1. SORIANO, Cesar Nickolai
2. JAMONER, Winnie Claire
3. DULNUAN, Gina Mae
4. IBANGGA, Christopher Bernard
TAX I REPORTING
ATTY BUNDAC
AUSL 2013-2014
Gross Income
Underlying Laws and Regulations
 SEC. 32. Gross Income of the National Internal Revenue Code
 Revenue Regulation (RR) 2-98 as amended by RR 10-2008
SEC. 32. Gross Income (A) General Definition. - Except when otherwise provided in this Title, gross income
means all income derived from whatever source, including (but not limited to)
the following items:
(1) Compensation for services in whatever form paid, including, but not
limited to fees, salaries, wages, commissions, and similar items;
xxx
SEC. 32. Gross Income Income
• Income is any wealth which flows into the
taxpayers other than a return of capital , while
• Income is the flow
• Income is the service of wealth
• Income is the fruit of the tree
Capital
• Capital constitutes the investments which is the
source of income
• Capital is fund
• Capital is wealth
• Capital is the tree
BIR Form 1700
 Annual Income Tax Return for Individuals Earning Purely Compensation Income
SEC. 32. Gross Income
Compensation Income for services rendered in whatever form paid.
(A) Compensation Income Defined. — In general, the term "compensation" means all
remuneration for services performed by an employee for his employer under an employeremployee relationship, unless specifically excluded by the Code.
The name by which the remuneration for services is designated is immaterial.
The basis upon which the remuneration is paid is immaterial in determining whether the
remuneration constitutes compensation.
Remuneration for services constitutes compensation even if the relationship of employer and
employee does not exist any longer at the time when payment is made between the person in
whose employ the services had been performed and the individual who performed them.
SEC. 32. Gross Income
 Compensation paid in cash
If the compensation is paid in cash, the full amount received is the
measure of the income subject to tax
SEC. 32. Gross Income
 Compensation paid in Promissory Note
Shall be treated as income as of the time of receipt of the fair discounted value of the
note at that time
SEC. 32. Gross Income
(1) Compensation paid in kind. —
Compensation may be paid in money or in some medium other than money, as for
example, stocks, bonds or other forms of property.
If services are paid for in a medium other than money, the fair market value of the
thing taken in payment is the amount to be included as compensation subject to
withholding.
If the services are rendered at a stipulated price, in the absence of evidence to the
contrary, such price will be presumed to be the fair market value of the remuneration
received.
If a corporation transfers to its employees its own stock as remuneration for services
rendered by the employee, the amount of such remuneration is the fair market value of
the stock at the time the services were rendered.
SEC. 32. Gross Income
(2) Living quarters or meals. —
If a person receives a salary as remuneration for services rendered, and in addition
thereto, living quarters or meals are provided, the value to such person of the quarters
and meals so furnished shall be added to the remuneration paid for the purpose of
determining the amount of compensation subject to withholding.
However, if living quarters or meals are furnished to an employee for the convenience
of the employer, the value thereof need not be included as part of compensation
income.
SEC. 32. Gross Income
Benefit
Medical Benefits
Employee Achievement Awards
Ceiling Amount
Actual medical assistance not exceeding
P10,000 per year
Tangible personal property other than cash or
gift certificate with an annual monetary value
not exceeding P10,000
Gifts given during Christmas and major Not exceeding P5,000 per annum
anniversary celebrations
P4,000 per annum (now P5,000 under RR 8Uniforms and clothing allowance
2012)
P1,500 or 1 sack of 50kg rice per moth
Rice subsidy
amounting to not more than P1,500
Laundry allowance
Not exceeding P300 per month
Medical cash allowance to dependents Not exceeding P750 per semester or P125 per
of employees
month
Daily meal allowance for overtime Not exceeding 25% of the basic minimum
work and night/graveyard shift
wage on a per region basis
Monetized unused vacation and sick No ceiling for government employees
leave
If private employees, the first 10 VACATION
leave credits
*Any amount given by the
employer as benefit, whether
classified as fringe benefits or de
minimis benefits, shall constitute
as deductible expense upon such
employer.
SEC. 32. Gross Income
 (4) Tips and gratuities. —
Tips or gratuities paid directly to an employee by a customer of the employer which
are not accounted for by the employee to the employer are considered as taxable
income but not subject to withholding.
SEC. 32. Gross Income
 (5) Pensions, retirement and separation pay. —
Pensions, retirement and separation pay constitute compensation subject to
withholding, except those provided under Subsection B of RR 2-98
SEC. 32. Gross Income
 (6) Fixed or variable transportation, representation and other allowances —
(a) IN GENERAL, fixed or variable transportation, representation and other
allowances which are received by a public officer or employee or officer or
employee of a private entity, in addition to the regular compensation fixed for
his position or office, is compensation subject to withholding.
