Tax 301 – Income Tax

Prepared by: Mark Paul I. Ramos

MODULE 4
Fringe Benefits Tax and De Minimis Benefits

INTRODUCTION
This module introduces the students to the fringe benefit tax and its de minimis
benefits. Topics included in this module are definition of fringe benefits, scope of fringe
benefits, items of fringe benefits subject to tax, fringe benefits tax base and rate, de minimis
benefits, fixed or variable allowances, business related expenses, representation and
transportation allowances, special rules in computing the monetary value of housing
benefits, rules in computing the monetary value of motor vehicles and special rules in
computing monetary value. These topics will give students knowledge and understanding
about the fringe benefits in accordance with the TRAIN Law.

BACKGROUND OF FRINGE BENEFIT TAX

The only form of employee income that were effectively taxed were those which were
given in cash. This was because an income tax was automatically withheld and collected at
source by the government. Additional compensation which was given in the forms of perks
and other non-cash benefits were virtually untaxed giving rise to inequity in the distribution of
the tax burden. The Fringe Benefits Tax (FBT) was proposed to enhance the progressivity of
the income tax and to broaden the tax base.

DEFINITION
Fringe Benefits Tax (FBT) is a monetary burden imposed by the sovereignty on any
good, service, or other benefit furnished or granted by an employer, in cash or in kind, in
addition to basic salaries, to an individual employee, other than a rank-and-file employee.

The FBT is a final withholding tax on the grossed-up monetary value of the fringe
benefit granted by the employer to an employee who holds a managerial or supervisory
position. This tax is effective regardless of whether the employer is an individual,
professional partnership or a corporation (regardless of whether the corporation is taxable or
not).

TAX TREATMENT OF FRINGE BENEFITS

Under current tax rules, however, items of fringe benefits in the strict sense are
treated differently depending on their nature. For example:
1. Fringe benefits that are fixed every payroll period are considered regular
compensation. (example: fixed transportation allowance)
2. Fringe benefits that are variable and performance-based are considered
supplemental compensation. (example: commission, profit-sharing, and
overtime pay)
3. Fringe benefits in the form of incentives are considered 13th month pay and
other benefits
4. Fringe benefits furnished for the employer’s convenience or necessity are
exempt from income tax.

Other Fringe Benefits

Other fringe benefits not included or classifiable as items of compensation income
and which are not exempted under the law are treated as follows:

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1. For rank-and-file employees – included as “other benefits” under 13th

month pay and other benefits
2. For managerial and supervisory employees – excluded in compensation
income and are subjected to final fringe benefits tax

Part of basic Subject to basic tax

Fringe Benefits Subject to
salaries or taxable and CWT on
given to: FBT
compensation compensation
Rank & file YES YES NO
Supervisory or
NO NO YES
managerial

SCOPE OF THE FRINGE BENEFITS TAX

The fringe benefits tax covers only the taxable fringe benefits of managerial or
supervisory employees.

For purposes of the fringe benefits, RR 3-98 clarifies that taxable fringe benefits
exclude those items considered as compensation income. Hence, an excellent
understanding of the items of compensation income is extremely important in highlighting the
bounds between compensation income and the fringe benefits subject to fringe benefits tax.

GENERAL CATEGORIES of Fringe Benefits subject to FINAL TAX

1. Management perquisite benefits
2. Employee personal expenses shouldered by the employer
3. Taxable de minimis benefits
a. Excess de minimis over their limits
b. Benefits not included in the de minimis list

Management perquisite benefits

Perquisite benefits, also called “management perks” are highly privileged incentives
given only to a special group of employees. These benefits are non-performance based and
are given as incentives to management employees. Perquisite benefits are not considered
as compensation income, but as fringe benefits subject to fringe benefits tax.

In practice, the boundary between fringe benefits subject to final tax and
compensation income subject to regular tax sometimes overlaps. Based on past rulings,
however, the BIR seemed to maintain the view that performance-based benefits are
compensation income while benefits in the nature of incentive perks are fringe benefits.

As a safety net, it is therefore best recommended for taxpayers to secure BIR rulings
on the proper treatment of income in their compensation plans to avoid inconvenience.

Employee personal expenses

When an expense takes the nature of an employee personal expense or expenditure
and is paid or assumed by the employer in default of a proximate business necessity, it is
deemed a fringe benefit in its entirety even if the expense is receipted in the name of the
employer.

ILLUSTRATION
Mr. Lockwood, a managerial expatriate employee, was granted by his employer a
P30,000 monthly housing allowance in addition to his regular salary. The actual monthly rent
of Mr. Lockwood’s residence is P25,000.

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The P25,000 personal expense assumed by the employer constitutes a taxable

fringe benefit subject to fringe benefits tax. The monthly fixed P5,000 excess is a taxable
additional compensation (BIR Ruling No. 512-2011).

Hybrid expenses
When the employer incurs expenses which is purported partly for business and partly
for employee’s incentive, only 50% of the expense representing the employee incentive is
subject to fringe benefits tax.

The following are hybrid expenses under RR 3-98:

1. Housing benefits in the form of rental accommodation
When an employer leases a residential unit for the use of the employee and
the business, the rental expense is deemed half business expense and half
fringe benefit to the employee.

2. Allowing an employee free use of business property

When the employer allows its employees to use business properties, the
rental value or depreciation value of the business property over the period of
usage is deemed half business expense and half fringe benefit to the
employee.

ILLUSTRATION 1 The University of Caceres pays for the P50,000 monthly rental of the
residential unit of its President.
- The amount of taxable fringe benefits shall be P25,000 computed
as 50% x P50,000.

ILLUSTRATION 2 A manufacturer and distributor of consumer products all over the

Philippines leases cars and other vehicles for the use of its employees.
The company requires employees to share at least 40% of the monthly
rental deductible through their payroll while the company books the
60% as rent expense.
- The BIR opined that only 10% of the monthly rental is taxable
fringe benefit since employees shouldered 40% of their 50%
counterpart (BIR Ruling No. 009-2000).

Exempt fringe benefit

The following benefits are exempt from the fringe benefit tax:
1. Fringe benefits which are authorized and exempted from tax under special laws
Examples: Employer’s contribution to SSS, Philhealth, HDMF, or group
insurance except excess over the mandatory amounts set by law.

2. Benefits required by the nature of, or necessary to the trade, business

orprofession of the employer
- Driver ng ospital; housing benefit
3. Benefit given for the convenience or advantage of the employer

4. Contributions of the employer for the benefit of the employee to

retirement,insurance and hospitalization benefit plans

5. Benefit given to rank and file employees whether or not granted under acollective
bargaining agreement

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6. The taxable fringe benefits of rank and file employees are exempt from
fringebenefit tax, but are subject to regular income tax as part of compensation
income.
7. De minimis benefits within their legal limits

"Necessity or convenience of the employer" rule

If an expense is necessitated by the nature of the trade, business, or profession ofthe
employer, or is furnished principally for the employer's convenience or advantage, it is an
ordinary business expense. The personal advantage of the employee is merely incidental to
the expense. These fringe benefits are not viewed as taxable fringe benefits under the NIRC.

Examples of exempt benefits under this rule:

1. Scholarship program for an employee to study and acquire competence for
futureuse of the business
2. Car incentives to medical doctors so they will be available for duty anytime
3. Free transportation services to employees working at distant facilities
4. Mobile phone allowance to corporate secretaries who are required to handle
offduty client inquiries
5. Sleeping quarters to field engineers and staffs working on remote facilities
6. Helicopters assigned to fishing employees for locating schools of fish offshore
orto mining engineers for mineral exploration purposes
7. Personal aircraft to a chief executive officer managing business affiliates
andsubsidiaries spread across different countries
8. Car incentive to a travelling company salesman
9. Sleeping quarters near the camp furnished to military personnel so they will
beavailable for duty at any time of insurgency
10. Housing units for an employee and his family near the employer's place
ofbusiness to ensure the employees availability anytime when the employer
needshim

THE FRINGE BENEFIT TAX

The fringe benefit tax is a final tax imposed on the fringe benefit furnished, grantedor
paid by the employer to the employee, except rank and file employees, whethersuch
employer is an individual, a professional partnership or a corporation, regardless of whether
the corporation is taxable or not, or the government and itsinstrumentalities.

