BIR Ruling [DA-280-06]

April 25, 2006 BIR RULING [DA-280-06] Sections 32 & 33 BIR Ruling No. DA-023-02 & DA-026-05 Ms. Victoria Q. Caf Department of Social Welfare and Development Batasan Hills, Quezon City M a d a m : This refers to your undated letter requesting for a ruling on whether or not your performance bonus and other Collective Negotiation Agreement (CNA) benefits are subject withholding tax. A represented, you are employed with the Department of Social Welfare and Development (DSWD) situated at Batasan Hills, Quezon City and holding a legal assistant I item with Salary Grade 10 since 1989 up to the present. On November 29, 2005, Assistant Secretary for Administration Mateo G. Montao denied the request by the Social Welfare Employees Association of the Philippines for exemption from withholding tax on bonus and other CNA benefits under Republic Act (R.A.) No. 8424. The bonus was given on installment basis in 2001, 2004 and 2005. You received your performance bonus in the amount of P5,000 less PhP797 withholding tax or a total amount of PhP4,203. In reply, please be informed that the following rules shall generally apply in considering the tax consequences of certain benefits given by employers to their employees, whether rank-and-file, supervisory or managerial: 1. Facilities or privileges that are categorized as de minimis benefits under pertinent rules and regulations 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. 2. Corollary to this, de minimis benefits are neither to income tax on compensation nor to the fringe benefits tax. Furthermore, no withholding tax thereon shall be imposed in view of their exclusion and exemption from tax. aDCIHE 3. The gross benefits granted to rank-and-file, supervisory or managerial employees of entities, to the extent of the threshold of P30,000.00 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. 4. The "other benefits" referred to in Section 32(B)(7)(e)(iv) of the Tax Code of 1997 include all benefits, other than the 13th month pay, such as, the annual Christmas bonus given by private entities, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits and refer to those benefits received by an official or employee for one (1) calendar year, the total amount of which including the 13th month pay does not exceed P30,000.00 5. Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and 10-2000 are illustrative and non-exclusive in the enumeration of what constitute de minimis fringe benefits. Accordingly, we have ruled that the meal and food benefits granted, although not intended to be used for overtime work, may still be added in the enumeration of de minimis fringe benefits. However, in terms of the de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under Revenue Regulations No. 8-2000 should be used as guidelines. Such being the case, meal and food benefits not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit, and therefore, tax exempt. The amount of "de minimis" benefits conforming to the ceiling 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 Rev. Regs. No. 8-2000, as amended. Accordingly, the excess of the meal and food allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed Php30,000 (BIR Ruling No. 23-2002 dated June 21, 2002). 6. In keeping with the spirit of the rules and regulations on de minimis benefits, we have ruled that there can be no aggregation of the values set for each item of benefit stated in Revenue Regulations Nos. 2-98 and 3-98, as amended by Revenue Regulations Nos. 8-2000 and 10-2000. The intent of the Regulations is to treat each item of de minimis benefit independently of each other, and we have to give life to that intent. Thus, the Regulations separately provide maximum values for rice allowance and for meal allowance. Accordingly, there can be no aggregation of de minimis values for rice and meal and food benefits (BIR Ruling No. 23-2002 dated June 21, 2002). ITESAc In addition to the foregoing, it is the rule that the fringe benefits tax is a final tax on the employee, other than a rank-and-file employee, that shall be withheld and paid by the employer on a calendar quarterly basis as provided under Section 57(A) of the Tax Code of 1997. Being a final tax, however, the amount of fringe benefits given shall not be reported as income in the concerned employee's annual tax return consolidation. Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that "de minimis" benefits and "other benefits" are not the same. For purposes of determining the P30,000.00 ceiling in "other benefits," the two are treated differently in that "de minimis" benefits are no considered in computing the P30,000.00 ceiling in "other benefits." The regulations did not provide for a ceiling in "de minimis" benefits. However, it provided for a limit in the amount of each "de minimis" benefit (e.g., rice subsidy should not exceed P1,000.00 per month). Both "other benefits" and "de minimis" benefits do not form part of the employees' taxable compensation income and are, therefore, not subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997. The term "de minimis" benefits which are exempt from the fringe benefits tax shall, in general, be limited 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. The following shall be considered as "de minimis" benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees: 1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees; 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; 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 if 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. The performance bonus given to DSWD employees can be equated to a productivity incentive bonus which may be considered as falling within the contemplation of "other benefits" provided for under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, and therefore, need not form part of the employees' taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997, provided, however, that such "other benefits," inclusive of the above allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when added to the 13th month pay. aTEAHc Moreover, Section 33(C) of the Tax Code of 1997 as implemented by Section 2.33(C) of Revenue Regulations (Rev. Regs.) No. 3-98, as amended by Rev. Regs. No. 8-2000 and 10-2000, provides, viz: "(C) Fringe Benefits Not Subject to Fringe Benefits Tax The following benefits are not taxable under this Section: (1) Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; (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, whether granted under a collective bargaining agreement or not; (4) De Minimis benefits as defined in these Regulations; (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of the fringe benefit is for the convenience of the employer." Accordingly, the performance bonus is not subject to the fringe benefits tax also if it redounds to the convenience of the employer. It appears that you were paid "other benefits" in the amount of PhP33,971 which is PhP3,971 over and above the threshold. In view of the foregoing, this Office finds that the amount in excess of PhP30,000 or PhP3,971 was correctly subjected to withholding tax on compensation. 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. HDTSCc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service