Lesson 3: Taxable and Non-Taxable Employee Benefits

Employee benefits covers remuneration other than basic pay. It includes vacation and sick leaves, medical and
hospitalization benefits, meal allowance, transportation allowance, clothing allowance, etc. and incentive pay for
productivity such as commission, overrides, bonuses, and profit- sharing.

For the Philippines, the following benefits are given to employees.

Vacation pay: Thirteen (13) vacation days, with additional one vacation day every year starting on second year of service
and convertible to cash at the end of each year. Maximum total vacation leave is 18 days.
Sick Leave: twelve (12) days per year for the first two years of service. With additional one sick leave every year starting
on second year of service. Maximum total sick leave is 15 days. All unused leave days are convertible to cash in
December of each year.
Holiday Pay: employees will still be paid during holidays (New Year’s day, Rizal day, etc.) The usual amount they receive
per day during working days will be the same as the amount they will receive per day during holidays.
In lieu of vacation pay, Article 95 of the Labor Code provides for service incentive leave for every employee who has
rendered at least one year of service of 5 days with pay.
Some benefits are taxable, just like
a. Wages
b. Salaries
c. Commissions
d. Royalties, and the like
However, some benefits are non-taxable. Revenue regulations (RR) No. 5-2011 dated March 16, 2011 published in Manila
Bulletin March 18, 2011 cites the non-taxable benefits as follows:
The BIR issued Revenue Regulations No. 5-2011 limiting the items of ‘de minimis’ benefits that are exempt from
withholding tax on compensation (WTC) or to
Fringe Benefits Tax (FBT) to the following:
1. Monetized unused vacation leave credits of private employees not exceeding 10 days
2. Monetized value of vacation and sick leave credits paid to government employees;
3. Medical cash allowance to dependents of employees, not exceeding ₱750.00 per employee per semester of ₱125.00
per month;
4. Rice subsidy of ₱1,500.00 or one (1) week sack of 50 kg of rice per month amounting to not more than ₱1,500.00;
5. Uniform and clothing allowance not exceeding ₱4,000.00 per annum;
6. Actual medical expenses not exceeding ₱10,000.00 per annum;
7. Laundry allowance not exceeding ₱300.00 per month;
8. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a
tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding 10,000,
received by the employee 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 5,000.00 per employee per annum; and
10.Daily meal allowance for overtime work and night shift not exceeding 25% of the basic minimum wage on a per region
basis.
RR 5-2011 emphasized that, all other benefits given by employers to
employees shall not be considered ‘de minimis’ benefits, and hence, shall be subject
to income tax as well as withholding tax on compensation.