For the purposes of the fringe benefit tax, fringe benefit means any good, service,or
other benefits furnished or granted in cash or in kind by the employer to individual
employees (except rank and file employees) such as, but not limited to,the following:
1. Housing benefits
2. Expense account
3. Vehicles of any kind
4. Household personnel, such as maid, driver or others
5. Interest, for the difference between the market rate (12%) and the actualinterest
granted
6. Membership fees, dues and other expenses borne by the employer for
theemployee in social and athletic clubs or other similar organizations
7. Expense for foreign travel
8. Holiday and vacation expenses her his
9. Educational assistance to the employee or his dependents
10. Life or health and other non-life insurance premiums or similar accountsin excess
of what the law allows

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CHARACTERISTICS OF THE FRINGE BENEFIT TAX

1. Final tax
The fringe benefit tax is a final tax which is withheld by the employer atsource.
Thus, the employee need not report the fringe benefits in his income tax return.

2. Tax upon the fringe benefits of managerial or supervisory employees

The fringe benefit tax is not a tax to the employer. It is a tax upon the fringe
benefit realized by the managerial or supervisory employee. It is a tax to the
employee; hence, it applies regardless of the identity of the employer.Therefore,
it applies even if the employer is a sole proprietor, partnership, corporation
whether taxable or exempt, or the government.

3. Paid by the employer

As a final tax, the tax is presumed withheld at source and remitted by the
employer to the government.

4. Grossed-up tax
The monetary value or the amount of fringe benefit realized or taken home by the
employee is effectively net of the final tax which is to be withheld at source.
Hence, the monetary value is first grossed-up by the complement percentage of
the applicable fringe benefit tax rate before the fringe benefit tax rate is applied.

5. Due quarterly
The fringe benefit tax is due for remittance quarterly based on the accounting
period (fiscal or calendar) selected by the employer. The monetary value of each
taxable fringe benefit is determined and reported quarterly through BIR form
1603Q. The quarterly fringe benefit tax is due on or before the last day of the
month following the quarter in which withholding was made.

PROCEDURES IN COMPUTING THE FRINGE BENEFIT TAX

1. Determine the monetary value.
Monetary value refers to the taxable amount of benefits taken home or realized
by the managerial or supervisory employee. The monetary value is presumed net
of the final tax.

2. Determine the gross-up rate and fringe benefit tax rate applicable for the
taxpayer.
The gross up rate is the complement of the fringe benefit tax rate. If the fringe
benefit tax rate is 35%, the gross-up rate is (100% less 35%) or 65%. If the fringe
benefit tax rate is 25%, the gross-up rate is 75%.

3. Determine the grossed-up monetary value by dividing the monetary value

by the gross-up rate.

4. Determine the fringe benefit tax by multiplying the fringe benefit tax rate to
the grossed-up monetary value.

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Classification of taxpayers CIT, RA, NRAET NRA-NETB

Monetary value ₱xx ₱xx
Divide by gross monetary 65% 75%
value factor
Grossed-up monetary value ₱xx ₱xx
x FBT rate 35% 25%
Fringe benefit tax ₱xx ₱xx

ILLUSTRATION Determine the grossed-up monetary value and the fringe benefit tax of
the following (if applicable) for 2018 taxable year:

1. P39,000 grocery allowance for the personal consumption of an executive of ABC

Corporation.
Monetary Value 39,000.00
Divide by Gross Monetary Value Factor 65%
Grossed-Up Monetary Value 60,000.00
Multiply by FBT Rate 35%
Fringe Benefits Tax 21,000.00

2. P40,800 expenses paid by an executive of ABC Corporation duly received in the

name of ABC Corporation and is not in the nature of personal expense.

GUMV=P40,800; FBT=P0
The expenditure is not in the nature of personal expense of the company’s executive;
hence, it is not a fringe benefit taxable to the employee. It is an ordinary business
expenditure of ABC Corporation.

3. P40,800 grocery allowance for the personal consumption of one of ABC

Corporation’s rank and file employees.

GUMV=P40,800 same with monetary value

FBT=P0; subject to basic taxbecause of rank-and-file employee

RULES ON VALUATION OF FRINGE BENEFITS

1. Benefits paid in cash
When benefit is given in cash or paid for in cash, the monetary value is the amount
paid for in cash.

Note: The only exception here is when the employer pays for the rent of the
residence of theemployee. Monetary value is 50% of the rental payment.

2. Benefits paid in kind

When benefit is given in kind, the monetary value is the fair value of the thinggiven
unless its book value is higher. Book value is the cost less any provision for
depreciation for depreciable properties.Simply stated, the monetary value is the fair
value or the book value of thething given, whichever is higher.

When ownership over the property is transferred to the employee, the monetary
value is the entire fair value of the property even if the property ispartially used in the
business of the employer.
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3. Benefits that are furnished

When the benefit is given in the form of free use of the employer's property,the
monetary value is 50% of the rental value of the property. If the property has no
available rental value, the depreciation value is used. For purposes of the
depreciation value, the presumptive useful lives of theproperty are:

a. 20 years for real properties.

- Hence, the depreciation value is computed as 1/20 or 5% of the value
ofthe property.
b. 5 years for movable properties.
- Hence, the depreciation value is computed as 1/5 or 20% of the value
ofthe property.

Since the fringe benefit tax is paid quarterly, the valuation and reporting ofmonetary
value is also done quarterly. In case of use of employer properties, thereporting of monetary
value ceases from the month the free use is discontinued.

ILLUSTRATION Determination of depreciation value

A partnership transferred the use of a property with a fair value of P2,000,000 to
itssupervisor.The annual depreciation value shall be:

1. If the property is an immovable such as a residential unit, the annual depreciation

value shall be P100,000 computed as P2,000,000 x5%.
2. If the property is movable such as a car or other motor vehicles, the annual
depreciation value shall be P400,000 computed as P2,000,000 x 20%.

In quarterly reporting of the fringe benefit tax, the quarterly monetary value is
determined by dividing the annual value by 4.

SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION

1. Fixed or Variable allowances
Generally speaking, fixed or variable allowances received by a public officer or
employee or employee of a private entity in addition to the regular compensation
fixed for his position or office are subject to income tax and consequently creditable
withholding tax on compensation income. Examples of fixed or variable allowances
are transportation allowance, representation allowance, communication allowance,
living away from home allowance, (LAFHA), and the like.

Reasonable amounts of reimbursements/advances for travelling and entertainment

expenses which are pre- computed on a daily basis and are paid to an employee
while he is on an assignment or duty need not be subject to the requirement of
substantiation and to withholding.

2. Business related expenses/Allowances subject to liquidation

Any amount paid specifically, either as advances or reimbursement for traveling,
representation and other bona fide ordinary and necessary expenses incurred of his
duties are not compensation subject to withholding, if the following conditions are
satisfied:
- It is for ordinary and necessary traveling and representation, or
entertainment expenses paid or incurred by the employee in the pursuit of
the trade, business are profession; and

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- The employees are required to account/liquidate for the foregoing

expenses in accordance with the specific requirements of substantiation
for each category of expenses pursuant to Sec. 34 of the tax code.

3. Representation and Transportation Allowance

Representation and transportation allowances (RATA) granted under Section 34 of
the General Act to certain officials of employees of the government are considered
reimbursement for the expenses incurred in the performance of one's duties rather
than as additional compensation. However, the excess RATA, if not returned to the
employer constitutes taxable compensation income of the employee.

Under several rulings issued by the BIR, the foregoing rule shall likewise apply to
reasonable amounts of reimbursements or advances for travelling and representation
or private employees which are pre- computed on a daily basis and which are paid to
any employee while on assignment or duty. Such allowance should not be
considered compensation subject to withholding tax. On the other hand,
transportation and representation allowances which are fix in amounts and are
regularly received by the employees as part of their monthly compensation are
subject to basic tax.

4. Communication Allowance
Communication allowance granted to employees are not subject to fringe benefit tax
and tax on compensation on the basis that communication allowance is deemed
required by the nature of the job of the employees and deemed necessary to
business and redounds to the convenience and benefit.

5. Housing Benefits

**Annual Benefit=FMV or Zonal whichever is higher x 5%;

Monetary value of the benefit=FMV or Zonal whichever is higher x 5% x 50%
***Annual benefit=acquisition cost exclusive of interest x 5%;
Monetary value of the benefit=acquisition cost exclusive of interest x 5% x 50%

6. Motor Vehicles

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Non-taxable Housing Benefits

The following housing benefits shall not be considered taxable fringe benefits (Sec 33-
tax code):

1. Housing unit inside or adjacent (within 50 meters) from the perimeter of the
business premises.
A housing unit which is situated “inside or adjacent” to the premises of a business
shall not be considered as a taxable fringe benefit. A housing unit is considered
adjacent to the premises of the business if it is located within the maximum of fifty
(50) meters from the perimeter of the business. A housing unit shall be considered to
be for the “convenience or advantage of the employer” if the same is within (50)
meters from the perimeter of the business premises and employees are required to
be on-call due to the nature of the employers’ operation (BIR Ruling no. DA-635-04,
December 15,2004 issued to Foreign Holiday Philippines, Inc. and BIR Ruling NO.
DA-241-04, May , 2004 issued to SohbiKoghei (Phils.), Inc.)

2. Temporary housing for a stay in the housing unit for three (3 months) or less.
3. Housing privilege of military officials of the Armed Forces of the Philippines.

Other Fringe Benefits

Under this category, the value of the benefit representing the amount given or paid by
the employer should also be the "monetary" value of the benefit.

1. Expense account-may be taxable as fringe benefits or treated as compensation

income depending on the nature of the expense account provided to
employees.
- Taxable as fringe benefits
Expense accounts paid for or reimbursed by employer (such as personal
expenses like groceries) are taxable fringe benefits. However, if the expenses
were received in the name of the employer and do not partake in the nature of
"personal expenses attributable to employees, such expense accounts should
not be taxable as fringe benefits. It should neither be included in determination of
the individual taxpayers' taxable compensation income.

- Not treated as taxable fringe benefits

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Representation and transportation allowance given regularly (Page 163) on a

monthly basis are not taxable fringe benefits but as compensation income
subject to basic tax under Sec 24(A) of the Tax Code.

2. Expenses for foreign travel

Expenses in connection with attending business meeting or convention (inland travel
expenses) such as food, beverages and transportation during foreign travel (except
lodging cost in a hotel) at an average of $300 per day are considered reasonable
expenses and shall he subject to fringe benefit tax The cost of economy and
business class airplane ticket shall not be subject to fringe benefit tax. However, of
the cost of first-class airplane ticket shall be subject to fringe benefit tax in the
absence of documentary evidence showing that the employees travel abroad was in
connection with business meeting or convention, the entire cost of ticket, including
cost of hotel accommodations and other expenses shouldered by employer shall be
treated as taxable fringe benefits.

Traveling expenses of family members of employees paid for by the employer shall
be treated as taxable fringe benefit.

3. Educational assistance to the employee or his dependents

In general, cost of educational assistance is treated as taxable fringe benefit except;
- When the study is directly connected with the employer's trade business or
profession and there is a written contract between the employee and employer
that the former is under obligation to remain in the employ of the employer for a
period of time
- When given to employee's dependents through a competitive scheme under
scholarship program of the company

4. Interest on loan at less than market rate to the extent of the difference of the
market rate and actual rate granted. The benchmark is 12% unit revised. The
taxable fringe benefit is:
a. Interest foregone by the employer or
b. The difference of the interest assumed by the employee and the rate of 12%.

5. Membership dues or fees of employees borne by employer in social and

athletic clubs or other similar organizations

6. Life or health insurance and other non-life insurance premiums are treated as
taxable benefits

7. The following shall not be treated as taxable fringe benefits:

- Fringe benefits which are authorized and exempted from income tax under the
Tax Code or under any special law
- The fringe benefit is required by the nature of or necessary to the trade, business
or profession of the employer
- When the fringe benefit is for the convenience or advantage of the employer
- Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans.
- Benefits given to rank and file employees.
- Non-taxable housing benefits
- Other non-taxable benefits discussed in this chapter.

8. Use of Aircraft and Helicopters

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The use of aircraft and helicopters owned and maintained by the employer is not a
taxable fringe benefit but treated as business expense of the employer.

Deductible expense of the employer

- If the fringe benefit is given to a rank-and-file employee, or to a supervisory or
managerial employee, but is not subject to fringe benefit tax, the deduction for the
employer is the monetary value of the fringe benefit.

- On the other hand, if the fringe benefit is given to a supervisory or managerial

employee and is subject to fringe benefit tax, the deduction is the grossed-up
monetary value of the fringe benefit which compose of the fringe benefit expense
and the fringe benefit tax.

ILLUSTRATION Assume an employer furnished cash fringe benefit subject to fringe

benefit tax amounting to P975,000

Question 1: What should be the appropriate journal entry in the books of the employer?

