Q1–Q3) = ₱135,000

Annual Summary: Example 6

Quarter	Quarterly Income	Cumulative Taxable Income	Tax Paid per Quarter
Q1	₱800,000	₱500,000	₱42,500
Q2	₱100,000	₱400,000	₱0 (Overpayment)
Q3	₱600,000	₱750,000	₱50,000
Q4	₱900,000	₱1,300,000	₱135,000
Total	₱2,400,000		₱227,500

Scenario Recap:
Tax Choice: Graduated Tax with OSD
Income: Q1: ₱1,000,000; Q2: ₱1,200,000; Q3: ₱1,500,000; Q4: ₱1,800,000
CWT Credits: Q1: ₱80,000; Q2: ₱96,000; Q3: ₱120,000; Q4: ₱144,000

Core Principle & Logic: CWT is an advance tax credit. Final Payable = Calculated Quarterly Tax Due − that quarter’s CWT (plus any carryover credits).

Quarter 1 (Q1)

OSD: ₱400,000 → Taxable: ₱600,000
Tax Due: ₱22,500 + 20% of (₱600,000 − ₱400,000) = ₱62,500
Apply CWT: ₱62,500 − ₱80,000 = −₱17,500 → credit
Q1 Payable: ₱0 (₱17,500 credit carryover)

Calculation Steps (Q1):
1. OSD: ₱1,000,000 × 40% = ₱400,000 → Taxable ₱600,000
2. Cumulative Tax: ₱22,500 + 20% × (₱600,000 − ₱400,000) = ₱62,500
3. Apply CWT: ₱62,500 − ₱80,000 = −₱17,500 → carryover credit

Quarter 2 (Q2)

Cumulative Income: ₱2,200,000 → OSD: ₱880,000 → Taxable: ₱1,320,000
Cumulative Tax: ₱102,500 + 25% of (₱1,320,000 − ₱800,000) = ₱232,500
Q2 Tax (before CWT): ₱232,500 − ₱62,500 = ₱170,000
Apply CWT: ₱170,000 − ₱96,000 = ₱74,000
Q2 Payable: ₱74,000

Calculation Steps (Q2):
1. OSD: ₱2,200,000 × 40% = ₱880,000 → Taxable ₱1,320,000
2. Cumulative Tax: ₱102,500 + 25% × (₱1,320,000 − ₱800,000) = ₱232,500
3. Quarter Due: ₱232,500 − ₱62,500 (Q1) = ₱170,000
4. Apply CWT: ₱170,000 − ₱96,000 = ₱74,000

Quarter 3 (Q3)

Cumulative Income: ₱3,700,000 → OSD: ₱1,480,000 → Taxable: ₱2,220,000
Cumulative Tax: ₱402,500 + 30% of (₱2,220,000 − ₱2,000,000) = ₱468,500
Q3 Tax (before CWT): ₱468,500 − ₱232,500 = ₱236,000
Apply CWT: ₱236,000 − ₱120,000 = ₱116,000
Q3 Payable: ₱116,000

Calculation Steps (Q3):
1. OSD: ₱3,700,000 × 40% = ₱1,480,000 → Taxable ₱2,220,000
2. Cumulative Tax: ₱402,500 + 30% × (₱2,220,000 − ₱2,000,000) = ₱468,500
3. Quarter Due: ₱468,500 − ₱232,500 (Q1–Q2) = ₱236,000
4. Apply CWT: ₱236,000 − ₱120,000 = ₱116,000

Quarter 4 (Q4)

Cumulative Income: ₱5,500,000 → OSD: ₱2,200,000 → Taxable: ₱3,300,000
Cumulative Tax: ₱402,500 + 30% of (₱3,300,000 − ₱2,000,000) = ₱792,500
Q4 Tax (before CWT): ₱792,500 − ₱468,500 = ₱324,000
Apply CWT: ₱324,000 − ₱144,000 = ₱180,000
Q4 Payable: ₱180,000

Calculation Steps (Q4):
1. OSD: ₱5,500,000 × 40% = ₱2,200,000 → Taxable ₱3,300,000
2. Cumulative Tax: ₱402,500 + 30% × (₱3,300,000 − ₱2,000,000) = ₱792,500
3. Quarter Due: ₱792,500 − ₱468,500 (Q1–Q3) = ₱324,000
4. Apply CWT: ₱324,000 − ₱144,000 = ₱180,000

Note: Prior-quarter CWT over-credits (like Q1’s) can be applied against later quarters based on your actual BIR Form 2307 certificates. Amounts above show per-quarter CWT only for clarity.

