Personal Blog of Atty. Charizma Cortez-Catague C.P.A., R.E.A., R.E.B.

De Minimis Benefits – Gross Income Exclusion and Tax-Exemption

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In one of our previous posts, we mentioned that the tax-exempt ‘Other Benefits’ under Sec. 32 of Republic Act. No. 8424, the National Internal Revenue Code of 1997, as amended, may cover the amount of de minimis benefits in excess of the prescribed ceiling.

De Minimis Benefits

‘DE MINIMIS’ benefits pertain to facilities or privileges:

  • furnished or offered by an employer to his employees
  • of relatively small value; and
  • offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees.

Items Considered as ‘De Minimis’ Benefits

The pertinent Revenue Regulations specify the items considered as ‘de minimis’ benefits, such as:

  1. Monetized unused vacation leave credits of private employees;
  2. Monetized value of vacation and sick leave credits paid to government officials and employees;
  3. Medical cash allowance to dependents of employees
  4. Rice subsidy
  5. Uniform and clothing allowance;
  6. Actual medical assistance;
  7. Laundry allowance;
  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, received by the employee under established written plan which does not discriminate in favor of highly paid employees;
  9. Gifts given during Christmas and major anniversary celebrations;
  10. Daily meal allowance for overtime work and night/graveyard shift;
  11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes

It must be stressed that ‘de minimis benefits’, to be exempt from tax must be ‘of relatively small value’.

Small Value

To eliminate any ambiguity, the maximum amounts of non-taxable de minimis benefits are fixed as follows:

  1. Monetized unused vacation leave credits of private employees – not exceeding ten (10) days during the year;
  2. Monetized value of vacation and sick leave credits paid to government officials and employees; (NO LIMIT)
  3. Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month;
  4. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500;
  5. Uniform and Clothing allowance not exceeding P5,000 per annum;
  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;
  7. Laundry allowance not exceeding P300 per month;
  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;
  9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;
  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;
  11. 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 ten thousand pesos per employee per taxable year.

Exclusive List of ‘De Minimis’ Benefits

Prior to year 2011, the list of ‘de minimis benefits’ was treated as non-exclusive. As such, other benefits which were not specified in the list could qualify as ‘de minimis’ benefits.

Beginning 2011, however, by express provisions of Revenue Regulations No. 5-2011, the list was considered as exclusive. As such, at present, any benefit which does not appear in the list, regardless of the amount, does not qualify as ‘de minimis’ benefit.

‘De Minimis’ Benefits and 13th Month Pay and Other Benefits

These ‘de minimis benefits’ are distinct and separate from ☞ ‘13th month pay and other benefits’. The items listed as ‘de minimis’ benefits, to the extent of the prescribed ceilings, are not considered in the computation of the ₱90,000.00 (as adjusted under Republic Act No. 10963, the Tax Reform for Acceleration and Inclusion Law) ceiling for the said ‘13th month pay and other benefits’.

In the event that the amount of any ‘de minimis’ benefit exceeds the prescribed ceiling, the excess is treated as part of ‘other benefits’ for as long as the total amount of the 13th month pay and other benefits does not exceed ₱90,000.00.

Once the total amount of 13th month pay and other benefits (including the excess amount of de minimis benefits) reaches ₱90,000.00, the excess, if any, is considered taxable and forms part of gross income.

ILLUSTRATION:

13th month pay and other benefits = ₱85,000.00
Annual uniform and clothing allowance = ₱7,000.00
Monthly Rice subsidy = ₱2,000.00
Monetized vacation leave credits (12 days @ 400/day) = ₱4,800.00
Annual laundry allowance = ₱4,500.00

Based on the figures given above, the ‘de minimis’ benefits in excess of the prescribed ceilings amount to ₱9,700.00, computed as follows:

Annual uniform and clothing allowance : ₱7,000.00 – 5,000.00 = ₱2,000.00
Rice subsidy: ₱2,000.00 – 1,500.00 = ₱500.00 x 12 = ₱6,000.00
Monetized vacation leave credits = ₱400 x 2 = ₱800.00
Annual laundry allowance = ₱4,500 – 3,600 = ₱900.00
Total Excess Amount = ₱2,000.00 + ₱6,000.00 + ₱800.00 + ₱900.00 = ₱9,700.00

Since the total amount of ’13th month pay and other benefits’ is still less than ₱90,000, the excess ‘de minimis’ benefits may be absorbed as non-taxable ‘other benefits’.

Maximum Amount of 13th Month Pay and other benefits = ₱90,000
Total Actual Amount = ₱85,000
Unutilized Portion: ₱90,000.00 – 85,000.00 = ₱5,000.00

The unutilized amount of ₱5,000.00 will absorb the ‘de minimis’ benefits in excess of the prescribed ceilings.

The remaining ₱4,700 (₱9,700.00 – 5,000.00) is considered taxable and shall form part of the taxpayer’s gross income.

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