Tax Treatment of Loyalty Cash Award

November 25, 1992 REVENUE MEMORANDUM CIRCULAR NO. 50-92 SUBJECT : Tax Treatment of Loyalty Cash Award TO : All Internal Revenue Officers and Others Concerned In pursuance to the provisions of Section 7(E), Rule X of the Civil Service Rules implementing Book V of E.O. No. 292, payment of loyalty cash awards to officials and employees who have completed at least ten (10) years of continuous and satisfactory service in the government has been authorized. The term "gross compensation income" includes all income payments received as a result of an employer-employee relationship, such as salaries, wages, emoluments, honoraria, bonus and the like, fringe benefits (monetary and non-monetary), allowances for transportation, representation, entertainment fees including director's fees, taxable compensation and retirement pay and other income of similar nature including compensation paid in kind. For purposes of the withholding tax, the term "compensation" means all remunerations paid for services performed by an employee for his employer unless specifically excepted under Sections 27, 28(b) and 71 of the Tax Code. casia Undoubtedly, the above loyalty cash award is subject to income tax, it being an additional income on the part of the government officials and employees and consequently, in order to exempt the same from income tax, a legislation will be necessary. Since loyalty cash award is similar to a bonus, which means a sum of money over and above the usual current or stipulated wages/salaries of officials and employees who, under the aforementioned provision of the Civil Service Rules implementing E.O. No. 292, have completed at least ten (10) years of continuous and satisfactory service in the government, it is considered as remuneration for services performed by the officials/employees for the employer, hence taxable income under Section 21(a) in relation to Section 72, both of the Tax Code, subject to withholding tax under Section 2(2)(a) of Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86. Accordingly, loyalty cash award paid to officials and employees of the government in 1992 shall form part of total income to be included in the BIR Form W-2 for purposes of the computation of the year end adjustment. cdt It is desired that this Circular be given as wide a publicity as possible. JOSE U. ONG Commissioner of Internal Revenue By: (SGD.) VICTOR A. DEOFERIO, JR. Officer-in-Charge