TAX 5

INCOME TAXATION
MARIE STACY MARGARETT DIAZ, CPA, MST, CAT
Lecturer / Instructor
CHAPTER 11:
COMPENSATION
INCOME
ELEMENTS OF EMPLOYER-EMPLOYEE
RELATIONSHIP
1. Selection and engagement of employees –
there is screening process
2. Payment of wages – fixed
3. Power of dismissal
4. Power of control – power to control means
and methods to do work
TYPES OF EMPLOYEE
FUNCTION TAXABILITY
1. Managerial 1. Minimum Wage
2. Supervisory Earner –
3. Rank & File 5,000/month;
60,000/year
2. Regular Employees
GROSS COMPENSATION INCOME

Generally includes ALL

REMUNERATIONS received under an
employer-employee relationship.
NON-TAXABLE OR EXEMPT
COMPENSATION
A. Mandatory deductions (SSS, PhilHealth, HDMF,
Union dues)
B. Benefits exempted under NIRC and special laws*
C. Benefits exempt under treaty
D. Benefits necessary to the trade, business, or conduct of
profession of employer
E. Benefits for the convenience of the employer
EXEMPT BENEFITS UNDER NIRC
1. Remunerations received as incidents of employment
2. Employee mandatory contributions to GSIS, SSS
PhilHealth, HDMF and Union Dues
3. Certain benefits of minimum wage earners (BHHON)
4. De minimis benefits*
5. 13th month pay and other benefits not exceeding 90,000
NON-TAXABLE
DE MINIMIS BENEFITS
1. Monetized unused vacation
leave credits of private
employees not exceeding 10
days during the year
2. Monetized unused vacation
and sick leave credits paid to
government employees
3. Medical cash allowance to
dependents of employees not
exceeding 375/month
4. Rice subsidy not exceeding
2,000 or 1 sack oF 50kg rice
per month amounting to not
more than 2,000
5. Uniform and Clothing
allowance not exceeding 6,000
per annum
6. Actual Medical Assistance not
exceeding 10,000 per annum
NON-TAXABLE
DE MINIMIS BENEFITS
7. Laundry allowance not
exceeding 300/month
8. Employee achievement award
that must be tangible property
not exceeding 10,000 per
annum
9. Gifts given during Christmas
and major anniversary
celebrations not exceeding
5,000
10. Daily meal allowance for
overtime work and night or
graveyard shift not exceeding
25% of basic minimum wage.
11. Benefits received by an
employee by virtue of a
collective bargaining
agreement and productivity
incentive schemes not
exceeding 10,000 per annum
TAXABLE
DE MINIMIS BENEFITS
1. Excess de minimis over their regulatory limit

2. Other benefits of relatively small value that are not

included in the list of de minimis benefits.
TREATMENT OF TAXABLE
DE MINIMIS BENEFITS
A. For Rank & File employees
 Treated as other compensation income under the
category “13th month pay and other benefits”.

B. For managerial and supervisory employees

 Treated as fringe benefits subject to final fringe benefit
tax.
COMPENSATION INCOME
A. Regular Compensation
 Basic Salary
 Fixed allowances

B. Supplemental Compensation
 Other performance-based pays

C. 13th Month pay and other benefit

 Other incentive pays not in regular and supplemental
SUPPLEMENTAL COMPENSATION
1. Overtime pay 7. Emoluments and honoraria
2. Hazard pay 8. Retirement pay and separation
3. Night shift differential pay pay
4. Holiday pay 9. Value of living quarters or meals
5. Commissions 10. Gains on exercise of stock
6. Fees, including director’s options
fees (if employee) 11. Profit sharing and taxable
bonuses
13th MONTH PAY AND OTHER BENEFITS
13TH MONTH PAY OTHER BENEFITS
1. 13th month pay 1. Christmas bonus - private
2. 14th month pay 2. Cash gift other than Christmas
3. 15th month pay or anniversary gifts - private
3. Additional compensation
4. 16th month pay
allowance(ACA)- government
5. 17th month pay
4. Other fringe benefits – R&F
DEADLINE OF FILING AND REMITTANCE
OF THE WITHHOLDING TAX ON
COMPENSATION

1. BIR FORM 1601-C – 10th day of the following month

2. BIR FORM 1604CF – January 31 of the following calendar
year

3. BIR FORM 2316 - January 31 of the following calendar year