13th month pay

*The 13th month pay should not be less than one-twelfth (1/12) of the total basic salary
earned by an employee within the calendar year. This is according to the Department of Labor and
Employment (DOLE) Labor Advisory No. 25, Series of 2023.
2. Other benefits
A. Christmas bonus of private employees
*It is equivalent to 1/12 of an employee's basic annual salary, which is usually given in the
last month of the year. According to Presidential Decree No. 851, this bonus must be given on or
before December 24 of every year.
b. Christmas gifts other than Christmas or anniversary gifts of private employees (RR2-98, as
amended by RR5-2011)
*Moreover, if the employees receive gifts during Christmas and major anniversary
celebrations not exceeding P5,000 per annum, this will constitute non-taxable “de minimis” benefits
not subject to income tax as well as withholding tax on compensation income of both managerial and
rank and file employees.
c. Additional compensation allowance (ACA) of government personnel (RR8-2000)
*The ACA (Additional Compensation Allowance) of government personnel are treated as
"other benefits" together with the Christmas bonus, 13th month pay and productivity incentives.
Therefore, the excess of the Php30,000 limit is taxable as part of income tax.
d. 14th month pay, 15th month pay, etc.
*
e. Other fringe benefits of rank and file employees
*Common fringe benefits are basic items often included in hiring packages. These include
health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies,
below-market loans, employee discounts, employee stock options, and personal use of a company-
owned vehicle.

Bonus VS. Gift

1. Bonus:
A bonus is an additional amount of money or benefits given to an employee on top of their regular
salary. Bonuses are typically provided as a reward for achieving certain performance targets or
meeting specific goals. In terms of compensation income, bonuses are generally considered taxable
income and are subject to income tax and other applicable deductions. The employer usually
withholds taxes from the bonus amount and includes it in the employee's Form W-2.

2. Gift:
A gift, on the other hand, is something voluntarily given without any expectation of payment or
return. In the context of compensation income, gifts from employers to employees are generally
treated as taxable income and should be reported on the employee's tax return. However, there are
certain exceptions and limitations when it comes to gifts. In the United States, for example, there is a
specific exclusion for de minimis fringe benefits. Gifts that meet the criteria of being de minimis, such
as occasional snacks or holiday gifts of minimal value, may be excluded from taxable income. The
specific rules and limitations regarding gifts can vary by country and jurisdiction.

BENEFITS FOR THE CONVENIENCE OR ADVANTAGE OF THE EMPLOYER

Benefits provided for the convenience or advantage of the employer are generally
considered taxable compensation income for the employee. These benefits are provided primarily for
the benefit or convenience of the employer, rather than the employee.

Examples of benefits for the convenience or advantage of the employer include:

1. Company-provided housing: If an employer provides housing to an employee for the employer's

convenience, the value of the housing is typically considered taxable compensation income.

2. Employer-provided vehicles: If an employer provides a vehicle to an employee for business

purposes, but the vehicle is also available for the employee's personal use, the personal use portion is
usually considered taxable compensation income. The value of the personal use is typically
determined using fair market value or a standard mileage rate.

3. Employer-paid meals: If an employer provides meals to an employee for the convenience of the
employer, such as when the employee cannot leave the workplace during meal breaks, the value of
the meals is generally included in the employee's compensation income.

4. Employer-provided services: If an employer provides services to an employee, such as

housekeeping, laundry, or personal shopping services, for the convenience of the employer, the value
of these services is typically considered taxable compensation income.

It's important to note that the specific rules and regulations regarding the taxation of these benefits
may vary by country and jurisdiction. The employer is responsible for determining the taxable value of
these benefits and including them in the employee's compensation income.

Composition of taxable compensation income

Regular compensation- Regular compensation refers to the wages, salaries, or other forms of
payment that an employee receives from their employer in exchange for their work or services
rendered. It is the standard or regular pay that an employee earns for their job duties and
responsibilities.

Regular compensation can include various components such as:

1. Base Salary: This is the fixed amount of money that an employee receives for their work on a
regular basis. It is usually set at an hourly, weekly, bi-weekly, or monthly rate.

2. Hourly Wages: Some employees are paid based on the number of hours worked. In this case,
regular compensation would be the total hours multiplied by the hourly wage.

3. Overtime Pay: If an employee works more than the normal working hours specified by their
employment contract or labor laws, they may be entitled to additional compensation for those extra
hours. Overtime pay is typically calculated at a higher rate, such as time and a half or double time.

4. Bonuses: Employers may provide performance-based bonuses or incentives to employees as a form

of additional compensation. These bonuses can be based on individual or group performance,
company profitability, or achieving specific targets.

5. Commissions: Some employees, such as salespeople or agents, may earn commissions based on the
sales or revenue they generate. Commissions are usually calculated as a percentage of the total sales
or revenue achieved.

Regular compensation is typically subject to income tax and other applicable deductions, such as
Social Security contributions and Medicare taxes. Employers are responsible for withholding the
appropriate taxes from employees' regular compensation and remitting them to the relevant tax
authorities.

It's important for both employers and employees to understand the terms and conditions of regular
compensation, including how it is calculated, when it is paid, and any applicable deductions or taxes.
This information is usually outlined in an employment contract or collective bargaining agreement.

Employer personal expenses

Employer personal expenses should not be included as compensation income for employees.
Compensation income is typically considered to be the wages, salaries, or other forms of payment
that an employee receives from their employer in exchange for their work or services rendered.
Employer personal expenses, on the other hand, are expenses incurred by the employer for their own
personal use or benefit. These expenses are not directly related to the work or services performed by
employees, and therefore should not be included as compensation income.

Examples of employer personal expenses may include personal meals, personal travel expenses,
personal entertainment expenses, or personal vehicle expenses unrelated to business purposes.

It's important for employers to properly distinguish between business expenses and personal
expenses. Business expenses incurred by the employer for legitimate business purposes may be
deductible for tax purposes, while personal expenses should be paid for and accounted for separately
from compensation income.

If an employer mistakenly includes personal expenses as part of an employee's compensation income,

it could lead to incorrect tax reporting and potential legal and tax consequences. Employers should
consult with tax professionals or accountants to ensure proper handling of expenses and
compensation income.

Tax treatment of other fringe benefits

Fringe benefits provided to managerial and supervisory employees are subject to the 32%
fringe benefit tax. According to Section 33(A) of the NIRC, fringe benefit is a final tax on employee's
income to be withheld by the employer. It is the company that is liable for the fringe benefit tax and
not the employee

Tax treatment of 13th month pay and other benefits

Under Section 32(B) of the National Internal Revenue Code (NIRC), as amended by Republic
Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, 13th month pay and other
benefits are exempt from income tax and withholding tax on compensation up to a maximum of
P90,000.