FRINGE BENEFITS

Classifications:
1. Fringe benefits to rank and file
employees; and
2. Fringe benefits to employees holding
managerial or supervisory positions.
FRINGE BENEFITS TO RANK
AND FILE EMPLOYEES

*TAXABLE
*EXEMPT
TAXABLE FRINGE BENEFITS TO RANK
AND FILE EMPLOYEES
1.Meals furnished or subsidized by employer.
2.Rental value of living quarters furnished to an
employee.
3.Premiums on life insurance of an employee where the
insured employee is directly or indirectly the
beneficiary.
4.Fixed/variable transportation, representation and other
allowances.
 TAXABLE FRINGE BENEFITS TO RANK
AND FILE EMPLOYEES
5. Performance bonus, relay station allowance, and danger
exposure allowance
6. PERA granted to government employees
7. Salaries and allowances during leaves of absence (VL and SL)
8. Fees received (including director’s fees) for the performance
of a service for the employer
9. Dismissal (involuntary separation) payment
 EXEMPT FRINGE BENEFITS TO RANK
AND FILE EMPLOYEES
1. Meals, living quarters, de minimis entertainment, medical
services, courtesy discounts on purchases, sack of rice, etc.
given for the “convenience of the employer” or for
promoting the contentment, health, efficiency or goodwill of
the employee.
2. Reimbursement-type travelling, representation and other
allowances. Except excess advances retained by the
employee.
3. Retirement & separation benefits exempt under the law.
 PRACTICE PROBLEMS
All of the following fringe benefits are not
taxable, except:
a. De minimis benefits
b. Benefits given to a clerk of the company
c. Those authorized & exempted under contractual
agreements
d. Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization
 PRACTICE PROBLEMS
TRUE or FALSE?
The monetized value of unutilized vacation
leave credits of 10 days or less which were
paid to the employee during the year are
not subject to income tax and to the
withholding tax.
 PRACTICE PROBLEMS
TRUE or FALSE?
The salary of an employee on vacation or
sick leave, which are paid notwithstanding
his absence from work, constitutes
compensation income.
 PRACTICE PROBLEMS
TRUE or FALSE?
Any amount which is required by law to be
deducted by the employer from the compensation
of an employee including the tax withheld is
considered as part of the employee’s compensation
and is deemed to be paid to the employee as
compensation at the time the deduction is made.
 PRACTICE PROBLEMS
TRUE or FALSE?
If living quarters or meals are furnished to
an employee for the convenience of the
employee, the value thereof need not be
included as part of compensation income.
 A and B are employed as driver of X and Y, respectively, with a
monthly salary of 20,000 each. In addition, A and B are provided
free meals and living quarters w/ a monthly value of 10,000. A eats
and lives in X’s residence because he is a bachelor and could help in
other household chores like gardening and running errands for the
family. On the other hand, B stays with Y because the latter is a
doctor available 24 hours a day. What is the gross compensation
income of A and B?

A B A B
a. 30,000 20,000 c. 30,000 30,000
b. 20,000 20,000 d. 20,000 30,000
 FRINGE BENEFITS TO MANAGERIAL
OR SUPERVISORY EMPLOYEES

*SUBJECT TO FINAL TAX

*NOT SUBJECT TO FINAL TAX
 TAXABLE FRINGE BENEFIT

Any good, service or other benefit

furnished or granted in cash or in kind
by an employer to an employee (except
rank and file employees) such as, but
not limited to:
a. Housing;
b. Interest on loan at less than market rate to the
extent of the difference between the market rate
and actual rate granted;
c. Membership fees, dues and other expenses borne
by the employer for the employee in social and
athletic clubs or other similar organizations;
d. Expenses for foreign travel;
e. Household personnel, such as maid, driver and
others;
f. Expense account;
g. Holiday and vacation expenses;
h. Life or health insurance and other non-
life insurance premiums or similar
amounts in excess of what the law
allows;
i. Vehicle of any kind; and
j. Educational assistance to the employee
or his dependents.
FRINGE BENEFITS NOT SUBJECT TO
FINAL TAX
a. Benefits given to rank and file employees, whether granted
under CBA or not;
b. Benefits given is required by nature of, or necessary to the
trade, business or profession of the employer;
c. Benefits 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
benefit plan;
e. De minimis benefits promulgated by the BIR.
 RATE OF FINAL TAX AND
TAX BASE
Based on GROSSED-UP Monetary Value of the taxable
fringe benefits
1/1/1998 – 34%
1/1/1999 – 33%
1/1/2000 – 32%
1/1/2018 – 35%
 NOTE: Grossed-up monetary value of fringe
benefit furnished to NRA-NETB in the PH shall
be determined by dividing the actual monetary
value of the fringe benefit received by the
difference between 100% and the applicable
Final Income Tax Rate of 25%.
 Valuation of Taxable Fringe Benefits