Answer:
Monetary Value 975,000.00
Fringe benefit expense 975,000.00 Divide by Gross Monetary Value Factor 65%
Fringe benefit tax expense 525,000.00 Grossed-Up Monetary Value 1,500,000.00
Cash 1,500,000.00 Multiply by FBT Rate 35%
Fringe Benefits Tax 525,000.00

The P1,500,000 grossed-up monetary value is composed of P975,000 paid

to the employee and P525,000 paid/remitted to the BIR.

Question 2: Assume that the cash fringe benefit is not subject to fringe benefit tax, what
should be the appropriate journal entry of the employer?

Answer:
Fringe benefit expense 975,000.00
Cash 975,000.00

It will be part of the compensation of the said employee.

DE MINIMIS BENEFITS -> 13TH MONTH PAY -> KAPAG LUMAMPAS NG 90K -> Taxable
The following shall be considered de minimis benefit not subject to income tax as well
as withholding tax on compensation income of both managerial and rank and file employees:

1. Monetized unused vacation leave credits of private employees not exceeding “10
days” during the year.

Payment of monetized unused “vacation”leave credits exceeding 10 days as well

as payment of “sick” leave, regardless of number of days shall be added to
“other benefits” with a P90,000 ceiling.

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2. Monetary value of vacation and sick leave credits paid to government officials
and employees.

Compared to employees in the private sector, payment of monetized unused

“vacation and sick” leave credits to government officials/employees regardless of
the number of days shall be exempt from tax on compensation income.

3. Medical cash allowance to dependents of employees not exceeding P1,500 per

semester or P250 a month.

4. Rice subsidy of not more than P2,000 per month or 1 sack (50kg.) rice per
month.

5. Uniforms given to employees by the employer not exceeding P6,000 per annum
(as amended by RR 8-2012)

6. Actual medical assistance given not exceeding P10,000 per annum such as
medical allowance to cover medical and health care needs, annual
medical/executive check-up, maternity assistance and routine consultations.

7. Laundry allowance not exceeding P300 per month.

8. Employees’ achievement awards (example, for length of service or safety
achievement which must be in the form of tangible personal property other than
cash or gift certificate with and annual monetary value not exceeding P10,000
under an established written plan which does not discriminate in favor of highly
paid employees.)

9. Gifts given during Christmas and major anniversary celebrations not exceeding
P5,000 per employee per annum.

10. Daily meal allowance for overtime work and night/graveyard shift not exceeding
25% of the basic minimum wage on a per region basis provided such benefits is
given on account of overtime work or if given to employees on night/graveyard
shift.

11. RR 1-2015 dated January 5,2015 includes as non-taxable “de minimis benefits”
the following; benefits received by an employee by virtue of a collective
bargaining agreement (CBA); and productivity incentive schemes.

Provided that the total annual monetary value received from the two (2) items
above combined, do not exceed P10,000.00 per employee per taxable year.

EXCESS OF DE MINIMIS BENEFITS OVER THEIR RESPECTIVE CEILINGS

The amount of de minimis benefits conforming to the ceiling of de minimis benefits
shall not be considered in determining the P90,000 ceiling of “other benefits” excluded from
the gross income under Section 32B(7)(e) of the Code as amended by RA10963-TRAIN Law
(previously P82,000 under RA10653; RR 3-2015). On the other hand, the excess of the de
minimis benefits over their respective ceilings prescribed under this regulation shall be
considered as part of other benefits subject to tax only on the excess over the P90,000
ceiling.

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All other benefits given by employers which are not included in the enumeration of de
minimis benefits shall not be considered de minimis benefits but should fall under the
classification of “other benefits” and is therefore subject to the P90,000 ceiling. The excess
of the benefits over the P90,000 limit would form part of an individual’s gross income and
would be subject to income tax and application creditable withholding taxes.

P90,000 Ceiling for 13th month pay/bonuses and “Other Benefits”

Section 32(B)(7)(E) of the Tax Code in relation to PD 851 as amended by RA10653
provides that 13th month pay and other benefits received by officials and employees of
public and private entities are exempt from income tax and creditable withholding tax on
compensation, provided however, that beginning January 1, 2018, the total exclusion shall
not exceed P90,000(RA 10963-TRAIN Law). Otherwise, the excess would form part of an
individual’s gross income and would be subject to income tax and applicable creditable
withholding taxes.

“Other Benefits” under these regulations include:

- Christmas bonus
- Productivity incentive bonus
- Loyalty awards
- Gifts in cash or in kind and other benefits of similar nature actually received by
officials and employees of both government and private offices.

