Why Should the Year end Christmas Bonus and Cash Gift, as the 13th Month Pay, be Subject to the Withholding Tax?

September 8, 1992 BIR RULING NO. 251-92 21 (c)-27-91-251-92 Office of the Sangguniang Bayan Leyte, Leyte Attention: Mr . Romeo A . Ysidoro Municipal Mayor Gentlemen : This refers to your letter dated December 2, 1991 requesting in effect, information as to why should the year end Christmas bonus and cash gift, as the 13th month pay, be subject to the withholding tax. In reply, please be informed that pursuant to Section 2 of Revenue Regulations No. 6-82, as amended by Revenue Regulations No. 12-86 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 name by which the remunerations for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses, allowances, fringe benefits, fees, including director's fees, taxable pensions and retirement pay and other income of similar nature constitute compensation income. Such being the case, Christmas bonus, cash gift and 13th month pay are considered compensation subject to income tax under Section 21(a) of the Tax Code and consequently, to the withholding tax on wages prescribed by Section 72, Chapter X, Title II of the same Code, as amended, and implemented by Revenue Regulations No. 6-82, as amended. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue