If you're a business owner or HR manager or an employee, it's important that you understand De Minimis benefits — non-taxable benefits or privileges provided to employees. By familiarizing yourself with these regulations, you can ensure that you stay compliant during the tax season. Moreover, not taxing your employees incorrectly as these benefits are considered as not forming part of the employee's taxable compensation income, as long as the total annual value does not exceed a specified amount.
What are De Minimis Benefits?
In reference to Section 2.78.1 of RR No. 2-98, as amended, De minimis benefits are facilities and privileges which are given to employees by their employers that is not subject to income tax as well as withholding tax on compensation income of both managerial, and rank and file employees. They are intended to support and promote the health, goodwill, and to improve the morale and productivity of their employees. The term "de minimis" comes from the Latin phrase "de minimis non curat lex", which means "the law does not concern itself with trifles". In other words, de minimis benefits are relatively of small value.
The legal basis for de minimis benefits in the Philippines is found in Section 33(C) of the National Internal Revenue Code (NIRC), as amended by Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law. This section provides a list of de minimis benefits that are exempt from income tax, withholding tax, and fringe benefit tax, subject to certain conditions and limitations. To wit:
(1) Fringe benefits which are authorized and exempted from tax under special laws;
(2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans;
(3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and
(4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
List of De Minimis Benefits in the Philippines
Revenue Regulation No. 11-2018 itemized the updated list of De Minimis Benefits not subject to Income tax and Withholding Tax on compensation for all employees regardless of position or employment status:
Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year;
Monetized value of vacation and sick leave credits paid to government officials and employees;
Medical cash allowance to dependents of employees not exceeding P1,500 per employee per semester or P250 per month;
Rice subsidy of P2,000 or one (1) sack of 50 kg. rice per month amounting to not more than P2,000;
Uniform and clothing allowance not exceeding P6,000 per annum;
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 per annum;
Laundry allowance not exceeding P300 per month;
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;
Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;
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; and
Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total annual monetary value received from both CBA and productivity incentive schemes combined do not exceed P10,000 per employee per taxable year.
According to Revenue Regulations No. 15-2011, starting in 2011, any benefits given by employers that are not listed as "de minimis benefits" will be subject to income tax and withholding tax on compensation income. It is important to note that there are limitations on the amount of these benefits, as exceeding the limit will result in taxable income. For rank-and-file employees, the excess amount over the limit will be subject to withholding tax on compensation, while for supervisory or managerial employees, it will be subject to a fringe benefits tax (FBT) of 35%. However, there is an exception for excess de minimis benefits if the total amount, including the 13th month pay and other benefits, is within the P90,000 limitation.
How Does the De Minimis Rule Impact Businesses in the Philippines?
Businesses in the Philippines should take note of the De Minimis rule when crafting employee benefits and incentive programs. The rule can be taken advantage of to create cost-effective reward systems while avoiding taxation in certain cases. Employers should also keep in mind that different policies may apply to allowances, reimbursements and monetary rewards, as these could potentially be subject to taxation depending on the context.
What Are the Tax Implications for Employers and Employees?
De minimis benefits are beneficial for both employers and employees. Employers can save on taxes and motivate their employees to perform better. Employees can enjoy additional perks and incentives without worrying about paying taxes on them. However, de minimis benefits must be properly documented and reported to avoid any penalties or disputes with the Bureau of Internal Revenue (BIR). Employers should also be aware of the changes in the tax laws and regulations that may affect the treatment of de minimis benefits.
Difference of Fringe Benefit with De Minimis Benefits in the Philippines
Fringe benefit and de minimis benefit are two types of benefits that employers can give to their employees in the Philippines. Fringe benefit is taxable to the employer at 35% FBT, while de minimis benefit is tax-exempt to the employee as long as it does not exceed the limits prescribed by the BIR. Both types of benefits can help employees improve their quality of life and work performance.
Providing de minimis benefits is a way for employers to reward and motivate their employees without incurring too much tax burden. Employees also benefit from these benefits as they receive additional income that is not subject to tax thereby increasing the net take home pay. However, both parties need to be aware of the types, amounts, and limits of de minimis benefits to avoid any tax issues or penalties. For additional guidance, you may refer to our article on What is Annual Gross income and how to calculate it?
If you have any further questions or concerns about de minimis benefits, you may consult a tax professional or contact the BIR.
AanyaHR is an HRIS and TRAIN Compliant Payroll System. Managing employee taxable and non-taxable income will not be a problem. Annualization and BIR Form 2316 are even available and aligned with the Tax Code which was amended by the TRAIN Law.
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