A. If the fringe benefit is granted in money,

or is directly paid for by the employer,
then the value is the amount granted or
paid for.
 Valuation of Taxable Fringe Benefits

B. If the fringe benefit is granted or furnished

by the employer in property and ownership
is transferred to the employee, then the
value of the fringe benefit shall be equal to
the FMV of the property.
 Valuation of Taxable Fringe Benefits

NOTE: The FMV of a real property is the

FMV determined by the BIR Commissioner
or the FMV determined by the Provincial
or City Assessor, whichever is HIGHER.
 Valuation of Taxable Fringe Benefits

C. If the fringe benefit is granted or furnished

by the employer in property but the
ownership is not transferred to the
employee, the value of the fringe benefit is
equal to the depreciation value of the
property.
 VALUATION GUIDELINES
A. HOUSING PRIVILEGE
CASE 1 – The employer leases (as lessee)
residential property for the use of a
SUPERVISOR.
Value of the benefit – rental fee paid by the employer under the lease
contract.
Monetary value of the benefit – 50% of the value of the benefit.

Tax base (Taxable value) – Grossed-up monetary value.

 A Co. leased a residential house for the use
of its branch manager. The rent agreed upon
under the lease contract was 130,000 per
month. Compute the fringe benefit tax.
Value of the fringe benefit per month 130,000
Monetary value of the benefit (130,000 x 50%) 65,000
Tax base (Grossed-up monetary value) (65,000/65%) 100,000
Fringe benefit tax (100,000 x 35%) 35,000
 CASE 2 – The employer owns residential
property which was assigned to an officer
for his use as residence.
Annual value of the benefit – 5% of FMV of the land and
improvement as determined by the BIR Commissioner or
the Assessor, whichever is higher.
Monetary Value of the benefit – 50% of the value of the
benefit.
Tax base – Grossed-up monetary value
B owns a condominium unit which an officer was
allowed to use as residence. Cost of the unit was
9,000,000. The FMV per Commissioner’s valuation
is 7,000,000 and the Assessor’s is 7,800,000.
Compute the fringe benefit tax due per month.
Value of the fringe benefit per month [(5% x7,800,000)/12] 32,500
Monetary value of the benefit (32,500 x 50%) 16,250
Tax base (Grossed-up monetary value) (16,250/65%) 25,000
Fringe benefit tax (25,000x 35%) 8,750
CASE 3 – The employer purchases residential
property on the installment basis and allows
an officer to use the same as his residence.
Annual value of the benefit – 5% of the acquisition cost,
exclusive of interest.

Monetary Value of the benefit – 50% of the value of the

benefit.
Tax base – Grossed-up monetary value
 C Co. purchased a real property in installment
basis and allowed an officer to use the same as his
residence. Installment contract price was
2,600,000. Compute the fringe benefit tax per
quarter.
Value of the fringe benefit per month (5% x2,600,000) 130,000
Monetary value of the benefit (130,000 x 50%) 65,000
Tax base (Grossed-up monetary value) (65,000/65%) 100,000
Quarterly Grossed-up monetary value (100,000 x 3/12) 25,000
Fringe benefit tax (25,000x 35%) 8,750
 CASE 4 – The employer purchases a
residential property and transfers ownership
thereof in the name of an officer.
Value of the benefit – employer’s acquisition cost or FMV,
whichever is higher. (The FMV is the higher between the BIR
Commissioner’s value and the Assessor’s value)

Monetary Value of the benefit – entire value of the benefit.

Tax base – Grossed-up monetary value
 D Co. purchased a house and lot and transferred
title thereto to its president. The cost of
acquisition was 2,000,000. The BIR Commissioner’s
FMV was 2,600,000. Compute the fringe benefit
tax per quarter.

Value of the fringe benefit (Commissioner’s value) 2,600,000

Monetary value of the benefit (entire benefit) 2,600,000
Tax base (Grossed-up monetary value) (2,600,000/65%) 4,000,000
Fringe benefit tax (4,000,000x 35%) 1,400,000
 CASE 5 – The employer purchases a residential
property and transfers ownership thereof in the
name of an officer for the latter’s residential use at
a price less than the employer’s acquisition cost.
Value of the benefit – The difference between the FMV of
the BIR Commissioner or the FMV of the Assessor, whichever
is higher, and the cost to the employee.

Monetary Value of the benefit – entire value of the benefit.

Tax base – Grossed-up monetary value.
 E Co. purchased a residential house at a cost of 2,300,000.
The property was transferred by E Co. to its president to be
used for residential purposes for 1,980,000. the BIR
Commissioner’s value is 2,500,000, while Assessor’s value
is 2,630,000. Determine the fringe benefit tax.
FMV of assessor (higher than Commissioner’s value) 2,630,000
Less: Cost to the employee 1,980,000
Value of the fringe benefit 650,000
Monetary value (entire value) 650,000
Grossed-up value (650,000/65%) 1,000,000

Fringe benefit tax in 2018 (1,000,000 x 35%) 350,000

 CASE 6 – Housing benefits which are not taxable
a. Housing privilege of military officials of the AFP
consisting of officials of the PH Army, PH Navy and
PH Air Force.
b. A housing unit which is situated inside or adjacent
to the premises of a business/factory. Max.: 50m
from the perimeter of the business premises.
c. Temporary housing for an employee who stays in
a housing unit for 3 months or less.
 INTEREST ON LOAN AT LESS THAN MARKET RATE
1. If the employer lends money to his employee free of
interest or at a rate lower than 12%, such interest
foregone by the employer (12% - interest assumed by
the employee) shall be treated a TAXABLE Fringe
Benefit.
2. The benchmark rate of 12% shall remain in effect
until revised by a subsequent regulation.
3. The regulation shall apply to installment payments or
loans with interest rate lower than 12% starting
1/1/1998.
 A local bank approved a loan of 812,500 in favor of an
officer with interest thereon at a special rate of 8% per
annum. Term of the loan is 6 months. Compute the fringe
benefit tax.

Interest at benchmark rate (812,500 x 12% x 6/12) 48,750

Less: Interest at special rate (812,500 x 8% x 6/12) 32,500
Interest forgone by the bank 16,250
Value of the benefit 16,250
Grossed-up value (16,250/65%) 25,000

Fringe benefit tax in 2018 (16,250 x 35%) 8,750

 SOCIAL AND ATHLETIC CLUB FEES

Membership fees, dues, and other expenses borne by the

employer for his employee, in social and athletic clubs or
other similar organizations shall be treated as TAXABLE
fringe benefits of the employee in FULL.
 EXPENSES FOR FOREIGN TRAVEL

Fringe Benefits of foreign travel which are TAXABLE:

 30% of the cost of first class airplane ticket
 Lodging cost in a hotel or similar establishment in
excess of 300 USD per day
 Traveling expenses paid by the employer for the travel
of the family members of the employee.
NOTE: When there is no documentary evidence showing
that the employee’s travel abroad was in connection with
business meetings or conventions, the entire cost of the
ticket, including cost of hotel accommodations and other
expenses incident thereto shouldered by the employer,
shall be treated as TAXABLE FRINGE BENEFITS.
NOTE: Business meetings shall be evidenced by official
communications from business associates abroad
indicating the purpose of the meetings.
NOTE: Business conventions shall be evidenced by official
invitations from the host organization or entity abroad.
 EXPENSES FOR FOREIGN TRAVEL
Fringe Benefits of foreign travel which are NOT TAXABLE:
Reasonable FTE of the employee paid by the employer for the purpose of attending
business meetings or foreign conventions.

 Inland travel expenses such as expenses for food,

beverages and local transportation.
 The cost of lodging in a hotel or similar establishment
amounting to an average of USD 300 or less per day.
 Cost of economy and business class airplane ticket.
 70% of the cost of first class airplane ticket.
 HOUSEHOLD EXPENSES
TAXABLE FRINGE BENEFITS
1. Salaries of household helper, personal driver of the
employee, or others.
2. Similar expenses like payment for homeowners
association dues, garbage dues, etc.
 EXPENSE ACCOUNT
1. Expenses incurred by the employee which are paid by
his employer shall be treated as taxable fringe
benefits.
2. Expenses paid for by the employee but reimbursed by
his employer shall be treated as taxable fringe
benefits. NOT TAXABLE IF:
a. The expenditures are duly receipted in the name of the employer AND
b. The expenditures are connected with the trade or business of the TP.
 EXPENSE ACCOUNT
3. Personal expenses of the employee paid for or reimbursed by the
employer shall be treated as TAXABLE fringe benefits of the employee
whether or not the same are duly receipted for in the name of the
employer.

4. RATA which are fixed in amounts and are regularly received by the
employee as part of their monthly compensation income shall NOT be
treated as taxable fringe benefits.
 PRACTICE PROBLEMS
In 2018, J. Cruz, married, general manager of A Inc., received the
following from his employer:
Salary, net of WT 67,000 783,000
Allowances and benefits received:
1. Rent paid by A, Inc., on the house which J. Crus
occupies for residential purposes, net of WT of 5% 123,000
2. Entertainment allowance subject to liquidation 100,000
NOTE: The amount of 67,500 was duly receipted in the
name of A Inc., and used to entertain the customers of
A Inc. The balance of 32,500 was used to purchase a TV
set for the personal use of J. Cruz.
3. Reimbursement of entertainment expenses paid by J. Cruz 40,000
NOTE: 16,250 was used to entertain J Cruz’ family and friends
and the balance of 23,750 was used to promote the company’s business.
Continuation…
4. Fixed monthly allowance for entertainment (5,000 x 12) 60,000
a. Compute the fringe benefits tax.
b. Determine the tax payable by Mr. Cruz.
a. Fringe benefits tax b. Tax payable by Mr. Cruz
Value of the benefit, rent paid (123,000/95%) 130,000
Monetary value – (130,000*50%) 65,000 Salary (783,000+167,000) 950,000
Grossed-up value (65,000/65%) 100,000 Monthly entertainment allowance 60,000
Fringe benefit tax(100,000*35%) 35,000 Taxable income 1,010,000

Value of the benefit: Tax on 800,000 130,000

Amount used to purchase TV set 32,500 Tax on the excess (210,000*30%) 63,000
Reimbursement of expenses for personal purposes 16,250 Tax due 193,000
Total 48,750 Less: Creditable Withholding Tax on salary 167,000
Grossed-up value (48,750/65%) 75,000 Tax payable 26,000

Fringe benefit tax (75,000*35%) 6,250

HOLIDAY AND VACATION EXPENSES

Holiday and vacation expenses of

the employee borne by his
employer shall be treated as
taxable fringe benefits.
 COST OF INSURANCE
TAXABLE FRINGE BENEFITS
- The cost of life or health insurance and other
non-life insurance premiums borne by the
employer for its employee.
 COST OF INSURANCE
NON-TAXABLE FRINGE BENEFITS
a. Contributions of the employer for the benefit of the
employee pursuant to the provisions of existing laws,
such as contributions to the SSS, GSIS and similar
contributions under the provisions of any other
existing laws.
b. The cost of premiums borne by the employer for the
group insurance of its employees.
 Motor Vehicle of any kind
CASE 1 – The employer purchases the motor
vehicle in the name of an officer.

Value of the benefit – acquisition cost

Monetary value – entire value of the benefit
Tax base – Grossed-up monetary value
 Motor Vehicle of any kind
CASE 2 – The employer provides an officer with
cash for the purchase of a motor vehicle in the
name of the officer.

Value of the benefit – amount of cash received by the

employee
Monetary value – entire value of the benefit
Tax base – Grossed-up monetary value
 Motor Vehicle of any kind
CASE 3 – The employer shoulders a portion of
the amount of the purchase price of a motor
vehicle in the name of an officer.

Value of the benefit – amount shouldered by the employer

Monetary value – entire value of the benefit
Tax base – Grossed-up monetary value
 Motor Vehicle of any kind
CASE 4 – The employer purchases a car on
installment in the name of an officer.

Value of the benefit – acquisition cost (exclusive of

interest)
Monetary value – entire value of the benefit
Tax base – Grossed-up monetary value
 Motor Vehicle of any kind
NOTE: In cases 1 to 4, the monetary value of the
fringe benefit shall be the entire value of the
benefit, regardless of whether the motor vehicle
is used by the employee partly for personal
purposes and partly for the benefit of his
employer.
F Co. purchased a motor vehicle for the use of the
manager and registered in his name. Cost of the car was
633,750. The vehicle was used partly for personal
purposes and partly for the benefit of F Co. Compute the
fringe benefit tax.

Value of the benefit 633,750

Monetary value 633,750
Grossed-up value (633,750/65%) 975,000
Fringe benefit tax in 2018 (975,000 x 35%) 341,250
Supposed F Co., in previous problem, shouldered only a
portion of the cost of the car in the amount of 260,000
and the balance paid by the manager. Compute the fringe
benefit tax.

Value of the benefit 260,000

Monetary value 260,000
Grossed-up value (260,000/65%) 400,000
Fringe benefit tax in 2018 (400,000 x 35%) 140,000
 Motor Vehicle of any kind
CASE 5 – The employer owns and maintains a
fleet of motor vehicles for the use of the
business and the employees.
Value of the benefit – acquisition cost of all the
motor vehicles not normally used for business
purposes divided by 5 years life
Monetary value – 50% of the value of the benefit
Tax base – Grossed-up monetary value
 Motor Vehicle of any kind
CASE 6 – The employer leases and maintains a
fleet of motor vehicles for the use of the
business and the employees.

Value of the benefit – amount of rental payments for

motor vehicles not normally used for business purposes.
Monetary value – 50% of the value of the benefit
Tax base – Grossed-up monetary value
G owns a fleet of motor vehicles for the use of the business
and its employees. One of the cars (cost – 975,000) is not
used for business purposes. Most of the time, it is borrowed
by the employees for personal purposes. Compute the fringe
benefit tax.

Value of the benefit (975,000/5) 194,000

Monetary Value (194,000 x 50%) 97,500
Grossed-up monetary value (97,500/65%) 150,000
Fringe benefit tax in 2018 (150,000 x 35%) 52,500
Suppose G Co., in the previous problem, does not own the
motor vehicles but leases them from Rent-a-Car, Inc., and
pays quarterly rental of 65,000 for the vehicle used by the
employees for personal purposes

Value of the benefit (975,000/5) 65,000

Monetary Value (95,000 x 50%) 32,500
Grossed-up monetary value (32,500/65%) 150,000
Fringe benefit tax in 2018 (50,000 x 35%) 17,500
 Motor Vehicle of any kind
CASE 7
a. The use of aircraft or helicopters owned and maintained
by the employer shall NOT BE SUBJECT to the FRINGE
BENEFIT TAX. The use shall be treated as a business use.
b. The use of a yacht, whether owned and maintained or
leased by the employer shall be treated as TAXABLE
FRINGE BENEFIT TAX. The value of the benefit shall be
measured based on the depreciation of a yacht at an
estimated useful life of 20 years.
 EDUCATIONAL ASSISTANCE
1. The cost of educational assistance to the employee
which is borne by the employer shall be treated as a
TAXABLE FRINGE BENEFIT.
EXCEPTION: A scholarship grant to the employee by the
employer shall not be treated as taxable fringe benefit if:
a. The education/study involved is directly connected with the
employer’s trade, business or profession; AND
b. There is a written contract that the employee is under
obligation to remain in the employ of the employer for a
period of time mutually agreed upon.
 EDUCATIONAL ASSISTANCE
2. The cost of educational assistance extended by an
employer to the dependents of an employee shall be
treated as TAXABLE FRINGE BENEFITS of the employee.

EXCEPTION: When the assistance is provided through a

competitive scheme under a scholarship program of the
company.
FILING OF RETURN AND PAYMENT OF
FINAL TAX
*The fringe benefit tax is a final income tax on the
employee to be withheld by the employer.
*The employer shall file the return and pay the tax
withheld within 10 days from the close of each calendar
quarter.
*For taxpayers under EFPS, 5 days later.