Further, RR 3-2015 emphasized that this exclusion from gross income is not
applicable to:
- Self-employed individuals; and
- Income generated from business

ILLUSTRATION De minimis limits

Alexandria, a private employee who is paid a P600 daily rate, received the following
benefits during the year:
Monetized unused vacation leave credits 9 days
Monetized unused sick leave credits 9 days
Medical assistance P7,000
Rice subsidy (P2,500 per month) P30,000
Clothing allowance 9,000
Laundry allowance 6,000

Required: Determine the taxable amount of de minimis benefits.

Solution:
Actual Limit Excess
Monetized unused VL P5,400 P6,000 -
Monetized unused SL P5,400 - P5,400
Medical assistance P7,000 P10,00 -
0
Rice subsidy P30,000 P24,00 P6,000
0
Clothing allowance P9,000 P6,000 P3,000
Laundry allowance P6,000 P3,600 P2,400

Note: Private employee

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1. The actual value of the monetized unused VL was computed at P600 x 9

days while the limit was P600 x 10 days
2. The 10-day rule applies only to vacation leaves. Monetization of sick leaves
of private employees is taxable. (BIR Ruling 227-2013, June 20, 2013)
3. The rice subsidy and laundry allowance were likewise annualized by
multiplying their monthly limit by 12. The de minimis benefits within the limits
are exempt from income tax.
4. The total excess shall be treated as “other benefits” which is subject to limit
of P90,000.

MODULE EXERCISES
True or False
1. The fringe benefit tax is a creditable withholding tax presumed to have been withheld
at source by the employer from the fringe benefits of supervisory or managerial
employees.
2. Rank and file employees may be subject to fringe benefit tax.
3. Fringe benefits are always subject to fringe benefit tax.
4. The personal expenses of employees shouldered by the employer are fringe
benefits.
5. Managerial or supervisory employees are subject to fringe benefit tax.
6. The tax base of the fringe benefit tax is the grossed-up monetary value of the fringe
benefit.
7. The taxable fringe benefit subject to the fringe benefit tax is the excess of the de
minimis benefits over P90,000.
8. Half of the benefits that are necessary to the trade of the employer’s business are
subject to fringe benefit tax.
9. Benefits in the form of properties transferred to the name of the employee are subject
to fringe benefit tax in full.
10. Benefits provided by the employer for his convenience are exempt from fringe benefit
tax.
11. The annual depreciation value of a movable property is 20% of the value of the
property.
12. The annual depreciation value of a real property is presumed to be 10% of the value
of the property,
13. The monetary value of benefits given in cash is the cash paid.
14. The monetary value of benefits given in kind is 100% of the value of the
propertygiven.
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 Tax 301 – Income Tax
Prepared by: Mark Paul I. Ramos

15. The monetary value of fringe benefits in the form of free usage of property is 50%of
the rental or depreciation value of the property.
16. Employee benefits are employee expense by nature that are paid by the employer.
17. When title over property is transferred, the monetary value is the fair value of
theproperty given.
18. When the employer leases a house and lot as the usual residence of thesupervisory
or managerial employee, the monetary value of the benefit is 50% ofthe rental
payments.
19. Educational assistance to the employee is exempt from fringe benefit tax if there isan
employee bond and the study is related to the trade or business of thetaxpayer.
20. Aircraft including helicopters are considered for business use and not subject tofringe
benefit tax.
21. The monetary value of benefit from loans at less than market rate shall be
thedifference between 12% and the actual rate charged.
22. Lodging costs on foreign travel is a taxable fringe benefit regardless of amount.
23. 30% of first-class tickets in foreign travel is a taxable fringe benefit.
24. The expenses of family members of the employee shouldered by the
employerconstitute taxable fringe benefit in full.
25. An employee expense receipted in the name of the employer is considered
abusiness expense of the employer.

Reference:

Tabag, E.D., Garcia, E.J. (2019) Income Taxation with Special Topics in Taxation based on
NIRC as amended under RA10963 – Tax Reform for Acceleration and Inclusion Act (TRAIN
Law)

Banggawan, R.B., (2021) Income Taxation Laws Principles and Applications

Bureau of Internal Revenue, https://www.bir.gov.ph/index.php/tax-information/income-

tax.html

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