Don’t miss the de minimis

It has been more than six months since Republic Act (RA) No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, was passed. One of the major banners of the TRAIN law is to increase employee take-home pay. While the law has taken effect, however, many are of the view that it is anti-poor.

The TRAIN Law slashed personal income tax rates, but raised excise taxes imposed on fuels, sweetened beverages, and motor vehicles. The provisions on increased excise taxes arguably caused consumer prices to go up, corroding the workers’ purchasing power. Critics of the TRAIN Law argue that this increase neutralizes the effect of the reduction in personal income taxes.

Thus, taxpayers should evaluate if there are other tax law exemptions that could be used to further increase their take-home pay.

So, how about revisiting the employees’ nontaxable portion of their compensation: the de minimis benefits?

Under Section 2.79 (D) (b) of Revenue Regulations (RR) No. 02-98, as amended, de minimis benefits are facilities or privileges given or offered by an employer to its employees, provided such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of its employees. De minimis benefits are not subject to income tax as well as to withholding tax on compensation income of both managerial and rank-and-file employees. When given to employees, no deduction for taxes will be made by the employer; thus, the employee profits from the whole amount of the benefit.

Under RR No. 02- 98, as amended by RR Nos. 05-11, 01-15, and 11-18, the following are considered de minimis benefits for private employees:

a. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;

b. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per semester or P250 per month;

c. Rice subsidy of P2,000 or one 50-kg sack of rice per month worth not more than P2,000;

d. Uniforms and clothing allowance not exceeding P6,000 per annum;

e. Actual medical assistance not exceeding P10,000 per annum;

f. Laundry allowance not exceeding P300 per month;

g. Employees’ achievement awards, which must be in the form of tangible personal property other than cash or gift certificates, 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. Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage; and

j. Benefits received by an employee by virtue of a Collective Bargaining Agreement ( CBA) and productivity incentive schemes, provided the total annual monetary value received from both CBA and productivity incentive schemes combined do not exceed P10,000 per employee per taxable year.

The implementing rules of the TRAIN Law increased certain benefits on the list. The medical cash allowance increased from P750 to P1,500 per semester; the rice subsidy increased from P1,500 to P2,000 per month; and the clothing allowance was increased from P4,000 to P6,000 per annum.

It is also worth mentioning that any amount of de minimis benefits in excess of the threshold can still be exempt as “other benefits,” together with the employees’ 13th month pay, but not to exceed P90,000. Thus, providing de minimis benefits can also be a way of fully exhausting the P90,000 tax exemption.

When planning for their employees’ salary increases, employers may want to consider the nontaxable de minimis benefits listed above in lieu of salary increases. Of course, the decision has to be related to the effect on the employees’ amount of basic pay, which is also used as a reference for other computations of employee benefits.

The effects of the TRAIN law are debatable. While some are positive about the provisions of the law reducing the income taxes of individuals, others criticize the increased excise taxes that arguably caused an increase in the prices of commodities. Legislators and civil society groups are now calling for the review of the TRAIN Law due to its supposed negative impact on prices. While the debates and conversations are ongoing, taxpayers should stay informed of the other exemptions available to them, which may help manage the current situation we are in.