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This article was originally published on June 1, 2022 and has been updated to reflect recent legal developments.

This article is provided for general informational purposes only and does not create, nor shall it be construed as creating, a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. For advice on specific legal concerns, you are encouraged to engage the services of a qualified lawyer. You may also directly consult Alburo Alburo and Associates Law Offices for proper guidance tailored to your situation.

The views and information presented herein are based on the laws, rules, and jurisprudence prevailing at the time of writing. They do not take into account subsequent legal developments and should not be relied upon as a substitute for professional legal advice.

AT A GLANCE:

De minimis benefits are benefits of relatively small values provided by the employers to the employee on top of the basic compensation intended for the general welfare of the employees. These are not subject to income tax as well as withholding tax on compensation of both managerial, and rank and file employees.

Are Employee’s Incentives Taxable?

Employees’ benefits are generally subject to income tax, unless specifically exempted by law or regulations or incentives are in the nature of the previously “de minimis” benefits. (Revenue Memorandum Circular No. 50-2018)

Are There Tax-Exempt Benefits?

Yes, there are. Under National Internal Revenue Code of 1997, Section 32(C), the following fringe benefits are not taxable:

Section 32. (C) Fringe Benefits Not Taxable. – The following fringe benefits are not taxable under this Section:

1. Fringe benefits which are authorized and exempted from tax under special laws;
2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans;
3. Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and
4. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.

De minimis benefits are benefits of relatively small values provided by the employers to the employee on top of the basic compensation intended for the general welfare of the employees. These are not subject to income tax as well as withholding tax on compensation of both managerial, and rank and file employees.

Under Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and inclusion or TRAIN law, as further amended by Revenue Regulation No. 029-2025, and its implementing rules and regulations, the following de minimis benefits are not subject to income tax as well as withholding tax on compensation income of both managerial, and rank and file employees:

1. Monetized unused vacation leave credits of private employees not exceeding twelve (12) days during the year
2. Monetized value of vacation and sick leave credits paid to government officials and employees
3. Medical cash allowance to dependents of employees, not exceeding Two Thousand Pesos (PhP2,000) per employee per semester or Three Hundred Three Pesos (PhP333.00) per month
4. Rice subsidy of Two Thousand Five Hundred Pesos (PhP2,500.00) or one sack of 50kg of rice per month amounting to not more than Two Thousand Five Hundred Pesos (PhP2,500.00)
5. Uniform and clothing allowance not exceeding Eight Thousand Pesos (PhP8,000) per annum
6. Laundry allowance not exceeding Four Hundred (PhP400.00) per month
7. Employees achievements awards which must be in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding Twelve Thousand Pesos (PhP12,000) received by employee under an established written plan which does not discriminate in favor of highly paid employees
8. Gifts made during Christmas and major anniversary celebrations not exceeding Six Thousand Pesos (PhP6,000.00) per employee per annum
9. Daily meal allowance for overtime work and night/graveyard shift not exceeding thirty percent (30%) of the basic minimum wage on a per region basis
10. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total monetary value received from both CBA and productivity incentive schemes combined do not exceed Twelve Thousand Pesos (PhP12,000.00) per employee per taxable year.

What if there are other de minimis benefits but not included in the above enumeration?

According to the Bureau of Internal Revenue Regulations, all other benefits given by employers which are not included in the above enumeration shall not be considered as “de minimis” benefits. Thus, anything not included in the said enumeration is subject to income tax as well as withholding tax on compensation income.

What if the employer provides benefits which are higher than the above provided ceiling?

If the employer provides more than the ceiling or limitations, the amount in excess of the limit would be taxable and subject to withholding tax on compensation. However, such excess is subject to the rule on the PhP90,000 amount for 13th month pay and other benefits where excess de minimis benefits may not be taxable if the total of such excess plus the 13th month pay and other benefits is within the PhP90,000. (Revenue Memorandum Circular No. 50-2018)

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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