Law Summary
Definition and Treatment of "De Minimis" Benefits
- Facilities of small value provided by employers, such as entertainment and medical services, are classified as "de minimis" and exempt from income tax and withholding.
- List of exempt "de minimis" benefits includes:
- Monetized unused vacation leave up to 10 days per year.
- Medical cash allowance to dependents up to P750 per semester or P125 per month.
- Rice subsidy of up to P1,000 or one 50-kg sack monthly.
- Uniforms and clothing allowance up to P3,000 annually.
- Actual yearly medical benefits up to P10,000.
- Laundry allowance up to P300 monthly.
- Employee achievement awards (non-cash) with value up to P10,000 annually.
- Gifts during Christmas and major anniversaries up to P5,000 annually.
- Special occasion gifts such as flowers and fruits.
- Daily meal allowance for overtime work up to 25% of the basic minimum wage.
- Amounts within prescribed ceilings are excluded from the P30,000 cap on "other benefits" under the Tax Code.
- Excess amounts above ceilings become taxable if exceeding the P30,000 threshold.
Withholding Tax on Compensation Paid in Kind
- Employers must ensure availability of withheld tax when compensation is paid in property instead of money.
Treatment of Allowances and Reimbursements
- Fixed or variable transportation, representation, and other allowances are compensation subject to withholding.
- Exceptions include:
- Representation and Transportation Allowance (RATA) under the General Appropriations Act.
- Personnel Economic Relief Allowance (PERA) as reimbursement for official duties expenses.
- Additional Compensation Allowance (ACA) under E.O. 219, tax-exempt pending integration into basic pay.
- Reimbursements or advances for travel and representation expenses are exempt from withholding if:
- They relate to ordinary and necessary expenses.
- The employee properly accounts for expenses per Sec. 34 of the Tax Code.
- Excess expenses over advances are taxable if not returned.
- Precomputed daily advances for travel need not meet substantiation requirements.
Exemptions from Withholding Tax on Compensation
- Thirteenth month pay and similar benefits are exempt up to P30,000 annually.
- Bonuses, productivity incentives, loyalty awards, and gifts (cash or kind) share the same exemption cap.
- ACA is included among exempted benefits for government employees.
- Secretary of Finance may increase exemption ceiling based on inflation.
- "De minimis" benefits specifically exempted from withholding tax.
Repealing Clause
- Modifies prior Revenue Regulations to incorporate these amendments.
- Revokes or adjusts conflicting provisions accordingly.
Effectivity
- Regulations effective 15 days after publication in a newspaper of general circulation.
This comprehensive amendment provides clarity on taxation rules regarding employee benefits and allowances, ensuring compliance with the 1997 Tax Code and proper tax treatment of compensation components in both public and private sectors.