November 4, 2008
Revenue Regulation No. 10-2008, dated July 8, 2008 provides for the implementing rules on Republic Act No. 9504, commonly known as the “Minimum Wage Law.” RR 10-2008 amends the pertinent portions of RR 2-98, the latter being the consolidated regulation for all withholding taxes.
Facilities, Privileges, and De Minimis Benefits
The general rule is that facilities and privileges of relatively small value, otherwise known as de minimis benefits, are not considered compensation subject to income tax. These benefits are given by the employer to the employee as a means of promoting the health, goodwill, contentment or efficiency of the employees.
Prior to RR 10-2008, the BIR already release RR 5-2008 which amends the list of de minimis benefits exempt from income tax. The list of de minimis benefits under RR 10-2008 and the previous regulations RR 5-2008, 10-2000 and RR 8-2000 are the same. Below is the present list of de minimis benefits:
Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees
Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month
Rice subsidy of P1,500.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,500.00
Uniforms and clothing allowance not exceeding P4,000.00 per annum
Actual yearly medical benefits not exceeding P10,000.00 per annum
Laundry allowance not exceeding P300.00 per month;
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 P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees
Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum
Flowers, fruits, books, or similar items given to employees under special circumstances, e.g., on account of illness, marriage, birth of a baby, etc..
Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage.
Things to consider in treating de minimis benefits:
Ø De minimis benefits within the limit prescribed above shall not be considered in determining the PhP30,000 ceiling of “other benefits.”
Ø The excess, if any, shall form part of the PhP30,000.00 ceiling, and any excess over PhP30,000.00 shall be taxable.
Ø The above guidelines are applicable for both minimum wage earner and non-minimum wage earner employees.
Under RR 10-2008, income payments to minimum wage earners are exempt from withholding tax on compensation as follows (amending RR 2-98):
Ø The MWE working in the private sector is paid the Statutory Minimum Wage (SMW) as fixed by the Regional Tripartite Wage and Productivity Board (RTWPB)/National Wages and Productivity Commission (NWPC), applicable to the place where the worker is assigned.
Ø Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned MWE shall likewise be covered by the above exemption. PROVIDED:
Ø If the MWE earns additional compensation income such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income tax and, consequently, from withholding tax.
Ø MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except income subject to final tax, in addition to compensation income are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from withholding tax.
From the foregoing, it would seem that if you are a MWE and you have other income from work, all your income will be subject to tax. However, if you are MWE and you have income from business, your compensation income will still be exempt from tax but your business income will be taxable.
In order for hazard pay given to MWE to be exempted from tax, the employer is required to attached to the Monthly Remittance Return of Withholding Tax on Compensation (BIR Form No. 1601C) for return periods March, June, September and December a copy of the list submitted to the nearest DOLE Regional/Provincial Offices – Operations Division/Unit showing the names of MWEs who received the hazard pay, period of employment, amount of hazard pay per month; and justification for payment of hazard pay as certified by said DOLE/allied agency that the hazard pay is justifiable.
Computation of Wages
In the determination of the minimum wage on a monthly basis, the withholding agent shall be guided by the prevailing minimum wage as reflected in the latest Matrix of Wage Order and its own policy on whether employees are (a) not considered paid on Saturdays and Sundays or rest days, (b) not considered paid on Sundays or rest days, (c) considered paid on rest days, special days and regular holidays, or (d) required to work everyday including Sundays or rest days, special days and regular holidays. The resulting number of days in the above enumerated categories are referred to as the factor or number of working/paid days in a year.
On the first classification, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 261 days and divide the same by twelve; the semi- monthly at one-half (½) of the monthly rate and the week ly SMW is arrived at by spreading the annual minimum basic wage over fifty-two (52) weeks. Thus, on a P382.00 minimum daily wage in Metro Manila, the monthly SMW is P8,308.00, the semi- monthly at P4,154.00 and weekly at P1,917.00.
On the second category, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 313 days and divide the product by twelve. Hence, on a P382.00 minimum daily wage, the monthly SMW is P9,964.00, the semimonthly at P4,982.00 and weekly at P2,300.00.
On the third classification, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 365 days, divided by twelve. Thus, on a 382 minimum daily wage, the monthly SMW is P11,619.00, the semi- monthly at P5,810.00 and weekly at P2,681.00.
On the fourth classification, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 392.5 days, divided by twelve. Hence, on a 382 minimum daily wage, the monthly SMW is P12,495.00, the semi- monthly at P6,247.00 and weekly at P2,883.00.
No withholding of tax shall be required on the SMW, including holiday pay, overtime pay, night shift differential and hazard pay of MWEs in the private/public sectors as defined in RR 10-2008. Provided, further, that an employee who receives additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income tax and, consequently, shall be subject to withholding tax.
RR 10-2008 prescribes a new tax table effective January 1, 2009. The regulation also provides four different tax tables to be used depending on the frequency of salary payments, i.e., monthly, semi-monthly, weekly and daily.
If the compensation is paid other than daily, weekly, semi- monthly or monthly, the tax to be withheld shall be computed as follows:
(a) Annually – use the annualized computation referred to in Sec. 2.79(B)(5)(b) of these Regulations;
(b) Quarterly and semi-annually – divide the compensation by three (3) or six (6) respectively, to determine the average monthly compensation. Use the monthly withholding tax table to compute the tax, and the tax so computed shall be multiplied by three (3) or six (6) accordingly.
