Whether Educational Benefits Granted to Dependents of Qualified Employees form Part of Their Gross Compensation Subject to Withholding Tax on Compensation

June 15, 1995 BIR RULING NO. 089-95 71 000-00 089-95 Joaquin Cunanan & Co. 8th Floor, BA-Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Atty . George T . J . Lavadia Principal Gentlemen : This refers to your letter dated July 5, 1994 requesting for a ruling in behalf of your client, Fil-Cartoons, Inc., as to whether or not educational benefits granted to dependents of the qualified employees of said client form part of their gross compensation subject to withholding tax on compensation. casia It is represented that Fil-Cartoons, Inc. grants benefits to the dependents of its qualified employees based on the following terms: "1. One year upon regularization of its employees and after submitting the required document regarding their respective dependent(s), the qualified dependents are enrolled as beneficiaries in its educational fund. "2. Every month, our client deposits an amount of P309.00 per qualified dependent in the company's educational fund. "3. The company issues a statement of the funds credited to the employees concerned together with the amounts that each employee may withdraw as benefit for their respective dependents. This statement includes all employees who have been in the fund's membership list at least three (3) years. "4. Upon submission to the company of required documents, the qualified employee may withdraw 30% of the total amount credited in favor of his dependents. "5. The amount withdrawn is then paid to the employee together with the usual payroll. In reply, please be informed that pursuant to Section 2(2) of Revenue Regulations No. 12-86 reading "2. Gross Compensation Income (a) In general . For purposes of withholding tax, the term "compensation" means all remuneration for services performed by an employee for his employer unless specifically excepted under Section 27, 28(b) and 71 of the Tax Code, as amended. "The name of which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses, allowances (such as transportation, representation, entertainment and the like), fringe benefits (monetary and non-monetary), fees, including director's fees, taxable pension and retirement pay, and other income of a similar nature constitute compensation income." all remuneration for services are generally included in the taxable compensation income of the employees of Fil-Cartoons, Inc., such as but not limited to fringe benefits (monetary or non-monetary e.g., longevity pay, hazard pay and all kind of allowances, except allowances for quarters, clothing and subsistence which are held to be exempt from income tax pursuant to Revenue Memorandum Circular No. 15-87). aisadc Based on the foregoing, it is our opinion that educational benefits granted to dependents of qualified employees of your client shall form part of their gross compensation income which are subject to the creditable withholding tax. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue