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Monday, March 23, 2009

De Minimis Benefits Inquiry

I received this question in my inbox today:

Hi Ed,

We want to convert some earnings of our employees to de minimis benefits in order for them to have a bigger take home pay. Is it possible to just make the policy and procedures and implement or do we need particular tax documentation because certainly, the withholding tax to be paid would be less than what was previously remitted.

Any input would be highly appreciated.

Regards,
Cutie

Cutie, if my understanding is correct, you want to DECLARE EXISTING benefits as de minimis benefits because they are not taxable, is this correct?

The finance manager of one of my clients wanted to do the same thing and I stopped him for two major reasons:

1. It's not legal, therefore... it's illegal, nuff said.

2. Even if it's legal, it's not a good idea because it defeats the purpose of giving these benefits for people to appreciate and enjoy.

What I did with ExeQserve and another company that outsourced their HR to us is take advantage of the tax-free benefit provisions by offering them as is. This means that ExeQserve Employees are enjoying meal allowance,clothing allowance, rice subsidy, laundry allowance, medical expense reimbursement and communication allowance exactly within the limits and instruction provided by the law. These make them happy ( I hope!)

What I did was offer these on top of their regular salaries and benefits (i.e., service incentive leaves, HMO, group insurance and performance based incentives). This makes their compensation a little bit more competitive compared to others who don't enjoy the same set of benefits.

So what's my recommendation? My recommendation is that you follow my example or if you intend to save and then at the same time give your employees more, offer to give them the tax-free benefits as a reward in their next salary review instead of giving the conventional salary adjustments. That's the legal way. It also reflects that your company offers competitive benefits package.

Hope this helps.

P.S. keep receipts!

54 comments:

  1. Anonymous8:31 PM

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  4. Anonymous12:04 PM

    Hi. I read your piece and it hit me. Our company is doing the very opposite of what you recommend. In lieu of the fixed monthly allowance (or part of it), the ff allowances shall apply:Rice allowance(1000), Laundry(300), clothing(2400) and christmas cash gift allowance(5000). I, for example, was given 1,800 allowance when i was regularized,this means, I am only entitled for rice allowance and laundry. This also means that these deminimis benefits are not on top of the beneifits. I'd like to know your take on this. Thanks.

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  5. @anonymous, I don't think your company is doing the opposite of what I recommend here.

    There is no minimum to what your company can give you in terms of de minimis benefits. This means that your employer may give you all the de minimis benefits at lower rates. In one of my clients, there are two levels of de minimis benefits, one when the person is regularized, another level which is the maximum allowed by law is given after an employee worked in the company for one year.

    A fixed allowance is part of a compensation scheme and should be taxable after hitting the maximum allowed by law. An employee may or may not have fixed allowances. The law does not require company to pay it. If a company gives de minimis allowances but does not give fixed allowances, they do not violate anything. If they do not give any allowances at all, they do not violate anything either, because it is not mandated by law. These benefits are given to attract talents, not to comply with the law.

    My issue with the inquiry in this post is their intention to convert already existing compensation to de minimis benefits to avoid tax payment. That to me is circumventing the law. Unless your company did the same thing, I don't think they did anything wrong.

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  6. We too are planning to do it that way, to extract part from our regular pay certain amount for the de minimis benefits. The reason for this is to lower our withholding taxes upon learning this recently. But the basis for our premiums, 13th month and retirement pay will still be the gross amount before the de minimis benefit. Is this possible? our employees agreed on this when we float this plan. Hoping for your immediate response on this matter, thank you very much and more power!

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  7. @St. John the Evangelist, If you are talking about converting existing compensation and turn them into de minimis benefits for tax reduction purposes, I'm not sure about the legality of that. It can be a tax audit issue against you. This is because, if you convert parts of people's salaries into de minimis benefits, you will suddenly be reporting lower salaries for them. Your tax auditor might wonder what happened. I'm not an expert on taxes or the law so you might want to do more research on this. If what you want to do is offer de minimis benefits instead of salary increase in the near future so you can take advantage of the tax free feature of these benefits, then that I believe is perfectly legal.

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  8. Anonymous4:36 PM

    we are also planning to practice what st. john evangelist do. we have no plans to increase the salaries of employees but we want to lower their compensation tax. however, we cannot implement the said policy because we are still reviewing all the implications of this action. We are not expert in tax. want to ask from you if what particular revenue regulation will apply for this.

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  9. nguerra8:25 AM

    Hi. Sir Ed, are there tax documentations required or clearance from BIR before you could provide the De Minimis benefits to employees? Thank you.

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  10. @nguerra, no need for clearance from BIR prior to implementation.All you need to do is report the details of your de minimis benefits expenses so that they will not be taxed.

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  11. Anonymous4:20 PM

    Sir, I also have a question regarding this.We,as regular employees,are given P5,000.00 allowances per month,that is,P60,000.00 per year.This allowances covers subsidy for rice, medical, laundry and others but we do not claim tax exemption for de minimis benefits.Under the law, P30,000.00 of fringe benefits are exempt from tax.Can we still avail tax exemption for de minimis benefits on the other P30,000.00? PLease help...

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  12. Anonymous7:17 PM

    hi! interesting discussion! can i also ask some question about de minimis? Is it true that the total coverage for a de minimis to be nontaxable is P30,000.00 annual? what i mean is if you will add all the specifically enumerated in the regulations (RR 8-00, as amended) like rice allowance of P1,500 a month, uniform allowance of P4,000 a year, cash gift of P5,000 a year under certain condition, medical allowances, laundry allowance, etc., this should be P30,000.00 for a year,in excess is will be taxable?

    hope you can answer my query asap..
    thank you very much!!!

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  13. On questions regarding limits of de minimis benefits, my answer is this; there are specific limit per de minimis benefit that if one exceeds the limit it ceases to be de minimis and shall be considered fringe benefits which will become taxable if cumulatively they exceed the 30K limit set by the government (at least that's how I understand it but do not take my word for it. Do more research. Taxation is not one of my strengths). Here's a very useful information I gathered from a Punongbayan and Aroullo that I suggest you read: De Minimis Benefits

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  14. Anonymous11:18 AM

    Hi was looking for a while in the internet for the regulation about de minimis, also on the BIR HP, what is the latest version and where can i find the download? Thanks

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  15. Anonymous9:43 AM

    Can I ask regarding this de minimis benefits and their relationship with ROHQ? IF ROHQ employees are subject to preferential 15% on gross income, would they be still required to provide receipts for their medicine allowance of P10,000 ( as stated in the de minimis ruling)? Thanks.

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  16. Anonymous5:21 PM

    I've just received a salary increase. When I saw my payslip, the increase seems to be identified as an allowance and de minimis on top of my basic pay. I don't enjoy such benefits before. Do you think the increase is just? Thanks

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  17. I'd ask HR for clarification if I were you. Let's say that they decided to declare your salary increase as de minimis benefit, it means that they are shielding you from paying taxes from the salary increase that you are supposed to get so you can enjoy the full amount. A salary increase is a salary increase.

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  18. hi sir Ed, i just want to ask if HMO benefit paid by our employer for us is part of the de minimis, or is it part of the 30,000 ceiling? thanks

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  19. @Mark, Companies report this as part of their operating expense. Employees are usually not taxed because of this. I'm not a tax expert so I'm not sure if it's being treated right. If the tax auditor doesn't mind then I'm ok with it :) So, it's not a de minimis benefit and also not part of the 30,000.00 ceiling.

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  20. Anonymous9:50 AM

    Ed, I wish to know what are the legal/allowed documents that one should submit for the medical allowance considering that we have an HMO?

    Thanks
    Lanie

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  21. Anonymous5:04 PM

    We are a BPO company and we're planning to upgrade the benefits of our employees esp for tenure people (5yrs & up). One of the recommendations is giving loyalty reward to those who are in the company for more than 5yrs. Is this advisable? Does other small company offered this benefit? Aside from HMO, VL,SL, BL, what else can you add to our current benefits package.
    Thanks!

