De Minimis Benefits

As an employer, you might give benefits to your employees apart from their regular salaries and wages. These are called fringe benefits. However, there are fringe benefits that are relatively small in value and are not taxable. These are called “de minimis benefits.”  According to BIR Revenue Regulations No. 3-1998(C), the term “de minimis benefits” refers to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. (dacpa.ph)

            These benefits are similar to fringe benefits in the sense that they are additional benefits in addition to basic compensation.  However, unlike fringe benefits, they are non-taxable.  Employers are also not required to give these kind of benefits but they are encouraged since these are tax-free.

Types of de minimis benefits

  1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year; (RR No. 5-2011).
  2. Monetized value of vacation and sick leave credits paid to government officials and employees; (RR No. 5-2011)
  3. Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; (RR No. 5-2011)
  4. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500; (RR No. 5-2011)
  5. Uniform and Clothing allowance not exceeding P5,000 per annum; (RR No. 8-2012)
  6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000.00 per annum; (RR No. 5-2011)
  7. Laundry allowance not exceeding P300 per month; (RR No. 5-2011)
  8. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; (RR No. 5-2011)
  9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; (RR No. 5-2011)
  10. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basic minimum wage on a per region basis; (RR No. 5-2011)
  11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total monetary value received from both CBA and productivity incentive schemes combined do not exceed P10,000.00 per employee per taxable year. (RR No 1-2015)

Any amount in excess of their respective ceiling shall be included in 13th month pay and other benefits in determination of the P82,000.00 non-taxable ceiling. Other benefits given by employers which are not included in the above enumeration shall not be considered as de minimis benefits, and hence, shall be subject to income tax as well as withholding tax on compensation income for rank

And file employees or fringe benefits tax for managerial and supervisory employees.

 

The total amount of de minimis benefits that each worker-taxpayer can claim can reach P104, 225, up by P10,000 from the previous level of P94, 225, supposing all of the above items are availed. The list may seem long, however, these benefits are normally not being provided by most companies to their employees as these are not mandatory benefits. And even if all of the above items are granted to employees, the entitlements to some of these items are still subject to certain conditions, which should be meeting before these can be received by the employees.’

Under Section 32 (B)(7)(e) of the Tax Code, other benefits such as productivity incentives and Christmas bonuses received by officials and employees of public and private entities shall be exempt from income tax/withholding tax subject to a maximum cap of P82,000.00.

Consistent with RR No. 8-2000, the BIR has ruled that the de minimis ceilings are independent and separate from the P30,000 “other benefits” ceiling under Section 32 (B)(7)(e) of the Tax Code. Any amount in excess of the de minimis ceilings may be exempt if it is covered by the unused portion of the P30,000 non-taxable “other benefits”. Conversely, any amount in excess of the P82,000 threshold shall be considered taxable benefits.

Remember that you should include these benefits on your payroll but should be tax exempt.  As an employer, these benefits are also deductible from your income.  Here is an illustration to further explain how to view “de minimis benefits” in payroll processing.

Salaries & Wages (Basic Compensation) Income Tax Rate
De Minimis Benefits Exempt
Excess of De Minimis (Add with 13thMonthPay and Bonuses = P82,000.00) Exempt
Benefits & Bonuses in Excess of P82,000.00
Rank-And-File Employee
Managerial and Supervisory
Income Tax Rate
Fringe Benefit Tax Rate
All Other Benefits Income Tax Rate

 

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