SEC. 32. Gross Income
 (6) Fixed or variable transportation, representation and other allowances —
(b) Any amount paid specifically, either as advances or reimbursements for travelling, representation and other
bonafide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in
the performance of his duties are not compensation subject to withholding, if the following conditions are
satisfied:
(i) It is for ordinary and necessary travelling and representation or entertainment expenses paid or
incurred by the employee in the pursuit of the trade, business or profession; and
(ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the
specific requirements of substantiation for each category of expenses pursuant to Sec. 34 of the Code.
The excess of actual expenses over advances made shall constitute taxable income if such amount is not
returned to the employer. Reasonable amounts of reimbursements/ advances for travelling and
entertainment expenses which are pre-computed on a daily basis and are paid to an employee while he
is on an assignment or duty need not be subject to the requirement of substantiation and to
withholding.
SEC. 32. Gross Income
 (7)Vacation and sick leave allowances. —
Amounts of "vacation allowances or sick leave credits" which are paid to an employee
constitute compensation. Thus, the salary of an employee on vacation or on sick
leave, which are paid notwithstanding his absence from work, constitutes
compensation. However, the monetized value of unutilized vacation leave credits of
ten (10) days or less which were paid to the employee during the year are not subject
to income tax and to the withholding tax.
SEC. 32. Gross Income
 (8) Deductions made by employer from compensation of employee.
Any amount which is required by law to be deducted by the employer from the
compensation of an employee including the withheld tax 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.
SEC. 32. Gross Income
 (9) Remuneration for services as employee of a non-resident alien individual or
foreign entity. —
The term "compensation" includes remuneration for services performed by an
employee of a non-resident alien individual, foreign partnership or foreign
corporation, whether or not such alien individual or foreign entity is engaged in trade
or business within the Philippines.
SEC. 32. Gross Income
 (10) Compensation for services performed outside the Philippines. —
Remuneration for services performed outside the Philippines by a resident
citizen for a domestic or a resident foreign corporation or partnership, or for
a non-resident corporation or partnership, or for a non-resident individual
not engaged in trade or business in the Philippines shall be treated as
compensation which is subject to tax.
Exemptions from withholding tax on
compensation (RR 2-98)
 SEC 32 (B) Exemptions from withholding tax on compensation. — The following income
payments are exempted from the requirement of withholding tax on compensation:
1) Remunerations received as an incident of employment, as follows:
(a) Retirement benefits received under Republic Act under 7641 and those received by officials
and employees of private firms, whether individual or corporate, under a reasonable private
benefit plan maintained by the employer which meet the following requirements:
(i) The plan must be reasonable;
(ii) The benefit plan must be approved by the Bureau;
(iii) The retiring official or employee must have been in the service of the same employer for at
least ten (10) years and is not less than fifty (50) years of age at the time of retirement; and
(iv) The retiring official or employee should not have previously availed of the privilege under the
retirement benefit plan of the same or another employer.
(b) Any amount received by an official or employee or by his heirs from the employer due to
death, sickness or other physical disability or for any cause beyond the control of the said official
or employee, such as retrenchment, redundancy, or cessation of business. Rep
(b) Any amount received by an official or employee or by his heirs from the employer due to death, sickness or other
physical disability or for any cause beyond the control of the said official or employee, such as retrenchment, redundancy,
or cessation of business.
The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the
official or employee. The separation from the service of the official or employee must not be asked for or initiated by him.
The separation was not of his own making. Whether or not the separation is beyond the control of the official or
employee, being essentially a question of fact, shall be determined on the basis of prevailing facts and circumstances. It
shall be duly established by the employer by competent evidence which should be attached to the monthly return for the
period in which the amount paid due to the involuntary separation was made.
Amounts received by reason of involuntary separation remain exempt from income tax even if the official or the
employee, at the time of separation, had rendered less than ten (10) years of service and/or is below fifty (50) years of
age.
Any payment made by an employer to an employee on account of dismissal, constitutes compensation regardless of
whether the employer is legally bound by contract, statute, or otherwise, to make such payment.
(c) Social security benefits, retirement gratuities, pensions and other similar benefits received by residents
or non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines from
foreign government agencies and other institutions private or public;
(d) Payments of benefits due or to become due to any person residing in the Philippines under the law of
the United States administered by the United States Veterans Administration;
(e) Payments of benefits made under the Social Security System Act of 1954 as amended; and
(f) Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity received by
government officials and employees.
(2) Remuneration paid for agricultural labor —
(a) Remuneration for services which constitute agricultural labor and paid entirely in products of the farm where the labor
is performed is not subject to withholding. In general, however, the term, "agricultural labor" does not include services
performed in connection with forestry, lumbering or landscaping.
