CHAPTER 11: Fringe Benefit Tax
 When paid or assumed by the employer in default
FRINGE BENEFITS
- all other benefits/incentives of employees other
than the basic pay.
*Basic pay is the fixed regular salary or wages of employees
every payroll period.
- under NIRC, it is defined to pertain to goods,
services or other benefits furnished by the
employer to the employees.
Tax treatment of fringe benefits
 fixed every payroll period – regular compensation
 variable and performance-based – supplemental
compensation
 incentives – 13th month pay and other benefits
 employer’s convenience or necessity – exempt from
income tax
Other fringe benefits
a.Rank and file employees – treated as “other
benefits” under the category “13th month pay and
other benefits.”
b.Managerial and supervisory employees – excluded
in compensation income and are subjected to final
fringe benefit tax.
SCOPE OF THE FRINGE BENEFIT TAX
 The fringe benefit tax covers only the taxable
fringe benefits of managerial or supervisory
employees.
 Taxable fringe benefits exclude those items
considered as compensation income.
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
- “management perks”
- highly privileged incentives given only to a
special group of employees.
- non-performance based and are given as
incentives to management employees.
- not considered as compensation income, but
as fringe benefits subject to fringe benefit tax.
NOTE!
Performance-based benefits – compensation income
Benefits in the nature of incentive or perks – fringe
benefits
Employee personal expenses
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.
 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 employee incentive is
subject to the fringe benefit tax.
- hybrid expenses under RR3-1198:
 housing benefits in the form of rental
accommodation
 allowing an employee free use of business
property
THE FRINGE BENEFIT TAX
Fringe benefit tax
- final tax imposed on the fringe benefit furnished,
granted or paid by the employer to the
employee, except rank and file employees.
Fringe benefit
- any good, service, or other benefits furnished or
granted in cash or in kind by the employer to
individual employees such as:
1. housing benefits
2. expense account
3. vehicles of any kind
4. household personnel, such as
maid/driver/etc.
5. interest, for the difference between the
market rate (12%) and the actual interest
granted
6. membership fees, dues and other expenses
borne by the employer for the employee in
social and athletic clubs or other similar org.
7. expense for foreign travel
8. holiday and vacation expense
9. educational assistance to the employee or
his dependents
10. life or health and other non-life insurance
premiums or similar accounts in excess of
what the law allows
CHARACTERISTICS OF THE FRINGE BENEFIT
TAX
1. Final tax
 fringe benefit tax is a final tax which is
withheld by the employer at source.
2. Tax upon the fringe benefits of managerial
or supervisory employees
 fringe benefit is not a tax to the employer
but a tax upon the benefit realized by the
managerial or supervisory employee.
 3. Paid by the employer
 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/taken home by the
employee is effectively net of 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/calendar) selected by the employer.
 determined and reported quarterly through
BIR Form 1603Q.
 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 is the taxable amount of
benefits taken home or realized. It is
presumed net of the final tax.
2. Determine the gross-up rate and fringe benefit
tax rate applicable for the taxpayer.
 Gross up rate is the complement of the
fringe benefit tax rate. If the fringe benefit
tax rate 35%, the gross up rate is 65%
(100-35).
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.