JPIAA-U
Compensation Income and
Fringe Benefits
Taxation
Overview of the Handouts:
1. Compensation Income
2. Tax model on compensation
3. De minimis benefits
4. Components of gross taxable compensation
income
5. 13th month pay and other benefits
6. Withholding tax on compensation
7. Fringe Benefits
8. Rule in Valuation of fringe benefit
9. Special guidelines in the determination of
monetary value of the fringe benefits
10. Exempt fringe benefit from fringe benefit tax
11. Fringe benefit tax rates and computation of
the fringe benefits tax
A. Compensation Income
- Gross compensation income is
defined as taxable income arising
from an employer/employee
relationship.
- This includes salaries, wages,
compensation, commissions,
emoluments, and honoraria; bonuses
and other benefits exceeding
PHP90,000; allowances for
transportation, representation,
entertainment, and other similar
items; fees (including director’s fees
paid to a director who is at the same
time an employee of the payer);
taxable pensions; taxable retirement
pay; and other income of a similar
nature, including compensation paid
in-kind.
B. Tax model on compensation
Gross Compensation
Less: Mandatory Deductions
Exempt Benefits
Taxable Compensation Income
INCOMETAX – Compensation Income and Fringe Benefits
Exempt Benefits of minimum wage
earners
- Basic minimun wage
- Holiday pay
- Hazard pay
- Overtime pay
- Night shift differential pay
C. De minimis benefits
- These 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.
- Since these are of relatively small
values, they are excluded from gross
income within the given threshold.
Below is the list of de minimis benefits
with some items updated in amounts by
Revenue Regulations No. 11-2018 (RR
11-2018):
a. Monetized unused vacation leave
credits of private employees not
exceeding 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 P1,500 per employee
per semester or P250 per month;
d. Rice subsidy of P2,000 or one
sack of 50-kg rice per month
amounting to not more than
P2,000;
e. Uniforms and clothing allowance
not exceeding P6,000 per annum;
f. Actual medical assistance, e.g., a
therapeutic benefit to cover
XX medical and healthcare needs,
XX annual medial/executive check-
XX up, maternity assistance, and
XX routine consultations, not
exceeding 10,000 per annum;
g. Laundry allowance not exceeding
P300 per month;
 JPIAA-U
h. Employees’ achievement awards,  Supplemental compensation income
which must be in the form of - Variable performance-based pay
tangible personal property other - Excess 13th month pay and other
than cash or gift certificates, with benefits above P90,000 (if the
an annual monetary value not employee is a rank & file)
exceeding P10,000 received by
the employee under an E. 13th month pay and other benefits
established written plan which 13th month pay and other benefits are
does not discriminate in favor of exempted in computing the gross
highly paid employees; compensation income but not exceeding
i. Gifts given during Christmas and P90,000. If this exceeds, the excess
major anniversary celebrations amount is considered taxable.
not exceeding P5,000 per
employee per annum; F. Withholding tax on compensation
j. Daily meal allowance for overtime
work and night/graveyard shift not When to file withholding tax?
exceeding 25% of the basic - Date of accrual or date of payment
minimum wage; and whichever comes first
k. Benefits received by an employee
BIR Form 1604CF – Annual Information
by virtue of a Collective
Return of Income Taxes Withheld on
Bargaining Agreement (CBA) and
Compensation and Final Withholding
productivity incentive schemes,
Taxes
provided the total annual
BIR Form 2316 – Certificate of
monetary value received from
Compensation Payment/Tax Withheld
both CBA and productivity
incentive schemes combined do
Withholding Tax Table for Compensation
not exceed P10,000 per employee
Income
per taxable year (Note that if it
exceeded 10,000, the whole
amount is taxable).

If the employee is a rank & file - Any

amount of de minimis benefits in
excess of the threshold can still be
exempt as “other benefits,” together
with the employees’ 13th month pay,
but not to exceed P90,000.

If the employee is a G. Fringe Benefits

manager/supervisor - Any amount - Fringe benefits are benefits provided
of de minimis benefits in excess of the by employers to employees in
threshold is taxable under fringe addition to their declared
benefit tax. compensation for performing a
certain service.
D. Components of gross taxable
compensation income Nature of Fringe Benefit Tax
 Final Tax
 Regular compensation income – fixed  Imposed upon the fringe benefits of
benefits everyday managerial or supervisory employee

INCOMETAX – Compensation Income and Fringe Benefits

 JPIAA-U
 Withheld at source, hence, paid by Illustration:
employers  Monetary Value - 3,250,000
 Grossed-up tax  Resident citizen
 Quarterly tax
To compute for the fringe benefit tax:
H. Rule in Valuation of fringe benefit Grossed-up value = 3,250,000/65%
a. Paid in cash – value is the amount = 5,000,000
paid FBT = 5,000,000 x 35%
b. Paid in kind – value shall be the = 1,750,000
fair market value or the book value
of the property transferred,
whichever is higher
c. Furnished – value is equal to the
depreciation value of the property

I. Special guidelines in the

determination of monetary value of
the fringe benefits

Presumed Useful Life

- Personal property – 5 years
- Real Property – 20 years

It is assumed that usage is 50% for

business use and 50% for personal use

J. Exempt fringe benefit from fringe

benefit tax
a. Mandatory Fringe Benefits
b. De minimis benefits
c. Fringe benefits of rank & file
employees
d. Those provided under
convenience of the employer rule
e. Those that are necessary to the
trade or business of the employer

K. Fringe benefit tax rates and

computation of the fringe benefits tax

Tax
Type of Employee Rate/Gross-
up Rate
Resident or citizen 35%/65%

NRA-NETB 25%/75%

INCOMETAX – Compensation Income and Fringe Benefits