Whether Certain Benefits Received by an Employee of a Local Government Unit (LGU) are Taxable Income Subject to Withholding

September 6, 1995 BIR RULING NO. 139-95 28 (B) (8) 062-91; 139-95 (F) 132-90 Office of the Sangguniang Bayan Municipality of El Nido Palawan Attention: Mr . Miguel P . Gacasa Secretary of the Sanggunian Gentlemen : This refers to your letter dated July 6, 1995, requesting for a ruling whether the following benefits received by an employee of a Local Government Unit (LGU) during the calendar year 1994 are taxable income subject to withholding, viz: 13th Month Pay P7,865.00 RATA P17,328.00 Productivity Allowance P1,000.00 ACA P6,000.00 Clothing Allowance P1,000.00 Cash Gift P1,000.00 In reply, please be informed that RATA granted under Section 34 of the General Appropriations Act to certain officials and employees of the government, from the rank of Department Secretaries down to Division Chiefs is not compensation subject to withholding taxes since it is in fact a reimbursement for the expenses incurred in the performance of one's duties rather than as additional compensation [Section 2(2)(c), Revenue Regulations No. 12-86] However, although the amount of RATA is not subject to withholding taxes, the excess of RATA, if not returned to the employer, constitutes taxable income which should be declared in the recipient's income tax return for the year in which it was received by him. (BIR Rulings Nos. 062-91; On the other hand, under sub-paragraph (F) of Section 28(b)(8) of the Tax Code, as amended by R.A. No. 7833, other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature received beginning the year 1994 by officials and employees of both Government and private offices in an amount not exceeding P12,000.00 for one calendar year, which amount when integrated in the 13th month pay does not exceed the aggregate of P30,000.00, shall be excluded/exempted from the gross compensation income. Accordingly, since the 13th month pay of the employee concerned plus the other benefits received by him in 1994, i.e., Productivity allowance, ACA, Clothing allowance and Cash Gift, did not exceed P30,000.00, the same should and excluded from his taxable compensation income and, therefore, exempt from the withholding tax of wages. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue