Tax notes: Redefining ‘de minimis’ benefits

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Monday, April 25, 2011


TO BOOST tax collections, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 5-2011 last March 16, amending the provisions of RR No. 2-98 and 3-98 as to the exemption of de minims benefits from income tax on compensation income and fringe benefits tax.

RR No. 5-2011 has revised the list of de minimis benefits enumerated previously in RR No. 2-98 and RR No. 3-98 as follows:

a) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;

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b) Monetized value of vacation and sick leave credits paid to government officials and employees;

c) Medical cash allowance to dependents of employees not exceeding P750 per employee per semester of P125 per month;

d) Rice subsidy of P1,500 or 1 sack of 50-kg rice per month amounting to not more than P1,500;

e) Uniforms and clothing allowance not exceeding P4,000 per annum;

f) Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum;

g) Laundry allowance not exceeding P300 per month;

h) Employees achievement awards, e.g. for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;

i) Gifts given during Christmas and major anniversary celebration not exceeding P5,000 per employee per annum; and

j) Daily meal allowance for overtime work and night graveyard shift not exceeding 25 percent of the basic minimum wage.

The most compelling development in RR No. 5-2011 is the introduction of a phrase that limits the scope of de minimis benefits exclusively to those benefits which are included in the enumeration. Thus, benefits granted to employees which are not in the list, although of relatively of small value, cannot qualify as de minimis benefits, and hence, shall be subject to income tax, and consequently, to withholding tax on compensation income.

(Source: Punongbayan & Araullo)

Published in the Sun.Star Cebu newspaper on April 26, 2011.

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