BIR Ruling [DA-011-04]

January 8, 2004 BIR RULING [DA-011-04] 24, 32, 33 & 79 23-2002 Office of the Ombudsman Aghan Road, Government Center North Triangle, Diliman Quezon City Attention: Atty. Paul Elmer M. Clemente Director, Office of Legal Affairs Gentlemen : This refers to your letter dated December 18, 2002 requesting for a ruling on whether or not the Extra Cash Gift granted to government personnel, including those from the Office of the Ombudsman in the amount of Five Thousand Pesos (P5,000.00) authorized under Budget Circular No. 2002-4 dated November 28, 2002 of the Department of Budget and Management is subject to withholding tax on compensation. In reply, please be informed that pursuant to paragraph 4.0 (4.9) of the National Compensation Circular No. 54 dated December 14, 1988, the "year-end benefits" consisting of "year-end bonus and cash gift" granted to National Government officials and employees shall not be subject to GSIS premium, Medicare, withholding tax and other similar deductions. However, said year-end benefits shall be reported as taxable income in filing tax returns (BIR Ruling No. 155-89 dated July 25, 1989) . In view of the foregoing, this Office has consistently ruled that the year-end benefits are considered compensation which shall be reported and declared by the employee in the income tax return to be filed for the year in which received (BIR Ruling No. 160-92 dated May 25, 1992) . Thus, this Office ruled in BIR Rulings Nos. 332-93 dated July 21, 1993 and 294-93 dated July 8, 1993 that year-end benefits, being compensation are subject to income tax on wages prescribed by then Section 21(a) of the Tax Code, as amended (now Section 24(A) of the Tax Code of 1997) and consequently to the withholding tax on wages prescribed by then Section 72, Chapter X, Title II of the Tax Code, as amended (now Section 79, Chapter XIII, Title II of the Tax Code of 1997). However, under Section 2.33(C), Rev. Regs. 3-98, as amended by Rev. Regs. No. 8-2000, as amended, implementing Section 33 of the Tax Code of 1997, the following shall be considered as de minimis benefits: 1. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees; (as amended by Rev. Regs. No. 8-2000 and Rev. Regs. No. 10-2000) 2. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month; 3. Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,000.00; 4. Uniform and clothing allowance not exceeding P3,000.00 per annum; 5. Actual yearly medical benefits not exceeding P10,000.00 per annum; 6. Laundry allowance not exceeding P300.00 per month; 7. 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 P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; DcCHTa 8. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum ; 9. Flowers, fruits, books or similar items given to employees under special circumstances e.g. on account of illness, marriage, birth of a baby, etc.; and 10. Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic minimum wage. (Emphasis supplied.) Being facilities or privileges categorized as de minimis benefits, the same shall not be included as items of gross income for income tax purposes. They shall not also be included in the computation of the P30,000 threshold for a determination of the items of income that are to be excluded from income under Section 32(B)(7)(e) of the Tax Code of 1997. Corollary to this, de minimis benefits are neither subject to income tax on compensation nor to the fringe benefits tax. Furthermore, no withholding tax on compensation income thereon of both managerial and rank and file employees shall be imposed in view of their exclusion and exemption from tax. The gross benefits granted to rank-and-file, supervisory or managerial employees of entities, to the extent of the threshold of P30,000 mandated by Section 32(B)(7)(e) of the Tax Code of 1997, shall not be included as items of gross income and shall, therefore, be exempt from income taxation. Accordingly, such benefits given in excess of the threshold amount shall be taxable to the recipient employee (BIR Ruling No. 23-2002 dated June 21, 2002) . In view of the foregoing, the Extra Cash Gift given to government personnel, including those from the Office of the Ombudsman in the amount of Five Thousand Pesos (P5,000.00) per employee during Christmas is considered de minimis benefits and therefore not considered as compensation income/wages. Pursuant to Section 2.78.1(A)(3), Revenue Regulations No. 8-2000, as amended, they are not subject to the withholding tax prescribed by Section 79 in relation to Section 24(A) both of the Tax Code of 1997 since the benefits are relatively of small value and are offered by the employer to promote the health and efficiency of his employees. The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30,000.00 ceiling of "other benefits" provided under Section 32(B)(7)(e) of the Code. However, if the employer pays more than the ceiling prescribed by the Regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling, Provided, further, that any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or fringe benefits, shall constitute as deductible expense upon such employer pursuant to Section 2.78.1(A)(3) of Revenue Regulations No. 8-2000, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group