DETERMINATION OF EXCESS DE MINIMIS BENEFITS Ilustration 1: De minimis limits Alexander, a private_employeg who is paid.a P600 benefits during the year 2019: 7 daily rate, receives the following Monetized unused vacation leave credits 9 days Monetized unused sick leave credits 9 days Medical assistance P 7,000 Rice subsidy (P2,500 per month) 30,000 Clothing allowance 9,000 Laundry allowance 6,000 Required: Determine the taxable amount of de-minimis benefits. Solution: .. —Actual_ _Limit __Excess — Monetized unused VL vaca P 5,400 P 6,000 P 0 Monetized unused SL Sic 5,400 0 5,400 Medical assistance 7,000 10,000 0 Rice subsidy 30,000 24,000 6,000 Clothing allowance 9,000 6,000 3,000 Laundry allowance 6,000 3,600 ___2.400 Taxable de minimis as “other benefits” P_16,800 Note: Private employees : ~~ 1. The actual value of the monetized unused VL was computed as P600x 9 while ‘he limit was P600 x 10. a ies ~ 321Chapter 10 - Compensation Income 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, lustration 2 ‘ Giovanni, a government rank and file employee, received the following benefits: Monetized unused vacation leave credits (10 days) P 6,000 y Monetized unused sick leave credits (15 days) ~~ 9,000 , Uniform allowance 5,000 eh 4,800 Laundry allowance Required: Determine the amount to be included in other benefits. Solution: w . —Limit_ _Excess_ Monetized unused VL @ P6000 exempt P 0 9 Monetized unused SL 9,000 exempt 0 Uniform allowance 5,000 6,000 . 0 Laundry allowance 4,800 3,600 1.200 Taxable de minimis as “other benefits” P1200 Note: It is clear under RRS-2011 that the yacation Jeave and sick leave of government employees, Illustration 3 Professor Radvic was one of the Hall of Fame awardees of Youbee University. He was granted P25,000 cash as loyalty award for his 30 years of service. He was also given P10,000 Christmas gift and an additional P10,000 gift during the institution's Founding Day Anniversary. 3esides, he was also given free lunch meals with a total value of P15,000 during the same year. Required: Compute the total taxable de-minimis benefits as other benefits. Solution: Loyalty or service award - P 25,000 P*‘ 0. P 25,000 Christmas and anniversary gift 20,000 5,000 15,000 Meals 15,000 $+ 0 15,000 Total taxable de minimis as “other benefits” P_55,000Illustration 1 The following pertains to an employee in 2019: : pees 3 P 400,000 Cost-of-living allowance _— 36,000 -- Fixed monthly transportation allowance (P2Kx 12) _ - - 24,000 Deduction for withholding tax on compensation. ____-10,000___ Deduction for employee share in SSS, PHIC;and HDMF___32,000______ The taxable compensation income shall be ‘computed as follows: Gross salaries Ener aaies ome P.400, ae -Cost-of-living allowance Wasa rt ae Fixed monthly transportation allo = Regular compensation income P 460,000 a Less: Non-taxable compensation Were reer Mandatory deduction ; ___ 32,000 ‘Taxable compensation income” rR ee TENET oer ree Illustration 2 An employee who was terminated in 2019 due received the following: —.___—_—————-— fallopal —_ r- Reimbursement fontmansportation € l Termination pay 1 Cyan Troe otis emplrnce 327pe- Fixed Chapter 10 - Compensation Income sc | The taxable compensation income shall be computédl’as follows! Ta | Gross compensation income (P200K + P20K + P100K) P 320,000 © © | Less: Non-taxable compensation ~ Non-taxable benefits 100,000 ~i| Taxable compensation income P_220.000 my x oe The following are the additional compensation under current tax rules: ; i ard — 3, Rights dierent poy } fag MOE exenet 4.. Holiday pay 5. Commissions v 6. Eees.including director's fees (if director is an employee}gx WeSupplemenh| a Emoluments and honoraria : e-Taxable retirement and separation pay H Value of living quarters or meals 3% sytpylemeital 1eGains on exercise of tock options (BiR Ruling 119-2012) _ -eProfit sharing and taxable bonuses/, Commissions are incentives moe to ee sales. These may be given as a profit sharing or performance bonus.Chapter 10 - Compensation Income Mlustration 2 An employee receives a monthly rice allowance of P3,000 a month which is P1,000 in excess of the P2,000 a month de minimis limit for rice allowance. The _P1,000 monthly_exce a_taxable de minim! as compensation as part of“other benefits? for a rank and It is “benefit subject to final fringe benefit taxfor a mai agerial or supervisory employee. / RR2-98 provides that 13th month pay and _other benefits from withholding on compensation-provided-they.do not exceed P90,000, therefore, that the excess above P90,000 is subject to the withholding ape on _compensation. Hence, the excess of "13th month pay and other benefits” over P90,000 should be treated as compensation income subject to regular income tax. Iustration 1 A government rank and file employee Received the following benefits aside from the basic pay in 2019: arate ce Christmas bonus : P 70,000 Cash gift h 5,000 Additional compensation allowance (** ew" P47} <0P 36,000 Personnel Economic Relief Allowance (P2,000/month) Eyempt 24,000 Bemb? Monetized value of vacation leave and sick leave (18 days) 9,000 paige s W/o | Uniform and clothing allowance 7,000 |200 4x2 * Required: Determine the taxable “13th month pay and other benefits.” Solution: Christmas bonus (13th month pay of gov'temployees) / P 70,000 Cash gift / 5,000 ‘Additional compensation allowance 36,000 Excess uniform and clothing