Exploring ‘de minimis’ benefits

With the country’s economic situation, employees nowadays are quite keen on their net take home pay. Thus, employers must explore ways to address this concern.   

Among those considered are the ‘de minimis’ benefits which are exempt from tax. ‘De minimis’ benefits are benefits which are 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 its employees. The regulations does not define the term “relatively small in value” but provide the threshold of the various types of facilities or privileges that are categorized as ‘de minimis’ benefits.

‘De minimis’ benefits are excluded from the gross income of employees for income tax purposes. The benefits are also excluded in the computation of the P30,000 ceiling of ‘other benefits’ which are exempt from income tax. This means that ‘de minimis’ benefits are neither subject to withholding tax on compensation nor to the fringe benefits tax.

The regulations have expressly considered the following as ‘de minimis’ benefits:

(a) Monetized unused vacation leave credits of employees not exceeding ten days during the year and the monetized value of leave credits paid to government officials and employees

(b) Medical cash allowance to dependents of employees not exceeding P750 per employee per semester or P125 per month

(c) Rice subsidy of P1,500 or one sack of 50-kg. rice per month amounting to not more than P1,500

(d) Uniforms 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 25 percent of the basic minimum wage.

The employer may provide ‘de minimis’ benefits to its employees other than the items listed above. However, to avail of the tax exemption, the employer should carefully study the reasonableness of the amount and the benefits to be given. It may be also prudent to secure a confirmatory ruling from the BIR to validate the tax exemption of the benefits, particularly when the total cost of the benefit to the employer is material.

The employer may provide the ‘de minimis’ benefits in addition to the current salary of its employees. The benefits given will form part of the employees’ compensation but will not be taxable. The employer may therefore consider giving ‘de minimis’ benefits in lieu of increasing the salary of employees.

Indeed, the huge effect of taxes on the employees’ take home pay has forced many employers to take a hard look at the compensation package of employees with the view of maximizing employees’ enjoyment of the benefits within the parameters of Philippine tax laws.

(Sheryl Mae T. Amarille-Vegilla is a manager of 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 manila@kpmg.com or svegilla@kpmg.com) -Mae T. Amarille-Vegilla (The Philippine Star)