Everything You Need To Know About Different Type of Income

man thinking as to the different type of income

Are you looking for information about different type of income? It cannot be obvious to try to understand all the options available. Fortunately, this guide will provide you with an overview of the most common types of income and how they work. Let’s get started!

Key takeaways

  • There are different types of income: investment, rental property income, interest and dividends, capital gains, and social security benefits.
  • Each type is subject to different tax rates depending on the type and amount of income.
  • Understanding how different types of income and taxes work is essential to ensure you receive the most significant benefit from your financial resources.
  • Lastly, other investments have other tax implications and associated rates, so it’s necessary to understand how different investment types are treated for tax purposes before investing in them.

What Is Income?

Simply put, income is money that you earn. It can come from different sources, such as your job or investments. It’s essential to understand different types of income and how they work so that you can maximize your earning potential.

Income and revenue are often used interchangeably, but they have different meanings. Income is the money you earn that can be taxed. At the same time, revenue is the total amount of money made or generated from a business or activity after expenses have been deducted.

Related: How To Get A Certificate Authorizing Registration In The Philippines

Different Types of Income

The main income categories include earned income, passive income, portfolio income, rental property income, interest and dividends, capital gains, Social Security benefits, and other forms of payment. Let’s take a closer look at each type:

Earned Income 

It is the income you receive from working at a job. It can also include any bonuses or commissions you’re paid. Earned income is taxed differently than passive or portfolio income, so it’s essential to understand how different types of salary are treated for tax purposes.

Passive Income

Passive income is money you earn without actively working for it, such as rental property income, dividends and interest payments from investments, royalties from the sale of artwork or music, and more. While this type of income requires an upfront investment in time or money before it starts generating returns, once established, passive income can be a great way to supplement your other forms of earnings with minimal effort.

Passive Income Ideas
Passive Income Ideas!
Rental Property Income

Rental property income is earned from renting a house or apartment. This type of income requires an upfront investment in the form of a down payment and regular maintenance costs, but if done correctly, it can provide you with a steady stream of passive income for years to come.

Interest and Dividends

Interest and dividends are payments made on different investments, such as stocks and bonds. These payments can vary greatly depending on the investment, so it’s essential to do your research before getting started.

Capital Gains

Capital gains are profits from selling an asset at a higher price than what you paid. This type of income is subject to different tax rates than most other forms of income, so it’s essential to understand how different capital gains work before making any decisions about your money.

Social Security Benefits

Social Security benefits are payments made to retired people based on their earnings history during their working years. The amount received varies depending on several factors, including how much the person earned during their career and the age at which they started receiving benefits.

Related: How to Check SSS Contribution Online and Offline

Other Forms of Payment

Many types of payments can be classified as income, such as alimony and child support, gambling winnings, jury duty pay, and more. It’s important to remember that these different types of payments have other tax implications and rates associated with them.

Related: New Percentage Tax – FAQs under CREATE Law

Portfolio Income

This income is earned by investing in different securities, such as stocks and bonds. It can be a great way to build wealth over the long term with minimal effort. However, it’s essential to understand the different types of investments and how they work before getting started so you can make informed decisions about your money.

Taxes on Different Types of Income

The taxes you pay on different types of income vary depending on the type and amount of income. Generally, earned income is subject to different tax rates than passive or portfolio income. In addition, other investments may have different tax implications, so it’s essential to understand how different investment types are treated for tax purposes before investing in them.

Here’s a breakdown of the most common types of income in the Philippines and the taxes associated with them. 

Wages and salaries: These are considered ordinary income and are subject to annual income tax based on your declared taxable earnings. 

Related: What Is The Minimum Wage In The Philippines

Interest earned on deposits: Interest earned from government-authorized depository banks or institutions is subject to final withholding taxes at 20%. 

Dividend income derived from stocks: Generally speaking, dividends received from Philippine stocks are subject to a 15% final tax regardless of where you live. 

Rental Income: If you own rental properties, rental payments you receive are typically subject to a 10% tax withheld by the payer if you’re an individual taxpayer. 

Capital Gains Tax: Capital gains made from real estate sales or shares within 12 months are taxed as ordinary income at graduated rates that peak at 32%.

Conclusion

Income is the money or other payments received as a result of different types of activities or investments. Various forms of income are subject to different tax rates and regulations, so it’s essential to understand how different types of income are taxed before making any decisions about your money. By understanding how different types of income and taxes work, you can ensure that you receive the most significant benefit from your financial resources.

Recommended: Filing Your Income Tax Returns Philippines- A Step by Step Guide

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