For the year 2008, however, being the initial year of implementation of RA 9504, there shall be a transitory withholding tax table for the period from July 6 to December 31, 2008 (Annex “D”) determined by prorating the annual personal and additional exemptions under RA 9504 over a period of six months. Thus, for individuals, regardless of personal status, the prorated personal exemption is P25,000, and for each qualified dependent child (QDC), P12,500.
Steps to determine the amount of tax to be withheld.
RR 10-2008 provides the following steps to determine the amount of tax to be withheld:
Step 1. Determine the total monetary and non- monetary compensation paid to an employee for the payroll period, segregating gross benefits which include thirteenth (13th) month pay, productivity incentives, Christmas bonus, other benefits, received by the employee per payroll period, and employees’ contributions to SSS, GSIS, HDMF, PHIC, and union dues. Gross benefits which are received by officials and employees of both public and private entities in the amount of thirty thousand pesos (P30,000) or less shall be exempted from income and withholding taxes. The 13th Month Pay is equivalent to the total basic salary earned during the year divided by 12 months.
Step 2. Segregate the taxable from the non-taxable compensation income paid to the employee for the payroll period. The taxable income refers to all remuneration paid to an employee not otherwise exempted by law from income tax and consequently from withholding tax. The non-taxable income are those which are specifically exempted from income tax by the Code or by other special laws as listed in Sec. 2.78.1 (B) hereof (e.g. benefits not exceeding P30,000, non-taxable retirement benefits and separation pay).
Step 3. Segregate the taxable compensation income as determined in Step 2 into regular taxable compensation income and supplementary compensation income. Regular compensation includes basic salary, fixed allowances for representation, transportation and other allowances paid to an employee per payroll period. Supplementary compensation includes payments to an employee in addition to the regular compensation such as commission, overtime pay, taxable retirement pay, taxable bonus and other taxable benefits, with or without regard to a payroll period.
Representation & Transportation Allowance (RATA) granted to public officers and employees under the General Appropriations Act and the Personnel Economic Relief Allowance (PERA) which essentially constitute reimbursement for expenses incurred in the performance of government personnel’s official duties shall not be subject to income tax and consequently to withholding tax.
Step 4. Use the appropriate tables mentioned under Section 2.79(B)(1) for the payroll period: monthly, semi- monthly, weekly or daily, as the case may be.
Step 5. Fix the compensation level as follows:
(i) Determine the line (horizontal) corresponding to the status and number of qualified dependent children using the appropriate symbol for the taxpayer status.
(ii) Determine the column to be used by taking into account only the total amount of taxable regular compensation income. The compensation level is the amount indicated in the line and column to which the regular compensation income is equal to or in excess, but not to exceed the amount in the next column of the same line.
Step 6. Compute the withholding tax due by adding the tax predetermined in the compensation level indicated at the top of the column, to the tax on the excess of the total regular and supplementary compensation over the compensation level, which is computed by multiplying the excess by the rate also indicated at the top of the same column/compensation level.
For other administrative and reportorial requirements, including sample computations and tax tables, kindly refer to Revenue Regulation No. 10-2008 in the BIR website www.bir.gov.ph.
September 2, 2008
On April 17, 2008, the Bureau of Internal Revenue (BIR) released Revenue Regulation 5-2008 increasing the amount rice subsidy (from 1,000 to 1,500 per month) and clothing allowance (from 3,000 to 4,000 per year) as de minimis benefits. Thus, the following are considered de minimis benefits under Revenue Regulations 2-98, 3-98, 10-2000 and 5-2008.
(a) Monetized unused vacation leave credits of PRIVATE employees not exceeding ten (10) days during the year xxx.
(b) Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month;
(c) Rice subsidy of P1,500.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,500.00;
(d) Uniform and clothing allowance not exceeding P4,000 per annum;
(e) Actual yearly medical benefits not exceeding P10,000 per annum;
(f) Laundry allowance not exceeding P300 per month;
(g) 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 P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;
(h) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;
(i) Flowers, fruits, books, or similar items given to employees under special circumstances, e.g., on account of illness, marriage, birth of a baby, etc., and
(j) Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage.”
“(6) Fixed or variable transportation, representation and other allowances —
“(ii) The employee is required to account/liquidate for the expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Sec. 34 of the Code. The excess of ADVANCES MADE over ACTUAL EXPENSES shall constitute taxable income if such amount is not returned to the employer. 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 requirements of substantiation and to withholding.”
“(7) Vacation and sick leave allowances. Amounts of “vacation allowances or sick leave credits” which are paid to an employee constitute compensation. Thus, the salary of an employee on vacation or on sick leave, which IS paid notwithstanding his absence from work constitutes compensation. However, the monetized value of unutilized vacation leave credits of ten (10) days or less which ARE paid to PRIVATE employees during the year AND THE MONETIZED VALUE OF LEAVE CREDITS PAID TO GOVERNMENT OFFICIALS AND EMPLOYEES SHALL NOT BE SUBJECT TO INCOME TAX AND CONSEQUENTLY TO WITHHOLDING TAX.”
On the subject of tax exemption, the provision of Republic Act 9504 with regard to exemption from tax of minimum wage earner should also be taken into consideration. In particular, holiday pay, overtime pay, night shift differential pay and hazard pay received by the minimum wage earner shall likewise be exempt from income tax. Thus, it seems that no matter how much an individual earns from doing overtime or from other add-ons to his wage, as long as his basic pay is only the minimum wage, all of his earnings shall be exempt from income tax.
The BIR has yet to issue the implementing regulation for Republic Act 9504. I expect that a new list of de minimis benefits will be included therein to consolidate all existing regulations on this subject.