Train Law for Minimum Wage Earners

A Minimum Wage Earner (MWE) is a worker in the private sector who is paid the statutory minimum wage, (SMW) or to an employee in the government with compensation income that does not exceed the statutory minimum wage in the non- agricultural sector where the person is assigned. A list of updated minimum wage rates could be found in the DOLE website.

Exemptions from Gross Income

The following receipts of income by a minimum wage earner shall be exempt from tax:

  1. Basic Wage/Salary
  2. Overtime Pay
  3. Holiday Pay
  4. Night Shift Differential
  5. Hazard Pay

Income from all other sources shall be taxable either Final Tax, Capital Gains Tax or Regular Tax for individuals as long as such income is not expressly exempted by law.

Minimum Wage Earner

jarmoluk / Pixabay

Old Law vs. TRAIN Law

There have been no changes to the rules regarding Minimum Wage Earners. The exemptions are still the same and the computation of tax is still the same (if such minimum wage earner receives income that is not exempt from tax). The new graduated rates for individuals shall apply for income that may be subject to regular tax.

Illustrative Tax Problem: Minimum Wage Earners

MWE Illustration 1
Mr. Agcipet, a minimum wage earner makes P300 per day. He worked for 24 days a month and 12 months in 2018. Aside from his basic salary, Mr. Agcipet also received P50,000 as tips from customers and P20,000 overtime pay for the year. In October, 2018, Mr. Agcipet bought a lotto ticket and won a prize of P100,000 before any tax deductions. Mr. Agcipet also received P210,000 commissions from referring friends to Real Estate Brokers. How much income is exempt from income tax?

Click to show the Answer
  • The basic salary P300 x 24 days x 12 months = P86,400 is exempt from tax. And so is the P20,000 overtime pay. The total income exempt from tax is 106,400.
  • Tips from customers and commissions received from real estate brokers are taxable regular income tax.
  • The P100,000 lotto prize is subject to 20% Final Tax