LAST October 9, 2019, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) 105-2019 to clarify the tax treatment of the salary differential paid by the employer in favor of the female employee in the private sector.
Salary differential refers to the difference that shall be shouldered by the employer when the actual cash benefit received from the Social Security System (SSS) is less than the full pay or full salary of the female employee during the duration of the maternity leave.
Full pay or full salary pertains to the actual remuneration or earnings paid by an employer for services rendered on normal working days and hours, including allowances provided for under existing company policy or collective bargaining agreement, if any.
As clarified by Republic Act (RA) 11210, otherwise known as the 105-Day Expanded Maternity Leave Law, and its joint implementing rules and regulations, the maternity benefit of the female employee shall pertain to the full pay or full salary, wherein one of its components is the salary differential.
Prior to RA 11210, the maternity benefit only covers 100 percent of the female employee’s average daily salary credit for 60 days in the case of normal delivery or 78 days in the case of caesarean delivery.
As such, the salary differential, being part of the maternity benefit, shall be treated under the same tax rules with the actual cash benefit received from the SSS.
Further, since there are no qualifications mentioned for granting tax exemption on payments of benefits made under the SSS Law, the salary differential shall therefore be treated as exempt from income tax and withholding tax on compensation.
With the issuance of RMC 105-2019, Department Advisory 01 (Series of 2019), issued by the Department of Labor and Employment, which provides that the amount of salary differential shall be treated as taxable income, subject to the rules and regulations of the BIR, is no longer valid.
Please be guided accordingly.
Source: P&A Grant Thornton
Certified Public Accountants