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  22. Anonymous10:55 PM

    may i ask is there a new law that stipulate all De minimis benefits are subject to tax from clothing allowance to meal allowance and all other benefits. in other words, disregard of what kind of benefits was given all compensation is subjected to 32% tax as informed by our employer thru a Memo dated September 2011?

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  23. Anonymous5:37 PM

    Hello Ed,

    Can you help me divide our current de minimis allowance and provide suggestions on how to allocate it? we currently have 5,000 monthly de minimis and we would like to divide it based on the allowable amount. Im thinking of Rice Subsidy and Travel Allowance.

    Another thing is, if we were to multiply 5k to 12 months, that would sum up to 60k. Would this mean that in excess of the first 30k will be taxable?

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  24. I think 5K a month is more than the limit for de minimis allowance. There is a limit for every item. Check out this link for the latest update on this rule: ftp://ftp.bir.gov.ph/webadmin1/pdf/56846RR%205-2011.pdf

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  25. Anonymous12:13 PM

    Hi-

    Is it possible to have an allowance bigger than the salary?

    I'm struggling with these points:

    -I want to give my employees as much allowance as I could (even if it will cost 30k/month) So now, it is not possible to do it because of the allowance cap.

    -Since I couldn't do the one above, I want to know if I could give the 30k as an incentives/bonuses?

    Thanks for your help.

    -shine

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  26. I am not very sure, shine, but I don't think there is a cap for allowances. If you mean cap in terms of non-taxable allowance, yes there is a cap and that is 30K total per year and not per month. If the allowances you give your employees go higher than that, they get taxed. You can definitely give your 30K as incentives or bonus but they will be taxed as well if that's what you are avoiding. If you are not avoiding it, then you shouldn't have any problem. I hope I answered your question.

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  27. Darryl11:02 AM

    Hello Sir Ed,

    Just found out your blog this morning. I just want to ask, how much is the maximum amount of allowances of each employee (eg. Rice allowance, clothing, meal, uniform, medical) and also the maximum number of leave days per year.

    Appreciate your feedback and thank you in advance. More power!

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  28. Aprille2:13 PM

    Hi all,

    I saw you blog this afternoon and I just noticed that there is quite confusion between the De Minimis Benefits and the 30,000 benefits ceiling.

    I am a General Accountant and I just want to clarify the issue between the De Minimis Benefits and the 30,000 benefit ceiling.

    De Minimis Benefits are employee benefits or allowance that are exempt from fringe benefit tax or any type of taxes & includes the following:
    (a) monetized unused vacation leave credits of private employees not exceeding 10 days per year
    (b) medical cash allowance to dependents of employees not exceeding 750 per employee per semester (6 months) or 125 per month
    (c) rice subsidy of 1,500 per month
    (d) uniform & clothing allowance not exceeding 4,000 per annum
    (e) actual yearly medical benefits not exceeding 10,000 per annum
    (f) laundry allowance not exceeding 300 per month
    (g)employee achievement awards, e.i. for length of service, in the form of tangible property other than cash & gift certificate not exceeding 10,000 per annum
    (h) gifts given during Christmas or major anniversary celebrations not exceeding 5,000 per annum per employee
    (i) daily meal allowance for overtime work not exceeding 25% of the basic minimum wage
    (j) flowers, fruits, books or similar items given to employees under special circumstances, e.i. illness, birthday, etc
    There is no restriction on how much De Minimis Benefits you'll give your employees as long as you don't go over the ceiling as set above.

    The 30,000 benefit is separate from De Minimis benefits. To understand it better, the following are the rules of P30,000.00 other benefits ceiling as stated in the Tax Code.
    (a) The amount of the De Minimis benefits conforming to the ceiling herein shall not be considered in determining the 30,000 ceiling of Other Benefits excluded from gross income.
    > In other words, De Minimis benefits shall not be included in the computation of the 30,000 other benefits ceiling.
    (b) The excess of the De Minimis over their respective ceilings prescribed by these regulations shall be considered as part of the Other Benefits & the employee receiving it shall be subject to tax only on the excess over the 30,000 ceiling.
    > For example, an employee is receiving 2,000 as rice subsidy instead of the 1,500 De Minimis ceiling for rice subsidy. Only the excess which is P500.00 will be included in the computation of the 30,000 Other Benefits ceiling. The excess of the De Minimis can be absorbed by the Other Benefits until it reaches the 30,000 ceiling.
    > If an employee receives Other Benefits of 35,000 per year (excluding the De Minimis) only the excess which is 5,000 shall be included in the employees taxable income.
    (c) The Minimum Wage Earners receiving Other Benefits exceeding the 30,000 limit shall be taxable on the excess benefits, as well as on his salaries, wages and allowances.
    > The excess amount of Other Benefits ceiling cannot be absorbed by the De Minimis. The amount in excess of 30,000 Other Benefits ceiling is taxable.

