Clarificatory Statement on the Personal and Additional Exemptions

March 6, 1981 REVENUE MEMORANDUM CIRCULAR NO. 11-81 SUBJECT : Clarificatory Statement on the Personal and Additional Exemptions In view of the conflicting views regarding the interpretation of Section 23 as amended by Presidential Decree No. 1773, the following guidelines shall govern the manner of claiming personal and additional exemption by individual taxpayers. A. Increase in the amount of personal and additional exemptions . The amount of personal and additional exemptions which an individual taxpayer may claim beginning with taxable year 1980 was increased as follows: acd 1. Married P6,000 2. Unmarried but head of family 4,500 3. Unmarried but not qualifying as head of the family 3,000 4. For each of the first 4 qualified dependent child 2,000 5. For each qualified dependent child in excess of the maximum number of four dependents 1,000 B. Tax Status of individuals for personal and additional exemptions, defined: 1. For purposes of the allowance for personal and additional exemptions, a "married man" or a "married woman" is a man or a woman who is legally married under the pertinent provisions of Civil Code of the Philippines. 2. A "head of family" means an unmarried man or woman with one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural, or adopted children living with and dependent upon him or her for their chief support where such brothers, sisters, or children are not more than twenty-one years of age, unmarried, and not gainfully employed, or where such children are incapable of self-support because of mental or physical defect. 3. A widow or widower will be considered, for purposes of the personal and additional exemptions, as unmarried man or woman who may have the status of a "head of the family" depending upon whether he or she has qualified dependents. 4. Legally separated husband and wife may be allowed to file a separate income tax return pursuant to Section 45(d) which provides as follows: "(d) Husband and Wife . In the case of married persons, whether citizens, resident or non-resident aliens, only one consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses; but where it is impracticable for the spouses to file one consolidated return, each spouse may file his separate return of income, but the returns so filed shall be consolidated for the purpose of the tax prescribed under this Title." It appears that married persons are required to file only one consolidated return. Although legal separation, (being one of the causes of impracticability for filing only one consolidated return) may not justify the non-consolidation of separate returns that may be allowed to be filed, the administrative difficulty of consolidating such separate returns may warrant the expediency of treating each of the legally separated spouses as separate taxable unit. The practical effect of this treatment is that each of the spouses will be considered as single (unmarried) individuals but they may qualify as a head of the family entitled to claim additional exemptions for children which may be actually dependent upon each of them for chief support. cdt C. Number of qualified dependent children. Presidential Decree No. 1773 did not disturb the number of dependents to which an individual would have been entitled to claim for 1980 had there been no amendment. In other words, the number of qualified dependents which an individual taxpayer is entitled to claim before 1980 may still be claimed for 1980 and succeeding taxable years. What was changed by P.D. 1773 is the amount of additional exemption for each of the first four dependents. The application of this amendment may be illustrated by the following situations: Case 1 Assume that an individual has the following 9 dependent children: Ages Dependent Date of Birth 1972 1979 1980 A 1-1-54 19 26 27 B 1-1-56 17 24 25 C 1-1-58 15 22 23 D 1-1-60 13 20 21 E 1-1-62 11 18 19 F 1-1-64 9 16 17 G 1-1-66 7 14 15 H 1-1-68 5 12 13 I 1-1-70 3 10 11 For the taxable year 1972 , he was entitled to claim all the nine children as total dependents, although P.D. 69 limited the number of dependent children to a maximum of four, considering that all of them were born before 1973 and were not over 21 years of age at the end of 1972. (Revenue Memorandum Circular No. 2-73) For the taxable year 1980 , dependents A, B, and C were already 21 years of age and were not therefore qualified as dependent children. Only six (6) dependents, D, E, F, G, H, and I were qualified for purposes of the additional exemptions of P2,000 each, while H and I who are in excess of four but otherwise are qualified dependents before 1980, are entitled to an additional exemption of P1,000 each. Case 2 Assume that an individual has the following dependents: Ages Dependent Date of Birth 1972 1979 1980 A 1-1-58 14 21 22 B 1-1-60 12 19 20 C 1-1-62 10 17 18 D 1-1-64 8 15 16 E 1-1-67 5 12 13 F 1-1-70 2 9 10 G 1-1-72 1 7 8 H 1-1-74 - 5 6 I 1-1-76 - 3 4 J 1-1-78 - 1 2 For the taxable year 1972 , he is entitled to claim additional exemptions for 7 dependents: A, B, C, D, E, F, and G. For the taxable year 1979 , he is entitled to an additional exemption for 7 dependents. The 3 dependents who were born after 1972 do not qualify as dependents. For the taxable year 1980 , the eldest dependent, A who was born on January 1, 1958 was over 21 years of age as of the end of 1980. Accordingly, he is no longer qualified as a dependent. However, the next succeeding 4 eldest children, B, C, D and E are entitled to an additional exemption of P2,000 each. Dependents F and G who are in excess over the maximum of 4 dependents but who were born respectively on January 1, 1970 and January 1, 1972 are still entitled to an additional exemption of P1,000 each. Dependents H, I and J, although considered as dependents in excess of the maximum allowable number of 4, do not qualify for further additional exemption because they are born after 1972. Case 3 Assume that an individual has the following dependents: Ages Dependent Date of Birth 1972 1979 1980 A 1-1-55 17 24 25 B 1-1-56 16 23 24 C 1-1-64 8 15 16 D 1-1-70 2 9 10 E 1-1-72 1 7 8 F 1-1-73 - 6 7 G 1-1-75 - 4 5 H 1-1-77 - 2 3 For the taxable year 1972 , he is entitled to claim additional exemptions for 5 dependents: A, B, C, D and E. Dependent E, although in excess of the maximum of 4, is also qualified for further additional exemption because he was born in 1972. For the taxable year 1979 , dependents A & B are no longer qualified for additional exemption because they are over 21 years of age as of the end of the taxable year. However, dependents C, D and E who were born in 1972 and prior years, respectively, remained qualified as dependent children for purposes of the additional exemption. Dependent F, even though born after 1972, qualifies as additional dependent because the total number of dependents which may be claimed by an individual taxpayer shall not exceed four (4). Dependents G and H who are in excess of the maximum allowable number of 4 dependents and who were born after 1972 no longer qualify. For the taxable year 1980 , dependents C, D, E and F qualify as dependents not in excess of the maximum number of 4, for purposes of the additional exemptions. Dependents G and H who were not otherwise qualified as dependent children for purpose of the additional exemption will not likewise qualify as such for 1980 because they are already in excess if 4 maximum allowable number of dependents. Case 4 Assume the same facts as in Case 3 except that dependent C got married during 1980. C, therefore, no longer qualifies as a dependent for purposes of the additional exemption. Therefore, dependent G will qualify, together with dependents D, E and F for purposes of determining the total maximum number of four (4) dependents to which the individual may be entitled to claim for purposes of the additional exemption and, for each taxable year, can claim P2,000 as additional exemption. Dependent H remains not qualified because he is in excess of 4 and was not otherwise qualified as a dependent before 1980. aisa dc All internal revenue officers and others concerned are hereby enjoined to give this Revenue Memorandum Circular as wide publicity as possible. RUBEN B. ANCHETA Acting Commissioner