Scenario Recap:
Tax Choice: Graduated Tax with OSD (VAT-registered, so 8% not available)
Business Income: Q1: ₱800,000; Q2: ₱1,200,000; Q3: ₱900,000; Q4: ₱1,100,000

Core Principle & Logic: VAT-registered businesses cannot use the 8% flat tax option. They must use the Graduated Income Tax system. Since this is a single-income source (pure business), the calculation follows the standard graduated tax approach with OSD.

Quarter 1 (Q1)

Cumulative Income: ₱800,000
OSD: ₱800,000 × 40% = ₱320,000
Taxable Income: ₱800,000 − ₱320,000 = ₱480,000
Tax: ₱22,500 + 20% of (₱480,000 − ₱400,000) = ₱38,500
Q1 Tax Payable: ₱38,500

Calculation Steps (Q1):
1. Compute OSD: ₱800,000 × 40% = ₱320,000
2. Taxable: ₱800,000 − ₱320,000 = ₱480,000
3. Tax: ₱22,500 + 20% × (₱480,000 − ₱400,000) = ₱38,500

Quarter 2 (Q2)

Cumulative Income: ₱800,000 + ₱1,200,000 = ₱2,000,000
OSD: ₱2,000,000 × 40% = ₱800,000
Cumulative Taxable Income: ₱2,000,000 − ₱800,000 = ₱1,200,000
Cumulative Tax: ₱102,500 + 25% of (₱1,200,000 − ₱800,000) = ₱202,500
Q2 Tax Payable: ₱202,500 − ₱38,500 = ₱164,000

Calculation Steps (Q2):
1. OSD: ₱2,000,000 × 40% = ₱800,000
2. Taxable: ₱2,000,000 − ₱800,000 = ₱1,200,000
3. Cumulative Tax: ₱102,500 + 25% × (₱1,200,000 − ₱800,000) = ₱202,500
4. Quarter Due: ₱202,500 − ₱38,500 (Q1) = ₱164,000

Quarter 3 (Q3)

Cumulative Income: ₱2,000,000 + ₱900,000 = ₱2,900,000
OSD: ₱2,900,000 × 40% = ₱1,160,000
Cumulative Taxable Income: ₱2,900,000 − ₱1,160,000 = ₱1,740,000
Cumulative Tax: ₱102,500 + 25% of (₱1,740,000 − ₱800,000) = ₱337,500
Q3 Tax Payable: ₱337,500 − ₱202,500 = ₱135,000

Calculation Steps (Q3):
1. OSD: ₱2,900,000 × 40% = ₱1,160,000
2. Taxable: ₱2,900,000 − ₱1,160,000 = ₱1,740,000
3. Cumulative Tax: ₱102,500 + 25% × (₱1,740,000 − ₱800,000) = ₱337,500
4. Quarter Due: ₱337,500 − ₱202,500 (Q1–Q2) = ₱135,000

Quarter 4 (Q4)

Cumulative Income: ₱2,900,000 + ₱1,100,000 = ₱4,000,000
OSD: ₱4,000,000 × 40% = ₱1,600,000
Cumulative Taxable Income: ₱4,000,000 − ₱1,600,000 = ₱2,400,000
Cumulative Tax: ₱402,500 + 30% of (₱2,400,000 − ₱2,000,000) = ₱522,500
Q4 Tax Payable: ₱522,500 − ₱337,500 = ₱185,000

Calculation Steps (Q4):
1. OSD: ₱4,000,000 × 40% = ₱1,600,000
2. Taxable: ₱4,000,000 − ₱1,600,000 = ₱2,400,000
3. Cumulative Tax: ₱402,500 + 30% × (₱2,400,000 − ₱2,000,000) = ₱522,500
4. Quarter Due: ₱522,500 − ₱337,500 (Q1–Q3) = ₱185,000

Annual Summary: Example 8

Quarter	Quarterly Income	Cumulative Taxable Income	Tax Paid per Quarter
Q1	₱800,000	₱480,000	₱38,500
Q2	₱1,200,000	₱1,200,000	₱164,000
Q3	₱900,000	₱1,740,000	₱135,000
Q4	₱1,100,000	₱2,400,000	₱185,000
Total	₱4,000,000		₱522,500

Scenario Recap:
Income: Q1: ₱800,000; Q2: ₱1,200,000; Q3: ₱1,500,000; Q4: ₱500,000
Threshold Breach: In Q3, cumulative income reaches ₱3.5M → exceeds ₱3M → switch to Graduated Tax for the entire year and recompute prior quarters.

