In the Philippines, there are certain benefits and allowances that are given to employees which are not subject to income tax. This is known as a de minimis benefit, and it includes items such as food and transportation allowances, small gifts, and other minor expenses. Employees who receive a de minimis benefit of up to P90,000 in a year will not have to pay any income tax on it. Let’s take a closer look at this exemption and see how it can help you save money on your taxes.
This update will help you know the de minimis benefits of the new ceiling amount 2018 and compute your withholding tax and individual income tax. After the discussion, you will learn how to calculate and what income is still not taxed. You’re interested in learning because you want to minimize your taxes to be paid; there are still other ways to do that; read different ways to reduce your taxes legally.
What is De minimis Benefits Philippines?
These are benefits given by the company to the employees besides their regular compensation. These are subject to a law or governed by special laws.
It is to recognize their efforts and contributions to the company. It is a small amount added to the compensation or salary of the employee. Learn the changes as to the threshold of each benefit
Before discussing the updates, let’s understand the definition and how it differs from the fringe benefits tax. You may learn other updates on Tax Reform for Acceleration and Inclusion (TRAIN) Act.
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De minimis benefits ceiling 2018
What is the meaning of this term in taxation?. Well, these terms are incentives or privileges of relatively small value. Indeed, it is given by the employer to his employees. It is mandated by law or additional compensation according to the performance to be given to all employees.
What is New in De minimis Benefits Train Law?
As of January 1, 2018, under the TRAIN Tax Law, here are the new deminimis benefits :
- Convertible unused vacation leave credits of private employees not exceeding ten days during a year.
- The convertible value of vacation and sick leave credits paid to government officials and employees
- Medical cash allowance to dependents of employees not exceeding 1,500 per semester (before it was 750.00) or 250.00 per month (before 125.00)
- Rice subsidy of 2 000.00 (replaced the amount of 1500.00) or one sack of 50 kg. Rice per month amount to not over 2, 000.00
- Uniform and clothing allowance not exceeding 6 000 per year (replaced the amount of 5 000)
- Actual medical assistance, e.g., a therapeutic benefit to cover medical and healthcare needs, annual medical/executive check-ups, maternity assistance, and routine consultations, not exceeding 10 000 yearly.
- Laundry allowance not exceeding 300 per month
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Other De minimis Benefits Philippines
- Employees’ achievement awards, e.g., for a length of service or safety achievement, employees’ achievement awards must be as tangible personal property other than cash or gift certificates. It has an annual monetary value not exceeding 10,000 received by the employee under an established written plan. This benefit does not discriminate in favor of highly paid employees.
- Any gifts received during Christmas and major anniversary celebrations not exceeding 5 000 per employee once a year.
- Daily meal allowance for overtime work and nigh/graveyard shift not exceeding 25% of the basic minimum wage on per region basis
- Last, benefits received by an employee by a collective bargaining annual monetary value received from both this and productivity incentive schemes combined do not exceed 10 000 per employee per taxable year.
Therefore, all other incentives given by the employer not included above are “other benefits.” These additional benefits will be subject to de minimis benefits ceiling of 90,000.
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How Train Law Updates Affects Individual Tax?
Any benefits given to the employees not listed above are subject to the income tax rate. Likewise, any services provided beyond the de minimis amount are part of “Other Benefits,” which will be subject to a ceiling amount of 90 000. However, if you’re using the 8% preferential tax rate, de minimis benefits are not applicable. Read this to learn why.
You might also wonder if de minimis benefits will affect your business taxes? Well, the answer is no. It affects only your income tax. You may read this to know more about your business taxes.
The 90,000 tax exemption Philippines
Here are some steps to identify taxable income:
Step 1: Identify if the benefits are part of the list of De minimis Benefits.
Step 2: In each benefit, compute the excess beyond the de minimis amount and include it as other benefits.
Step 3: Compute the total amount of “Other Benefits” and deduct from the 90 000 thresholds. Any excess of 90 000 will be added as taxable compensation income, subject to the Income-tax Rate Table.
Step 4: Last, if the total taxable income is below 250, 000 it is non-taxable. However, if there are any any excess in 250, 000 threshold will be added to the taxable income.
Example: Mr. B received a rice allowance of 2 500 and a clothing allowance of 10 000 from his employer. Other benefits are the 13th-month pay of 20 000 and other benefits of 80 000. Provided, Mr. B receives a regular compensation income of 240 000 in a year. Is Mr. B subject to income tax?
Rice allowance and clothing are part of the de minimis benefits. There is an excess of 500 and 4,000 in rice allowance and clothing. (500 + 4, 000 + 100, 000) 104,500 total other benefits, which are subject to the threshold of 90, 000
14, 500 is the excess beyond the ceiling amount. In any excess would be part of the computation of withholding tax.
So, therefore, Mr. B is taxable using the income tax table. Read here to learn more about personal income tax.
The de minimis benefits are any benefits given to the employees by the employee, which are mandated by law. In the computation of taxable income for the employee, any excess beyond the allowable amount of 90,000 tax exemption Philippines will be part of the taxable income. The taxable benefits are determined if the particular services exceeded the de minimis benefits threshold per benefit. You accumulate all excess amounts of those benefits to computing if there is any excess on the total de minimis benefits threshold.
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