Introduction

In the Philippines, the obligation to file an income tax return (ITR) is a fundamental aspect of tax compliance under the National Internal Revenue Code (NIRC), as amended by various laws including the Tax Reform for Acceleration and Inclusion (TRAIN) Law or Republic Act No. 10963. A common question among Filipino taxpayers, particularly low-income earners, is whether they must file an ITR if their annual taxable income falls below ₱250,000. This threshold is significant because it marks the point where income tax liability begins for many individuals. However, the requirement to file an ITR is not solely tied to tax liability; it also depends on the nature of income, employment status, and other factors. This article explores the legal framework, exemptions, conditions, exceptions, and practical implications of this rule, providing a comprehensive guide for taxpayers in the Philippine context.

Legal Basis

The rules governing ITR filing for low-income earners are primarily outlined in Section 51 of the NIRC, as amended, and further clarified by Revenue Regulations (RR) issued by the Bureau of Internal Revenue (BIR). Key provisions include:

Section 51(A) of the NIRC: This mandates that every individual subject to income tax must file a return covering their taxable income for the year, unless exempted.
TRAIN Law Amendments: Effective from 2018, the TRAIN Law introduced a zero percent (0%) tax rate on the first ₱250,000 of annual taxable income for individuals, effectively exempting those earning below this amount from paying income tax. However, this exemption from payment does not automatically mean exemption from filing.
RR No. 8-2018 and Subsequent Issuances: These regulations implement the TRAIN Law and specify substituted filing for certain employees, allowing employers to file on behalf of qualified employees.
RR No. 11-2018: This provides guidelines on who qualifies for substituted filing, emphasizing the role of BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld) as a substitute for the ITR.

The BIR has consistently emphasized that while tax payment may be zero for incomes below ₱250,000, the filing requirement serves purposes beyond collection, such as verifying income sources, ensuring compliance, and facilitating refunds or credits if applicable.

Who Is Exempt from Filing an ITR?

Individuals with annual taxable income below ₱250,000 may be exempt from personally filing an ITR under the substituted filing system, but this applies strictly to specific categories:

Pure Compensation Income Earners:
- If you are an employee deriving income solely from compensation (e.g., salaries, wages, bonuses) from one employer during the taxable year, and your total annual taxable income does not exceed ₱250,000, you are generally not required to file a separate ITR.
- In this case, your employer handles the withholding of taxes (which would be zero if income is below the threshold) and files the Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604C). The employer also provides you with BIR Form 2316, which serves as your substitute ITR.
- This system simplifies compliance for minimum wage earners, entry-level employees, and part-time workers whose earnings fall below the threshold.
Minimum Wage Earners:
- Employees earning the statutory minimum wage, including holiday pay, overtime pay, night shift differential, and hazard pay, are exempt from income tax and, consequently, from filing an ITR if their total compensation remains below ₱250,000. This is per Section 2 of RR No. 10-2008, as amended.
- Note that minimum wage varies by region (e.g., ₱610 per day in the National Capital Region as of recent adjustments), but the ₱250,000 threshold applies nationwide for tax purposes.
Senior Citizens and Persons with Disabilities (PWDs):
- Under Republic Act No. 9994 (Expanded Senior Citizens Act) and Republic Act No. 10754 (Expanded Benefits for PWDs), senior citizens and PWDs earning below ₱250,000 from compensation or business may also benefit from substituted filing or exemptions, provided they meet the general criteria.

The key principle is that if no tax is due and the income is purely from compensation with proper withholding, the BIR considers the employer's filing sufficient.

Conditions for Exemption

To qualify for exemption from personal ITR filing:

Income Threshold: Taxable income must not exceed ₱250,000. Taxable income excludes non-taxable items like de minimis benefits (up to ₱90,000), 13th-month pay and other benefits (up to ₱90,000), and contributions to SSS, GSIS, PhilHealth, Pag-IBIG, etc.
Single Employer: The income must come from only one employer. Changing employers mid-year may trigger filing requirements if the total exceeds the threshold or if withholding is not squared up.
Correct Withholding: The employer must have withheld the correct amount of tax (zero in this case) and issued BIR Form 2316 by January 31 of the following year.
No Other Income Sources: The individual must not have income from business, profession, or other non-compensation sources that would require filing under Section 51.
No Claim for Refund or Credit: If you are claiming a tax refund (e.g., due to over-withholding) or tax credit, you must file an ITR to process such claims.