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    1. Thanks, Aprille! This is very helpful

      Delete
  29. Aprille2:14 PM

    COMPREHENSIVE EXAMPLE
    Total Basic Salary-108,000
    13th Month Pay-9,000
    Rice Subsidy (1,000 per month)-12,000
    Laundry Allow (300 per month)-3,600
    Clothing Allow (375 per month)-4,500
    Unused Vacation Leave Credits (10 days) -2,500
    Medical Cash Allow-1,500
    Employee Loyalty Award-P10,000
    Company Anniv Employee Bonus-5,000
    How much is the taxable and non-taxable compensation?
    Taxable:
    Breakdown
    Total Basic Salary-108,000
    TOTAL TAXABLE COMPENSATION=108,000

    Non-Taxable:
    Breakdown
    De Minimis Benefits
    Rice Subsidy-12,000
    Laundry Allow-3,600
    Clothing Allow (P333.333 per month ceiling)-4,000
    Unused Vacation Leave Credits-2,500
    Medical Cash Allow-1,500
    Employee Loyalty Award-10,000
    Company Anniv Employee Bonus-5,000
    Other Benefits:
    Clothing Allow (absorption of excess of De Minimis)-500
    13th Month Pay-9,000
    TOTAL NON-TAXABLE COMPENSATION =48,100

    NOTE:
    >Total De Minimis Benefits is 38,600 & is not included in the computation of the 30,000.00 Other Benefit Ceiling.
    >All excess of the De Minimis shall be absorbed by the Other Benefits. As shown above, the P500.00 excess of Clothing Allowance is added in the Other Benefits computation since the prescribed ceiling for Clothing Allowance is only P4,000.00 per year.
    > Total Other Benefits is P9,500.00 thus there is still P20,500.00 remaining on the P30,000.00 Other Benefits ceiling.

    Hope this helps.

    Thanks!

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  30. Hi Ed...
    I would like to ask, is positional allowance can be considered as de minimis benefit? how about transportation? Thank You!

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  31. I dont think so. only the ones in the prescribed list of BIR are allowed.

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  32. Thank you Ed...

    I have another question, Can we amend the payment since it was mistakenly computed?Is there any penalty?

    Thanks!

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  33. I'm not sure if there is penalty, Malou. I suggest that you consult an accountant.

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  34. Hi Sir,

    is per diem taxable?

    thanks!

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    Replies
    1. Per diem and other additional compensation that exceeds annual limit are taxable.

      Delete
  35. Jobert10:55 AM

    Hi Ed, our company is planning to implement/or give de minimis benefits to our employees. I would like to ask if receipts are needed to claim the benefits? or the company can give it in the form of monthly allowance.

    Thank you.

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    Replies
    1. You don't need receipts as long as you are able to keep them within limit.

      Delete
  36. Anonymous11:12 AM

    Hi ed,
    is COLA pay included in de minimis benefits and is included or necessary in computing my tax?

    ReplyDelete
  37. Anonymous11:33 AM

    Hi Sir!

    What will I do to the excess of de minimis benefits, for example the excess is 15,000, will I add this to the total gross income (480,000) or to the total taxable income(380,000)?

    Thank You!

    ReplyDelete
  38. Anonymous9:48 AM

    Hi Sir!

    You said "You don't need receipts as long as you are able to keep them within limit."
    Question is: In case we exceeded the allowable limit, can we submit a receipt, named it to our company? Will it still be considered as taxable allowance?