Core Principle & Logic: Crossing ₱3M revokes the 8% option retroactively. Recompute Q1–Q2 under Graduated + OSD, pay deficiency in Q3 in addition to Q3’s normal tax.

Q1 & Q2 (Paid under 8%)

Q1 Paid: (₱800,000 − ₱250,000) × 8% = ₱44,000
Q2 Paid: ((₱2,000,000 − ₱250,000) × 8%) − ₱44,000 = ₱96,000
Total Actually Paid: ₱140,000

Q3 Recalculation

Correct Q1 (Graduated + OSD): Taxable = ₱800,000 × 60% = ₱480,000 → Tax = ₱22,500 + 20% of ₱80,000 = ₱38,500
Correct Q2 Cumulative: Taxable = ₱2,000,000 × 60% = ₱1,200,000 → Tax = ₱102,500 + 25% of ₱400,000 = ₱202,500
Deficiency (Q1–Q2): ₱202,500 − ₱140,000 = ₱62,500

Normal Q3 Tax: Cumulative Income ₱3,500,000 → OSD ₱1,400,000 → Taxable ₱2,100,000 → Tax = ₱402,500 + 30% of ₱100,000 = ₱432,500
Q3 Portion: ₱432,500 − ₱202,500 = ₱230,000
Total Q3 Payment: ₱230,000 + ₱62,500 (deficiency) = ₱292,500

Quarter 4 (Q4)

Cumulative Income: ₱4,000,000 → OSD: ₱1,600,000 → Taxable: ₱2,400,000
Cumulative Tax: ₱402,500 + 30% of (₱2,400,000 − ₱2,000,000) = ₱522,500
Tax for Q4: ₱522,500 − ₱432,500 = ₱90,000

Scenario Recap:
Source 1 (Pension): ₱500,000 (tax-exempt)
Source 2 (Business): Q1: ₱50,000; Q2: ₱70,000; Q3: ₱60,000; Q4: ₱80,000

Core Principle & Logic: Exempt income is excluded. For the shop’s income, 8% Flat Tax: apply ₱250,000 annual exemption; tax only the excess at 8%.

Quarterly Progression

Q1: Cumulative ₱50,000 → below ₱250,000 exemption → Tax: ₱0

Calculation Steps (Q1):
1. Check Exemption: ₱50,000 − ₱250,000 = negative → ₱0 taxable
2. Compute Tax: ₱0 × 8% = ₱0

Q2: Cumulative ₱120,000 → below ₱250,000 exemption → Tax: ₱0

Calculation Steps (Q2):
1. Check Exemption: ₱120,000 − ₱250,000 = negative → ₱0 taxable
2. Compute Tax: ₱0 × 8% = ₱0

Q3: Cumulative ₱180,000 → below ₱250,000 exemption → Tax: ₱0

Calculation Steps (Q3):
1. Check Exemption: ₱180,000 − ₱250,000 = negative → ₱0 taxable
2. Compute Tax: ₱0 × 8% = ₱0

Q4: Cumulative ₱260,000 → excess ₱10,000 × 8% = ₱800 (annual liability becomes due in Q4)

Calculation Steps (Q4):
1. Compute Excess over Exemption: ₱260,000 − ₱250,000 = ₱10,000
2. Compute Tax: ₱10,000 × 8% = ₱800
3. Quarter Due: ₱800 − ₱0 (Q1–Q3) = ₱800

Annual View

Total Gross Receipts (Business): ₱260,000
Exemption: ₱250,000 → Taxable Excess: ₱10,000
Total Annual Tax: ₱10,000 × 8% = ₱800

Quarter	Cumulative Income	Tax This Quarter
Q1	₱50,000	₱0
Q2	₱120,000	₱0
Q3	₱180,000	₱0
Q4	₱260,000	₱800
Total	₱260,000	₱800