allowance (P7,000 - P6,000) 1,000 Total 13th month pay and other benefits “P-4142,000-——--—— Less; Exclusion Threshold 90,000 Taxable 13th month pay and other benefits P22.000 Note, overnment employee: Ic Reliel 333Chapter 10 - Compensation Income 3, Under RRS-2011, the monetization of vacation leave and sick et a leave credits of government officials is an exempt de minimis benefit without regard to the number of days. Illustration 2 ‘ A private rank and file employee working in a remote tower station of Snail Internet Company received the following benefit during 2019: Lath month Pay -. P 72,000 Performance bonus -Supyemaria) o addtirnal Comper 15,000 Christmas gil Rgueeet eI Sore Danger exposure al paaes (hazard pay) e000 aie Housing privilege Ey, we 38,000 Uniform and clothing allowance 8,000 Laundry allowance 6,000 The housing privilege pertains to the annual value of the employees’ living quarters furnished by the employer to employees for staying on-site. Required: Compute the excess 13th month pay and other benefits. Solution: De Other Jninimis _Limit__ Benefits Christmas gift P 30,000 P 5,000 P_ 25,000 Uniform and clothing allowance 8,000 6,000 2,000 Laundry allowance 6,000 3,600 __2,400 Excess de minimis benefits (other fringe benefits) P 29,400 13th month pay 72.000 Total 13th month pay and other benefits P 101,400 Less: Exclusion threshold 90.000 Taxable 13th month pay and other benefits P_11.400 Note: Private employees 1. Galormaae bo 2. The laundry allowance limit is computed as P300 x 12 = P3,600. 3. Christmas gift is a de minimis benefit for private employees under RRS-2011. 4. The housing privilege is exempt under the convenience of the employer rule. 5. The “13th month pay and other benefits” of rank and file employees includes “other fring? benefits.” Illustration 3 A qanagerial emp) lovee,received the following benefits in 2019: 13th month pay P 95,000 - Rental expense on condominium unit 18,000 Salary of personal body guard 12,000 Profit sharing 12,000 Rice allowance 32,400 Clothing allowance SRUUNSSUENEEL / .. peaaeeanee Night shift differential pay - 11/000 7 :Chapter 10 - Compensation Income Required: Determine the taxable "13th month pay and other benefits,” additional Compensation, and the fringe benefit subject to fringe benefit tax. Solution: De Other minimis Limit Benefits. Rice allowance P 32,400 P 24,000 P 8,400 Clothing allowance 2.000 ___6,000 __/ 1,000 Excess de minimis P 94007 Other fringe benefits: Br Rent of residence paid by employer 18,000 Pukyer to 8 Salary of personal body guard “Total fringe benefit subject to fringe benefit tax _/ 2.32400 Profit sharing P. 12,000 Night shift differential pay 11.000 Total supplemental compensation P_23,000 Total 13 month pay and other benefits P 95,000 / Less: Exclusion threshold Taxable 13th month pay and other benefits =a) , INTEGRATIVE ILLUSTRATIONS: COMPENSATION INCOME Integrative Illustration 1 A rank and file employee had the following summary of his compensation and benefits in 2019: Gros} compensation income / P 1,044,000 Less: Employee payroll deductions Employee contribution to GSIS, PHIC; DMF P 80,000 Employee deduction for withholding tax _64,000 144,000 Net regular payroll P 900,000 Representation and Transportation Allowance Evemp! dsamed verefg 909 Personnel Economic Relief Allowance Fy-£*%p 24,000 Christmas bonus — $$ $$$ sree Unit A form allowance a 4 Honoraria ed ——15.000 Total compensation BLo61.000~ The taxable compensation income shall be computed.as fala Gullo 1b VISwo ¥H 335 Vote -y- mas, GIS 1s, only Alacsified as demiminis PF He the Teceiviag isa private employeeChapter 10 - Compensation Income De Non- Other Taxable minimis _Taxable_ Benefits. Benefits _ Mandatory deductions Regular compensation (P1,044,000 - 80,000) P 964,000 Supplemental compensation Honoraria + on 15,000 RATA~Frext?, i ‘ PERA-Exernpt 24,000 P OP Total 979,000 P 87,000 Christmas bonus 5,000 Christmas gift Excess De minimis: Uniform allowance P_12,000 P__6,000 ___6,000 Total P 48,000 P 98,000 Exclusion threshold (up to P90,000) 90,000 - 90,000 Total P.138,000 P 8,000 Total non-taxable compensation 218,000 Taxable excess 13th month pay and other benefits __- 8,000 8.000 f Taxable compensation income 2 987,000/ t Note: | 1. The taxable regular compensation income is computed as (P1,044,000 - P80,000). 2 The excess of the P90,000 threshold over the actual 13% month pay and other benefits is non-deductible to other items of compensation income. (RR3-2015) I | Presentation in the Income Tax Return of the employee: Gross compensation income (ie, P1,061,000 + P144,000) P 1,205,000 Less: Non-taxable compensation income Mandatory deductions P 80,000. ie i Exempt benefits ___138,000 ____218,000 ' Taxable compensation income P___987,000 | Integrative IMustration 2 + ‘Aprivate employee derived the following remunerations and benefits in 2019 I: | Basic compensation Asbo? P32,000 SSS, PHIC, PhilHealth, . HDMF, union dues, and P35,000 withholding tax P 533,000~ 7 Overtime pay 21,000- Vacation expenses of the employee paid by employer nts bens, 24,000~ ast-of living allowance (COLA) 1°20 ome parsoht™ Lyw0 —12,000° daily fransportation e] remy 16,000 e%e( r i 1 ice subsidy (12 cavans worth P2,600 each) 13th month pay seas ; Monetized unused leave credit (10 VL and 8 SL) Guo 2 18,000 Uniform allowance Total compensation income bi 336 5U% 5r° LO | 5LMI. qe)