If you work as an employee in the Philippines, you will be happy to know that are accorded de minimis benefits. These are a few allowances and benefits which are not subject to income tax. These perks can include items like transportation allowances, minor expenses, small tokens, and even food.
Thanks to the TRAIN Law, the old ceiling of P30,000 de minimis benefits has now been increased to P90,000. Let’s take a closer look at these benefits and how this exemption can impact you. Bear in mind that with proper knowledge, you can properly compute your withholding tax and individual income tax for employees. It can help you see which income is not taxed and how to legally minimize your tax dues. Let’s get started!
Defining De Minimis Benefits
These are benefits given to regular employees by their company apart from the usual compensation and government-mandated benefits. These de minimis benefits are governed by special laws in order to recognize the efforts of companies in giving contributions to their employees. Although it is a small amount added to the compensation of employees, it means a lot for ordinary wage workers. Fortunately, The TRAIN Law increased the ceiling or threshold of benefits, paving way for a bigger amount that’s non-taxable.
According to tax and audit services in the Philippines, you must not confuse de minimis benefits with the fringe benefits tax. In terms of taxation, de minimis benefits are privileges or benefits that have a relatively small monetary value. It is granted by an employer to employees for their general welfare. For employees, it constitutes an additional salary that’s free from taxes. Because of its minimal value, it is not subject to income tax and withholding tax. Meanwhile for the employer, giving de minimis benefits is a deductible expense.
De Minimis Benefits Under the Train Law
When the TRAIN Law was enacted laws January 2018, the new de minimis benefits are as follows:
1. Unused vacation leaves credits of private employees not exceeding 10 days can be converted to cash
2. Monetized value of both vacation leaves and sick leaves paid to both government officials and employees.
3. Provision of medical cash allowance to dependents of employees not going over P1,500 per semester or P250 per month. Previously, it was P750 and P125, respectively.
4. Given a rice subsidy equal to P2,000 (an increase from P1,500) or a 50kg sack of rice. This amount must not go beyond P2,000 in value.
5. The clothing or uniform allowance was increased to P6,000 from P5,000.
6. Actual medical assistance such as maternity assistance, routine checks, and annual medical not beyond P10,000 annually.
7. Provision for laundry allowance amounting to P300 per month.
If you need help analyzing your books or structuring your team’s payroll, call for tax services in Manila. It is vital to be aware of this information because ignorance of the law excuses no one.
Other Important De Minimis Benefits for Employees
Apart from those noted above, tax and audit services in the Philippines noted that there are other crucial benefits to be aware of.
1. Inclusion of employee achievement awards, such as those for the length of service or recognition achievement for being outstanding in service must be as tangible personal property apart from cash or gift cards. This is awarded a yearly monetary value not exceeding P10,000. It must be received by the employee with an established written plan. Furthermore, this benefit must not be in prejudice against highly paid employees.
2. Gifts or tokens received during Christmas or company anniversary celebrations must not go above P5,000 per employee annually.
3. Those with overtime work and night or graveyard shift with a daily meal allocation must not exceed 25% of the basic minimum wage per region.
4. Any perks received by an employee due to a CBA or collective bargaining agreement, along with other productivity incentive tokens, must not exceed P10,000 per employee in a given taxable year.
All other benefits, tokens, perks, or incentives given by an employer that is not included in the list are not considered de minimis benefits. Since these are additional benefits, they are subject to income and withholding taxes. More importantly, take note of the limits enumerated above because any amount in excess of the limits is also subject to income tax for rank and file or fringe benefits tax for those in a managerial or supervisory position.
It can be rather tedious and confusing to take note of all these details. Thus, it would be prudent to let a professional handle these for you. You can take advantage of reputable accounting services in the Philippines by finding a good firm to work with. Call us for a free 30-minute consultation so we can assess your situation and help you come up with a solid plan for all your employees.