CHAPTER 11: FRINGE BENEFIT TAX

WHAT IS FRINGE BENEFITS?

- pertain to all other benefits or incentives of employees other than basic pay. It can be goods,
services, or other benefits furnished by the employer to the employees.

TYPES OF FRINGE BENEFITS:

1. Fringe benefits that are fixed every payroll is part of the compensation income
2. Fringe benefits that are variable and based on performance-based is supplemental compensation
3. Fringe benefits that in the form of incentives is considered part of the 13th month pay and other
benefits
4. Fringe benefits furnished for the employer convenience or necessity are excempt from income
tax.

WHAT IS THE TREATEMENT OF OTHER FRINGE BENEFITS?

1. For rank and file employees-included as “other benefits” under 13th month pay and other
benefits.
2. For managerial and supervisory employees- excluded in the compensation income are subjected to
Final Fringe Benefit Tax.

GENERAL CATEGORIES OF FRINGE BENEFITS SUBJECT TO FINAL TAX

A. MANAGEMENT PERQUISITE BENEFITS

- Perquisite beenfits also called “ management perks’ are highly porivileged incentives given only to
special group of employees.

B. EMPLOYEE PERSONAL EXPENSES

- if the employer shoulder the personal expenses of his/her employee then it can be considered as
fringe benefit even if the expense is receipted in the name of the employer.

EXCEMPTED TO FRINGE BENEFIT :

A. Fringe benefits which are authorized and excempted from tax under special laws
B. Benefits required by the nature of, or necessary to the trade, business or profession of the
employer
C. Beneifit given for the convenience or advantage of the employer
D. Contributions of the employer for the benefit of the employee to retirement, insurance, and
hospitalization benefits plan
E. Benefit given to rank and file employees whether or not granted under a collective bargainig
agreeement
F. De minimis benefits with their legal limits

WHAT IS FRINGE BENEFIT TAX?

FRINGE BENEFIT TAX- is a final tax imposed on the fringed benefit furnished, granted or paid by the
employer to the employee, except rank and file employees, whether such employer is an individual,
professional partnership or a corporation, regardless of whether the corporation is taxable or not, or
the government and its instrumentalities

SUCH AS, BUT NOT LIMITED TO:

1. Housing benefits
2. Expense account
3. Vehicles of any kind
4. Household personnel, such as maid driver or others
5. Interest, for the difference between the market rate (12%) and the actual interest granted
6. Membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations
7. Expense for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health and other non-life insurance premiums or similar accounts in excess of what they
allows

CHARACTERISTIC OF FRINGE BENEFITS TAX:

A. FINAL TAX- withheld by the employer at source.

B. TAX UPON THE FRINGE BENEFITS OF MANAGERIAL OR SUPERVISORY EMPLOYEES- It a tax to the
employees and applies regardless of the identity of the employer
C. PAID BY THE EMPLOYER
D. GROSSED-UP TAX
E. DUE QUARTERLY

PROCEDURES IN COMPUTING FRINGE BENEFIT TAX

1. Determine the monetary value

Monetary value refers to the taxable amount of benefits taken home or realized by the
managerial or supervisory employee.

2. DETERMINE THE GROSS-UP RATE AND FRINGE BENEFIT TAX RATE APPLICABLE FOR THE
TAXPAYER
3. DETERMINE THE GROSSED-UP MONETARY VALUE BY DIVIDING THE MONETARY VALUE BY THE
GROSS-UP RATE.
4. DETERMINE THE FRINGE BENEFIT BENEFIT TAX BY MULTIPLYING THE FRINGE BENEFIT TAX RATE
TO THE GROSSED-UP MONETARY VALUE.

RULES VALUATION OF FRINGE BENEFITS

1. Benefits paid in cash- monetary value is the amount paid for in cash
NOTE: when the employer pays the rent of the residence of the employee. Monetary value is 50% of
the rental payment.

2. Benefits paid in kind- monetary value is the fair value or book value of the thing given, whichever
is higher.

3. Benefits that are furnished- when the benefit is given in the form of free usee of the employers
property, the monetary value is 50% of the rental value of the property. If the property has no
available rental value, the depreciation value is used.

The presumptive useful lives of the property are:

A. 20 years for real properties, hence the depreciation value is computed as 1/20 or 5% of the value
of the property.
B. 5 years for movable properties, hence the depreciation value is computed as 1/5 or 20% of the
value of the property.
SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION

1. TAXABLE HOUSING BENEFITS

MONETARY VALUE = 50% OF THE BENEFIT----- If the employer only let his/her employer use the
property
MONETARY VALUE= 100% OF THE VALUE OF THE BENEFIT - if the employer transfer the ownership
to his/her employee

2. EXCEMPT HOUSING PRIVILEGES:

A. AFP, PAF, PHILIPPINE ARMY, AND PHILIPPINE NAVY ON THEIR QUARTERS which are within or
accessible from the military camp so they can be readily available on call to meet the exigencies of
their military service.
B. Housing unit situated or adjacent to the premises of a business factory (within a maximum of 50
meters) from the perimeter of the business premises.
C. Temporary housing for an employee in a housing unit 3 months or less (ie., not exceeding one
quarter)

3. EXPENSE ACCOUNT
MONETARY VALUE= AMOUNT PAID BY THE EMPLOYER

4. PROPERLY DOCUMENTED EMPLOYER EXPENSE- when expense is in the name of the employer and
the expenditure does not partake of the nature of a personal expense attributable to the employee, it
is not a fringe benefit.

4. MOTOR VEHICLES OF ANY KIND

A. MONETARY VALUE= 100% OF THE COST OF THE MOTOR VEHICLE- purchase by employer in the
name of the employee regardless of whether the same is used partially in the business of the
employer.
B. MONETARY VALUE= 100% OF THE CASH BENEFIT, EXCEPT WHEN THE AMOUNT IS SUBJECTED TO
WITHOLDING TAX ON COMPENSATION
C. MONETARY VALUE= (1/5) OR 20% OF THE ACQUISITION COST- purchase of car on installment
basis by the employer with ownership placed in the name of the employee even in the car is used
partly for the employers business, the benefit is the acquisition cost divided by 5 years.