    Thank you!

    ReplyDelete
  39. Anonymous8:18 PM

    Hi Sir Ed,

    We have rice benefit of 50kg in our company. They are giving us 1 sack of rice or 50kg/month. Since my regularization I've been enjoying this 50kg of rice benefit. Suddendy, our company decided to change it to gift certificate worth 1,900. They said that the excess of 400 to de minimis of 1,500 is taxable and should be paid by employees thru salary deduction. They said after a year, they will review again our rice benefit then after 2 days, our benefit change again from GC worth 1,900 to GC 2000 and our TAX will be shouldered by our company. If you will hear it it is good news to us but the point is our benefit is 50kg of RICE and not GC worth 2000. Is this legal?

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  40. Anonymous5:52 PM

    Hi sir Ed!
    Just wanted to ask. Just got my salary adjustment of 5k so i was expecting that my basic pay will be 20k from 15k. Our HR informed me that 2500 was classified into de minimis benefit.is it still fair? I thought de minimis is different from my salary increase. why did our HR convert de minimis to my salary increase?and it seems that my basic pay 17500 because the other 2500 falls under de minimis....

    Please help im just confused..

    ReplyDelete
  41. Anonymous11:56 AM

    Hi, What if the Salary increase is one to declare de minimis, is this possible?

    Thanks

    ReplyDelete
  42. Anonymous2:57 PM

    Ser ED, I just wanted to ask whether the de minimis benefits can be given once. If ever we will give all, up to the limits, of the de minimis benefits in december (in full), do we violate any provision of the tax code?

    Any idea from the blog readers..

    ReplyDelete
  43. Anonymous2:15 PM

    Hi Sir Ed,

    If July 2015 is the starting payment of Rice Allowance for 2,500 per month. The excess 1,000 is taxable?

    Thank you!

    ReplyDelete
  44. Hi, may I know if relocation allowance is non-taxable? thanks.

    ReplyDelete
  45. Anonymous7:15 PM

    Hi Sir Ed,

    When will be the best time to distribute the De minimis benefit specially the per month basis? Is it possible to include the in payslip then categorize under the de minimis?

    Jing

    ReplyDelete
  46. Anonymous8:07 AM

    Hi, It would be greatly appreciated if you can provide me your inputs on this one.
    I have been with my present employer for almost 3 yrs now. It is reflected in my job order that I am eligible to receive fix transportation and communication allowances on top of my salary. And these allowances were given to me and reflected in my payslips for the past years. However, all of a sudden, the company requires me to liquidate these allowances, or else they wont give the allowances anymore due to tax issues. Apparently, these allowances should be taxable but they have not deducted taxes. The problem is I cannot do the liquidation they are requiring since I am only using public transportation while my communication lines are all under my name, and what they want me to submit are O.Rs bearing the name of the company. I told them that as a way of compromise to the company, just deduct the applicable taxes, but they are unwilling. Instead, they stand to just not to give the allowances anymore should I will not be able to submit the required docs for liquidation. Is it legal for them to require me such, despite it was never practice for the past 3 years? Is it really lawful for them to withdraw my allowances on that grounds?

    ReplyDelete
  47. Hi!

    Can Christmas Bonus be claimed as monthly de minimis benefits?
    And also can a private company use the clothing allowance?

    Thank you and more power!

    ReplyDelete
  48. Hi,

    We recently promoted an employee. He is currently receiving basic plus non taxable allowance. I would like to ask if it would be acceptable/legal for us to decrease his allowance but of course there would be an increase in his basic salary.

    ReplyDelete
  49. Anonymous11:02 PM

    Hi Sir Ed,

    I stumbled upon this blog as I was trying to do research. I just wanted to know if "In-lieu leaves" are considered as de minimis benefits?

    The nature of the "in-lieu leaves" are leaves that we earn every time we work on a holiday.

    Thank you!

    ReplyDelete
  50. Sir, Good day.
    Is it possible for employees in one company to have different de minimis benifits? For example, some receives P2200, some P900, and some P700 per month.

    ReplyDelete
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    1. This comment has been removed by the author.

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