Tax Exemption of Maternity Assistance Benefits to Women Employees

December 23, 1992 BIR RULING NO. 370-92 28 030-92 370-92 Sycip, Gorres Velayo & Co. P.O. Box 236 Makati Central Post Office 1299 Metro Manila Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letters dated July 22 and October 28, 1992 requesting confirmation of your opinion to the effect that the maternity assistance benefits provided by Texas Instruments (Phils.) Inc. (TIPI) to its women employees in addition to what is provided by law to promote their health, goodwill, contentment and efficiency, do not constitute additional compensation income to such employees and are, therefore, exempt from income and withholding taxes and are deductible as business expenses of TIPI. casia It is represented that TIPI's maternity assistance program as intended to provide women employees maternity assistance during their childbirth in addition to what is provided by law to partially cover their actual hospitalization and other related costs; that under the program, women employees who have completed at least two years of service with TIPI at the time of their delivery are entitled to the following maternity services: 1. Miscarriage 50% of actual hospital cost but not to exceed P2,000.00. 2. Normal delivery including premature delivery 50% of actual hospital cost but not to exceed P4,000.00 3. Caesarian delivery 50% of actual hospital cost but not to exceed P6,000.00 that the aforementioned amounts are net of the employees' medicare benefits; that deliveries outside of a hospital are covered, provided appropriate documentations, including receipts of expenses, are submitted; that the maternity assistance is limited to five (5) legitimate deliveries and/or miscarriages; that induced abortion is not covered; that for purposes of availing herself of the maternity assistance benefit, the employee is required to submit a maternity notification to TIPI during her second month of pregnancy; that after delivery or miscarriage, the employee should file an expense statement duly approved by the Branch Manager concerned, the Human Resources Director and the Controller; that the expense statement should reflect the amount being reimbursed with the official receipts attached; and that in addition, a copy each of the marriage contract, birth certificate of the baby and certificate of delivery or miscarriage from the attending physician should be attached to the expense statement. In reply thereto, I have the honor to inform you that pursuant to Section 2(a) of Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86 implementing Section 28 of the Tax Code, as amended by Executive Order No. 37, "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 tax 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." (Emphasis supplied) Such being the case, the maternity assistance benefit in the following amounts: (1) miscarriage 50% of actual hospital cost but not to exceed P2,000.00; (2) normal delivery including premature delivery 50% of actual hospital cost but not to exceed P4,000.00; and (3) caesarian delivery 50% of actual hospital cost but not to exceed P6,000.00 need to be included as compensation subject to withholding tax since the same is of relatively small value and offered by the employer to promote goodwill, contentment and efficiency of the employees. (Rev. Reg. 6-82 as amended by Rev. Reg. 12-86) Moreover, the maternity assistance benefit is deductible as business expense by TIPI. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue