NUTS (Tax on Fringe Benefits)
TAXATION IN A NUTSHELL MANAGERIAL EMPLOYEES
(RR 2-98, merely copied the defnition of Labor Code) RESIDENTS
INCOME TAX PAYERS
RANK AND FILE
A managerial employee is one who is vested with powers or prerogatives to lay down and ALL EMPLOYEES NOT FALLING WITHIN THIS DEFINITION execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, ARE CONSIDERED RANK-AND-FILE EMPLOYEES.(RR 2-98) assign, or discipline employees, or to effectively recommend such managerial actions.
EXEMPT FROM PAYMENT OF
Grossed up monetary value of fringe In the case of aliens, the tax rates to be applied on fringe benefit furnished or granted to the benefit shall be as follows: 1. NRANEBT - 25% employee (except rank and file) 2. Aliens employed by regional HO - 15 % 3. Aliens employed by OBU - 15% Tax Rate Grossed 4. Aliens employed by Petroleum Service - 15% Up Divisor Year 5. Contractors and Subcontractors - 15% 32% FWT 68% 2000 Gross up divisor is the difference between 100% and the applicable rates.
Not Applicable Fringe Benefit include, but not be limited to the following: Housing Expense Account – (expenses incurred by the managerial employee to be reimbursed by the management) Vehicle of any kind Household personnel, such as maid, driver and others 5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted.- ( difference between the legal rate and the one granted to the management) 6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations 7. Expenses for foreign travel 8. Holiday and vacation expenses 9. Educational assistance to the employee or his dependents; and 10. Life or health insurance and other non-lire insurance premiums or similar amounts on excess of what the law allows.
Fringe Benefit that is not A. 1. taxable under Sec. 32 (B) 2. Exclusions from Gross 3. Income 4.
The following fringe benefits are not taxable 2. under Sec. 33 Fringe Benefit Tax: 3. 4.
Fringe Benefits which are authorized and exempted under special laws. The 13th month Pay and Other Benefits with the ceiling of P30,000 may be increased through rules and regulations issued by the Secretary of Finance considering the effect on the same of the inflation rate at the end of the taxable year; Contributions of the lawyer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (EXEMPT from FIT as provided under 33C) Benefits given to the Rank and File Employees, whether granted under a collective bargaining agreement or not; and The De minimis benefits – benefits which are relatively small in value offered by the employer as a means of promoting goodwill, contentment, efficiency of Employees
Prepared by: JOEL V. OFILAN, PUP College of Law
Taxable under Net Income Tax
If the requirements are not present, taxable.
RANK AND FILE
Managerial Employee notwithstanding the wordings of Sec. 33 that the tax imposed is payable by the employer in the same manner as under section 57A of the NIRC, the employer is a mere withholding agent. The employer is the one who is obliged by law to file the return and pay the tax.
The Rank and File Employee himself
ITEMS Liable To Pay & File the Return
Exception : 1. If it is for the convenience of the management 2. If it is necessary to the trade and business of the management
Requirement for Free Housing to Be Exempt from Income Tax
RR 2-98 provides that: 1. 2. 3.
The only requirement is that it is for the convenience of the management;
It is for the convenience of the management; Free Housing is located within 50 meters from the place of the management
Housing Privileges of Military officials of the AFP 4. Temporary housing for an employee who stays in the unit for 3 mos. or less Under 33B10, The management can claim deduction for the premium it has
Claim of Deduction for the Insurance premium paid by the management for the life of its employee
paid for the life and health of the managerial employee provided it must be in excess of what the law allows. What does it mean? The GSIS and SSS laws are amended that there is now an obligation among the management to have minimum insurance coverage for the life of the worker. If the insurance paid by the management is more than what is allowed by GSIS and SSS laws, then the diference is the fringe benefits.
Section 36A4 is worded in a qualified manner. The management cannot claim the premium as a deduction if it is the beneficiary, directly or indirectly. Therefore, if it the company is not the beneficiary, directly or indirectly, it could claim the premium as a deductions.
Under Section 34A1 a1 last phrase, the fringe benefits given by the management to the managerial employee may be claimed as a deduction as business expense provided that the FIT has been already paid. (First it must be an insurance which is more than the laws allows. Second FIT on fringe benefits should have been paid already.) Rules : 1. Rates :
RC,NRC, NRAE – 32% NRANE – 25% Employees of RHQ or ROHQ, OBU, Foreign Service Contractor or Subcontractors engaged in Petroleum Operations in the Phils – 15% 2. TAX BASE : Monetary grossed- up value
DE MINIMIS BENEFITS 1. 2. 3.
These are facilities or privileges furnishes or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting health, goodwill, contentment and efficiency of the employees ( RR No. 03-98) The list is exclusive. All others not included are not considered De Minimis hence, it is subject to Income tax The enumerated benefits are exempt from income tax up to the extent of the ceiling provided, any excess is taxable if such is beyond the P 30, 000 threshold for the exempt 13th month pay and other benefits.
BENEFITS (MUM-RUM-LECOP) Monetized Value of vacation and sick leave credits paid to government officials and employees Monetized Unused VL credits of private employees Medical cash allowance to dependents of employees Rice Subsidy Uniform of Clothing Allowance Actual yearly Medical benefits Laundry Allowance Employees achievement awards Gift during Christmas and Major anniversary bonus Daily meal allowance for OT and graveyard shift CBA/Productivity scheme of the employer
VALUE ALLOWED No limit as to number of credits Not exceeding 10days/year Not exceeding P750/employees per semester or P125/mo. P 1,500 or 1 sack of 50KG/mo. Amounting to not more than P1,500 P 5,000/annum P 10,000/annum P 300/month P 10,000 P 5,000/employee per annum Not exceeding the 25% of the basic minimum wage on a per region basis P 10,000
NOTE Before determining whether the excess of allowable value is taxable, the total excess thereof must be added to his P 13th month pay and other benefits. Should the sum thereof exceeds the P 30,000, the excess amount over said P 30,000 is taxable.
DEDUCTIONS FOR THE EMPLOYER: General Rule: Any benefits given by employer wheteher considered as de minimis or fringe nebefits subject to income tax shall be considered as deductible expense . The fringe benefit tax is also deductible. Exception: if the basis of computation of the fringe benefit tax is depreciation value, the zonal or the fair market value, only the actual FBT paid shall constitute a deductible expense. The value of the FB is not deductible. Exception to the Exception: if the aforesaid Zonal or fair Market Value is greater than its cost, the excess amount shall be allowed as a deduction from the employer’s gross income as FB expense.