Whether Certain Benefits Received by Employees in Addition to their Regular Wages are Subject to Withholding Tax on Wages

May 19, 1992 BIR RULING NO. 149-92 28 065-90 149-92 Sycip, Gorres, Velayo & Co. P.O. Box 256, Makati Central Post Office Metro Manila Attention: Atty . S . U . Salvador, Jr . Tax Division Gentlemen : This refers to your letter dated January 28, 1992 requesting opinion on whether or not the following benefits received by your clients' employees in addition to their regular wages are subject to withholding tax on wages: "1. Meal/transportation allowance received by employees for work done under varying circumstances, to wit: in excess of eight (8) hours on regular working days and during night time; on Saturdays, Sundays, Holidays and during night shift; and in excess of eight (8) hours on Saturdays, Sundays and Holidays. Only non-punching employees are entitled to the allowance. However, they are not entitled to overtime pay. The allowance, in effect, is additional compensation to non-punching employees for work rendered on overtime. Subject to minimum and maximum number of hours of work for availment, work done is a combination of the various circumstances (such as the day of the week and time of the day) will entitle the employee to the allowance which can amount to P550.00 per day. It will be noted that the amount of the allowance is more than the prevailing average cost of meals around the vicinity of the office premises and the probable taxi fare from the office to residence, which expenses employees are normally compelled to incur if they have to render overtime work. Finally, the employees do not make an accounting or liquidation of such allowance. "2. Cost of living allowance (COLA); and "3. Special bonus of P200.00 per day given to salesmen who work on Saturdays, Sundays and Holidays." In reply, I have the honor to inform you that for purposes of withholding tax, the term "compensation" means all remunerations for services performed by an employee for his employer unless specifically excepted under Sections 28 and 71 of the Tax Code, as amended. The same by which the remuneration for services is designated as 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 pensions and retirement pay, and other income of a similar nature constitute compensation income. Moreover, if a person receives as remuneration for services rendered a salary and in addition thereto living quarters or meals, the value to such person of the quarters and meals so furnished shall be added to the remuneration otherwise paid for the purpose of determining the amount of compensation subject to withholding. If, however, living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof need not be included as compensation subject to withholding. Furthermore, facilities or privileges (such as entertainment, medical services or so-called "courtesy" discounts on purchases, furnished or offered by an employer to his employees generally, are not considered as compensation subject to withholding if such facilities or privileges 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. (Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86) Considering that the aforementioned meal and transportation allowances are not of relatively small value since it can amount to P550.00 per day which is not subject to accounting and liquidation, the same are considered compensation income/wages subject to withholding tax. The cost of living allowance (COLA) and the special bonus of P200.00 per day given to salesmen who work on Saturdays, Sundays and Holidays are likewise considered compensation income/wages subject to withholding tax. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue By: EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge