Whether the Incentive Bonus to be Given to Each of Employees Ranging from P400 to P10,000 in Recognition of their Respective Performances are Exempt from Income Tax and Consequently from Withholding Tax on Wages

July 14, 1995 BIR RULING NO. 105-95 28 (b) (8) (G) 000-00 105-95 EEI Corporation 188 E. Rodriguez, Jr. Avenue Ortigas Industrial Estate Libis, Quezon City Attention: F . Lina Manager, Payroll & Receivables Gentlemen : This refers to your letter dated April 17, 1995, requesting confirmation of your opinion that the incentive bonus to be given to each of your employees this year, ranging from P400 to P10,000 in recognition of their respective performances for 1994 are exempt from income tax and consequently from withholding tax on wages. cdt In reply, please be informed that pursuant to Section 28(b) of the Tax Code, as amended by R.A. No. 7833, the 13th month pay and other benefits in the aggregate amount not exceeding P30,000.00 received by officials and employees of the National Government, Local Government units and agencies, including government-owned and controlled corporations, as well as by officials and employees of private corporations and entities paid or accrued beginning January 1, 1994 are exempt from income tax, and consequently from the withholding tax on wages. The term "13th month pay" shall refer to the mandatory one month basic salary of an official or employee of the National Government, Local Government units, agencies and instrumentalities, including government-owned and controlled corporation, and of private offices received after the 12th month pay, while the term "other benefits" shall refer to all benefits other than the 13th month pay, such as, the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits received by an official or employee for one calendar year in an amount not exceeding Twelve Thousand Pesos (P12,000.00) as maximum limit. Accordingly, the amount to be given as incentive bonus by your corporation to each of your employees ranging from P400 to P10,000 in recognition of their respective performances may be considered as falling within the contemplation of "other benefits" provided for under Section 28(b)(8)(G) of the Tax Code, as amended, and, therefore, need not form part of your employees' taxable compensation income subject to the withholding tax on wages, pursuant to R.A. No. 7833, amending Section 28(b) of the Tax Code, provided, however, that such "other benefits", inclusive of the amount ranging from P400.00 to P10,000.00, shall not, in the aggregate exceed P12,000.00; and that when added to the 13th month pay, the total amount of tax exempt benefits shall not exceed P30,000.00. (RMC. 36-94) prcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue