Below are some of the more common compensation items or
employee benefits and their related tax treatments.
Allowances
Fixed or variable allowances are generally considered taxable
compensation. However, there are types of allowances included
in the list of de minimis benefits under Revenue Regulations (RR)
No. 5-2011, as updated by the Tax Reform for Acceleration and
Inclusion (TRAIN) Law, which are not taxable. These non-taxable
allowances consist of the following:
a. P 250 monthly medical allowance to dependents of employees;
b. P 2,000 monthly rice allowance;
c. P 300 monthly laundry allowance;
d. P 6,000 annual uniform and clothing allowance; and
e. Daily meal allowance for overtime work and night/graveyard
shift not exceeding 25% of the basic minimum wage.
With regard to the above daily meal allowance, the Bureau of
Internal Revenue (BIR) clarified through BIR Ruling No. 544-12
that daily meal allowance not given on occasion of overtime work
cannot be classified as de minimis benefit. Hence, daily meal
allowances provided to employees will be considered taxable,
unless specifically intended for overtime work.
Any other allowances not included in the list of de minimis
benefits, such as communication allowance, travel allowance, fuel
allowance, and housing allowance, will be generally included as
part of taxable compensation of employees. Note, however, that
when the allowances are provided for expenses incurred or
expected to be incurred by an employee in the performance of his
duties and are necessary in pursuit of the trade or business of the
employer, these are not considered compensation subject to
withholding tax, as long as the allowance is subject to accounting
or liquidation by the employee in accordance with the
substantiation requirements of Section 34 of the Tax Code, as
amended.
Medical Assistance
Included in the list of de minimis benefits prescribed by the BIR is
actual medical assistance not exceeding P10,000 per year.
Hence, any medical assistance provided within the prescribed
threshold can be considered non-taxable income.
Pursuant to BIR Ruling No. 019-02, the medical assistance
provided to employees must be for their own medical expenses.
Further, the medical assistance must be fully substantiated with
actual official receipts.
RR No. 5-2011 cited examples of medical assistance such as
expenses for “medical and healthcare needs”, annual executive
check-up, maternity assistance, and routine consultations.
Monetized Leaves
For private employees, unused vacation leave credits not
exceeding 10 days converted to cash are considered non-taxable
de minimis benefits during the year. Meanwhile, for government
officials and employees, monetized value of both vacation and
sick leaves are considered de minimis benefits.
Hence, without specific BIR issuances/tax exemption rules,
conversion to cash of other leave benefits, such as birthday
leaves, bereavement leaves, and emergency leaves, will
unfortunately be considered as taxable income.
13th Month Pay and Other Bonuses
The total amount of mandatory 13th month pay and other
additional benefits granted by employers, such as 14th month
pay, performance bonus, health bonus, perfect attendance bonus,
and all other types of bonuses, may be considered non-taxable
compensation but only up to an amount of ninety thousand pesos
(P90,000). Any amount in excess of the P90,000 ceiling shall not
be allowed as deduction to gross income and shall form part of
the taxable income of employees.
Other Benefits Subject to P90,000 Threshold
In addition to the 13th month pay and other bonuses, “other
benefits” considered in computing for the amount subject to the
P90,000 threshold shall include fringe benefits provided to rank-
and-file employees, benefits in excess of the de minimis
thresholds, loyalty awards, and gifts given in cash or in kind.
Hence, these benefits are generally considered taxable, unless
the aggregate amount of 13th month pay and other benefits of the
employee does not exceed the P90,000 ceiling.
Discussed above are just some of the usual benefits received by
employees as hard-earned fruits of their labor. Such fruits of labor
should be carefully evaluated on whether they should be taxed or
not, as tax treatments certainly have an impact on the take-home
pay of employees.
And as another Labor Day celebration comes to a close, we are
reminded of how vital the role of our labor force is in the
development of our economy. They should be treated fairly and
their compensation should be taxed or not taxed accordingly.
As published in BusinessWorld, dated 02 May 2023