Failure to meet any condition revokes the exemption, requiring the filing of BIR Form 1700 (for pure compensation earners) or BIR Form 1701 (for mixed income earners) by April 15 of the following year.

Exceptions: When You Still Need to File

Even if your income is below ₱250,000, certain scenarios mandate filing an ITR:

Multiple Employers:
- If you worked for two or more employers during the year, you must file an ITR to consolidate your income and ensure accurate tax computation. The ₱250,000 threshold applies to the total income from all employers.
Mixed Income Earners:
- If you have compensation income plus income from business or profession (e.g., freelance work, side gigs), you must file BIR Form 1701, regardless of the total being below ₱250,000, as business income requires separate reporting.
Self-Employed Individuals or Professionals:
- Sole proprietors, freelancers, or professionals with gross sales/receipts below the VAT threshold (₱3,000,000) but income below ₱250,000 must still file an ITR if they opt for the 8% flat tax or itemized deductions, as per RR No. 8-2018.
Non-Resident Citizens or Aliens:
- Overseas Filipino Workers (OFWs) or non-resident aliens with Philippine-sourced income below ₱250,000 may need to file if their income is not subject to final withholding tax.
Claims for Deductions or Exemptions:
- If you qualify for additional exemptions (e.g., as head of family with dependents) or need to claim deductions beyond the standard, filing is required to avail of these benefits.
Special Cases:
- Estates and trusts, or individuals under audit by the BIR, may have filing obligations irrespective of income level.
- If you receive income subject to capital gains tax or other final taxes, this could trigger ITR filing.

In these cases, failure to file can lead to assessments based on best available information, potentially resulting in higher tax liabilities.

Consequences of Non-Compliance

Not filing an ITR when required, even for low-income earners, can result in penalties under Section 255 of the NIRC:

Surcharge: 25% of the tax due (50% if willful neglect or fraud).
Interest: 12% per annum on the unpaid amount.
Compromise Penalty: Ranging from ₱200 to ₱50,000, depending on the violation.
Criminal Liability: In extreme cases of evasion, imprisonment from 1 to 10 years and fines up to ₱100,000.

The BIR may also issue a deficiency tax assessment or subpoena duces tecum for records. However, for those genuinely exempt under substituted filing, no penalties apply as long as BIR Form 2316 is retained for at least three years.

How to File if Required

If filing is necessary:

Form Selection: Use BIR Form 1700 for pure compensation, 1701 for mixed income, or 1701A for those electing the 8% tax.
Filing Method: Electronically via the BIR's eFPS (Electronic Filing and Payment System) or eBIRForms, or manually at the Revenue District Office (RDO).
Deadline: April 15 of the following year, with possible extensions in cases of force majeure.
Required Attachments: BIR Form 2316 from employers, proof of deductions, and other supporting documents.
Zero Tax Due: Even if no tax is payable, the ITR must be filed to declare income accurately.

Taxpayers can seek assistance from BIR offices, accredited tax agents, or use the BIR's online resources for guidance.

Recent Developments and Considerations

While the ₱250,000 threshold has remained unchanged since the TRAIN Law, ongoing discussions in Congress about further tax reforms (e.g., under the Comprehensive Tax Reform Program) could adjust this in the future. Taxpayers should monitor BIR issuances for updates, especially regarding digital filing enhancements and amnesty programs that may forgive past non-filing penalties.

Additionally, with the rise of the gig economy, many low-income earners misclassify their income, leading to inadvertent non-compliance. Consulting a tax professional or using BIR's Taxpayer Assistance Centers is advisable for borderline cases.

Conclusion

In summary, if your annual income is below ₱250,000 and derived purely from compensation with one employer, you generally do not need to file an ITR due to the substituted filing mechanism. This policy aims to reduce administrative burdens on low-income workers while ensuring tax system integrity. However, exceptions based on multiple income sources, employment changes, or claims for refunds necessitate filing to avoid penalties. Understanding these nuances promotes voluntary compliance and prevents unnecessary disputes with the BIR. Taxpayers are encouraged to keep accurate records and stay informed of their obligations to navigate the Philippine tax landscape effectively.