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Penalty Tax for Being Single

Undoubtedly one of the most difficult questions of income tax law is how to treat a family. The present National Internal Revenue Code, as its various predecessors, is a picture of ambivalence, if not inconsistency. Worse, it discriminates, in the process, against the unmarried.

Section 24(A) of the Tax Code seemingly answers with facility the much-awaited question, "who is the taxpayer?" by imposing the income tax on "individual citizen and individual resident alien". The façade of ease, however, easily breaks down when one considers Section 35 dealing with personal exemptions. Section 35 (A) provides for different basic personal exemptions for (a) single individuals and married but judicially separated individuals in the amount of P20,000; (b) head of family for P25,000; and (c) each married individual for P32,000. The differential between the basic personal exemption for singles, on the one hand, and on the other, the heads of families and married individuals, gives the clear signal that the law recognizes that there is something in being in a family that justifies being treated differently from singles.

The venerable explanation is that the tiers in personal exemptions reflect the law’s understanding of the financial burdens of being in a family and, since a core idea in the income tax law is to lay the burden of taxation on those who have ability to pay, the law raises a higher threshold of taxation for those whose duties to their family compulsorily reduce their ability to share in the tax burden. In short, the tax unit, whose ability to pay fixes its place in the hierarchy of taxpayers, is not the individual only, but the individual seen in the context of his family financial obligations.

Section 35(B) for its part grants additional exemptions for dependents in the amount of P8,000 per dependent, not exceeding four. A dependent is a child, not more than 21 years of age (a clear anachronism since the age of majority is now 18), unmarried and not gainfully employed, or, regardless of age, incapable of self-support because of mental or physical defect. This further pushes the view that being in a family where one of the members is dependent on the taxpayer reduces one’s capacity to pay. But the reduction is apparently not considered too serious since additional exemptions may be claimed only by one of the spouses. If they are legally separated, additional exemptions can be claimed only by the spouse who has custody of the child.

That the family is the taxable unit is reinforced by Section 51(D) which requires married individuals to who do not derive income purely from compensation to file a return for the taxable year to include the income of both spouses, except when the consolidation has to be done by the Bureau of Internal Revenue itself because the spouses make it impracticable to file one return.

The question of "who is the taxpayer?" is therefore answered in the non-committal, "the individual, but his family financial obligation is considered relevant." An obvious result of this ambivalence is what could be termed as a penalty tax for not marrying. Two individuals who live together and share their incomes of not more than P32,000 each are in exactly the same economic position and therefore have the same ability to pay as a childless couple, likewise earning P32,000 each. Yet the married couple does not pay a single centavo of tax while the unmarried couple will have to pay P600 each.

Single parents, despite the non-discrimination thrust of R.A. No. 8972, are likewise treated unequally vis-a-vis their married counterparts. An unmarried woman with one or more legitimate, recognized natural or legally adopted child, not older than 21 years of age, living with her and dependent upon her for chief support qualifies as a "head of family" and is therefore entitled to a basic personal exemption of P25,000. Since her dependent is a child, she is also entitled to claim an additional exemption of P8,000. Her personal exemptions therefore total P33,000.

A married woman, on the other hand, who is married to a non-earning husband, by whom she has one child, can claim only a total of P40,000 consisting of P32,000 basic personal exemption and P 8,000 additional exemption. Thus, if the unmarried woman with one child and the woman also with one child (but married to a non-earner) both earn P40,000, the married woman pays no tax but the single parent pays P400.

The penalty for not marrying (or not staying married) goes up as one goes up the progressive income tax rate schedule. But I have deliberately keep my illustrations at the lower end of the scale, lest affected persons storm once more the gates of BIR in protest. It is not Rene Banez’ fault. Congress is to blame. Taxation should be pursued primarily to raise revenue in a fair manner, without expressing any bias for or against either married bliss or single blessedness.