From illustrative to exclusive

Given today’s rising prices caused mainly by the surge on fuel costs, every amount that goes into the pay slip as take home pay matters. Measures geared towards providing some relief for workers, be it through a legislative wage hike or any other possible alternatives, even though minimal in amount, must be considered. This should be a shared concern not only of the employees and their employers but also of government.

One of such measures that has long been adopted is the grant of “De Minimis” benefits that are not subject to income tax. De Minimis benefits are benefits in the nature of facilities or privileges furnished or offered by an employer to his employees, that 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 his employees. De Minimis benefits are exempt from income tax pursuant to Section 33(C)(4) of the National Internal Revenue Code of 1997, as amended (Tax Code), as implemented by Revenue Regulations (RR) Nos. 2-98 and 3-98, as amended.

On 16 March 2011, the Bureau of Internal Revenue introduced further amendments to RR Nos. 2-98 and 3-98. These amendments are set out in RR No. 5-2011. The enumeration of benefits that are considered as “de minimis” has been revised under said regulations, as follows:

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

b) Monetized value of vacation and sick leave credits paid to government officials and employees;

c) Medical cash allowance to dependents of employees, not exceeding P750.00 per employee per semester or P125.00 per month;

d) Rice subsidy of P1,500.00 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500.00;

e) Uniform and clothing allowance not exceeding P4,000.00 per annum;

f) Actual medical assistance, e.g. medical allowance to cover medical and health care needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000.00 per month;

g) Laundry allowance not exceeding P300.00 per month;

h) 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;

i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum;

j) Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basic minimum wage on a per region basis.

Unlike previous amendments, RR No. 5-2011 did not increase the ceiling of any of the benefits. The amendments made were mostly to qualify the list of the benefits that are to be considered as “de minimis”. 

Note that flowers, fruits, books and similar items of small value given to employees during special circumstances such as on account of illness, celebration of marriage and birth of baby among others, which are listed in the previous RRs, are no longer included in the enumeration provided under RR No. 5-2011.

Before, the list of “de minimis” benefits generally spoke of including the monetized value of leave credits paid to government officials and employees. Now, RR No. 5-2011 qualifies the leave credits as pertaining to only vacation and sick leave credits. However, the monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year remains the same.

Another amendment is on the daily meal allowance. RR No. 5-2011 specifically limits the enjoyment of the benefit in instances of overtime work and night/graveyard shift.

The most significant amendment introduced by RR No. 5-2011 is the inclusion of the phrase “All other benefits given by employers which are not included in the above enumeration shall not be considered “de minimis” benefits, and hence, shall be subject to income tax as well as to withholding tax on compensation income.” Thus, the enumeration of “de minimis” benefits is now an EXCLUSIVE enumeration.

This is a complete departure from previous BIR rulings which liberally held that the enumeration of benefits under RR Nos. 2-98 and 3-98 are merely illustrative and non-exclusive. For example, in BIR Ruling DA-(ECE-020)398-09, it was held that even if the meal allowance is not being given on the occasion of overtime work, it may still be considered “de minimis” meal allowance. Further, in BIR Ruling DA-336-06, it was held that although performance incentive award is not part of the enumeration provided under RR Nos. 2-98 and 3-98, it is still considered as “de minimis benefit” exempt from Income Tax.

Now, as the rule stands, the benefits provided by the employer to its employees that do not specifically fall under any of those enumerated under RR No. 5-2011 shall not be considered as “de minimis” benefits. The standard required for a benefit to be considered “de minimis” is no longer its minimal value, but rather, its inclusion in the enumeration.  

With this current aggressive position of the BIR, it is imperative for everyone to know what is in the exclusive list of “de minimis” benefits.

(Benedict Vincent L. Ines is a Supervisor for Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email mailto:[email protected]or mailto:[email protected])