How to Compute Annual Gross Income (AGI) in the Philippines [Latest: 2025]
To compute your annual gross income in the Philippines for 2025, it is crucial to understand what constitutes this figure, the exclusions, and its significance in financial planning and tax preparation.
This guide will provide a comprehensive overview of annual gross income, its importance, a step-by-step method for calculating it, and a free and easy-to-use Philippine Annual Gross Income Calculator.
What is Annual Gross Income?
Annual gross income (AGI) represents the total earnings an individual receives within a year before any deductions, such as taxes or other expenses.
In the Philippines, AGI includes various forms of income:
- Money received from services, such as fees, salaries, wages, and commissions
- Gross income from running a business or employment
- Interest earned on savings or investments
- Gains from property dealings
- Rental income from properties
- Annuities or insurance contracts providing regular payments
- Royalties for the use of copyrighted works or franchises
- Distributive shares from the net income of general professional partnerships
- Dividends received by shareholders
- Pensions or retirement funds for employees
- Prizes and winnings
Understanding these components is essential for accurately calculating your annual gross income.
What Payments Aren’t Included?
Certain payments are excluded from the calculation of annual gross income. These typically include:
- Payments made to life insurance plans or returns of premiums
- Gifts, bequests, and devises (properties given through a will)
- Retirement benefits, pensions, gratuities, or similar payments
- Compensation received due to injury or sickness
- Income exempt under treaties
- Miscellaneous items such as government benefits or 13th-month pay below ₱90,000
These exclusions are vital for determining your taxable income accurately.
Why is Annual Gross Income Important?
Annual gross income serves several essential purposes:
- Tax Preparation: AGI is the starting point for preparing tax returns. It helps determine specific deductions and exemptions that convert AGI into adjusted gross income (AGI) and eventually into taxable income.
- Loan Eligibility: Lenders assess an individual’s borrowing capacity based on their AGI. They calculate the debt-to-income ratio (DTI) using the formula: Monthly debt payments ÷ Monthly gross income = Debt-to-income ratio
Knowing an employee’s AGI is crucial for lenders to determine how much money they can borrow.
How Do You Calculate Annual Gross Income?
To compute your annual gross income accurately:
- Determine Monthly Gross Salary: Start with the employee’s monthly gross pay and multiply it by 12. For example, if an employee earns a gross salary of ₱25,000 per month, ₱25,000 x 12 = ₱300,000
- Add Other Income Sources: If the employee has received different amounts of compensation throughout the year or has additional sources of income (like rental income or dividends), sum them up. For instance: ₱300,000 (annual gross salary) + ₱100,000 (from property investments) + ₱10,000 (dividends) + ₱5,000 (interest) = ₱415,000
This formula gives you the total annual gross income.
Philippine Annual Gross Income Calculator
Primary Income
Investment & Property Income
Other Income Sources
Annual Gross Income:
How Do You Compute Your Annual Income Tax?
To compute your annual income tax effectively:
- Determine Your Taxable Income: After calculating your AGI and subtracting any non-taxable amounts or deductions.
- Apply the Appropriate Tax Rate: Use the Bureau of Internal Revenue (BIR) tax table to find the applicable rate based on your taxable income bracket.
Using our free online BIR Income Tax Calculator can simplify this process by automating calculations based on current tax laws and the latest BIR table.
Final Words
Accurately computing your annual gross income is essential for effective financial management in the Philippines.
By understanding what constitutes AGI and how to calculate it correctly, including knowing what payments are excluded, you can ensure compliance with tax regulations while optimizing your financial planning.
Utilizing tools like our tax calculator can further streamline this process and help you stay informed about your financial obligations.