(b) Remuneration paid entirely in products of the farm where the labor is performed by an employee of any person in
connection with any of the following activities is excepted as remuneration for agricultural labor:
(i) The cultivation of soil;
(ii) The raising, shearing, feeding, caring for, training, or management of livestock, bees, poultry, or wildlife; or
(iii) The raising or harvesting of any other agricultural or horticultural commodity. The term "farm" as used in this
subsection includes, but is not limited to stock, dairy, poultry, fruits and truck farms, plantations, ranches, nurseries
ranges, orchards, and such greenhouse and other similar structures as are used primarily for the raising of agricultural or
horticultural commodities.
(c) The remuneration paid entirely in products of the farm where labor is performed for the following services in the employ of the
owner or tenant or other operator of one or more farms is not considered as remuneration for agricultural labor, provided the major part
of such services is performed on a farm:
(i) Services performed in connection with the operation, management, conservation, improvement, or maintenance of any such
farms or its tools or equipments; or
(ii) Services performed in salvaging timber, or clearing land brush and other debris left by a hurricane or typhoon.
The services described in (i) above may include for example, services performed by carpenters, painters, mechanics, farm
supervisors, irrigation engineers, bookkeepers, and other skilled or semi-skilled workers, which contribute in any way to the conduct of the
farm or farms, as such, operated by the person employing them, as distinguished from any other enterprise in which such person may be
engaged. Since the services described in this paragraph must be performed in the employ of the owner or tenant or other operator of the
farm, the exception does not extend to remuneration paid for services performed by employees of a commercial painting concern, for
example, which contracts with a farmer to renovate his farm properties.
(d) Remuneration paid entirely in products of the farm where labor is performed by an employee in the employ of any
person in connection with any of the following operations is not considered as remuneration for agricultural labor
without regard to the place where such services are performed:
(i) The making of copra, stripping of abaca, etc.;
(ii) The hatching of poultry;
(ii) The raising of fish;
(iv) The operation or maintenance of ditches, canals, reservoirs, or waterways used exclusively for supplying or storing
water for farming purposes; and
(v) The production or harvesting of crude gum from a living tree or the processing of such crude gum into gum spirits or
turpentine and gum resin, provided such processing is carried on by the original producer of such crude gum.
(e) Remuneration paid entirely in products of the farm where labor is performed by an employee in the employ of a
farmer or a farmer's cooperative, organization or group in the handling, planting, drying, packing, packaging, processing,
freezing, grading, storing or delivering to storage or to market or to carrier for transportation to market, of any
agricultural or horticultural commodity, produced by such farmer or farmer-members of such organization or group, is
excepted as remuneration for agricultural labor. Services performed by employees of such farmer or farmer's organization
or group in handling, planting, drying, packaging, processing, freezing, grading, storing, or delivering to storage or to
market or to carrier for transportation to market of commodities produced by persons other than such farmer or
members of such farmer's organization or group are not performed "as an incident to ordinary farming operation".
All payments made in cash or other forms other than products of the farm where labor is performed, for services
constituting
agricultural
labor
as
explained
above,
are
not
within
the
exception.
 (3) Remuneration for domestic services. — Remuneration paid for services of a household nature
performed by an employee in or about the private home of the person by whom he is employed is not
subject to withholding. However, the services of household personnel furnished to an employee (except
rank and file employees) by an employer shall be subject to the fringe benefits tax pursuant to Sec. 33 of the
Code,
as
amended.
A private home is the fixed place of abode of an individual or family. If the home is utilized primarily for the
purpose of supplying board or lodging to the public as a business enterprise, it ceases to be a private home
and
remuneration
paid
for
services
performed
therein
is
not
exempted.
In general, services of a household nature in or about a private home include services rendered by cooks,
maids, butlers, valets, laundresses, gardeners, chauffeurs of automobiles for family use.
The remuneration paid for the services above enumerated which are performed in or about rooming or
lodging houses, boarding houses, clubs, hotels, hospitals or commercial offices or establishments is
considered
as
compensation;
Remuneration paid for services performed as a private secretary, even if they are performed in the
employer's
home
is
considered
as
compensation;
(4) Remuneration for casual labor not in the course of an employer's trade or business. — The term "casual labor"
includes labor which is occasional, incidental or regular. The expression "not in the course of the employer's trade or
business" includes labor that does not promote or advance the trade or business of the employer.
Thus, any remuneration paid for labor which is occasional, incidental or irregular, and does not promote or advance the
employer's
trade
or
business,
is
not
considered
as
compensation.
EXAMPLE: A's business is that of operating a sawmill. He employs B, a carpenter, at an hourly wage to repair his home. B's
work is irregular and he spends, the greater part of two days in completing the work. Since B's labor is casual and is not in
the
course
of
A's
business,
the
remuneration
paid
for
such
services
is
exempted.
Any remuneration paid for casual labor, that is, labor which is occasional, incidental or irregular, but which is rendered in
the
course
of
the
employer's
trade
or
business,
is
considered
as
compensation.
EXAMPLE: E is engaged in the business of operating a department store. He employs additional clerks for a short period.
While the services of the clerks may be casual, they are rendered in the course of the employer's trade or business and
therefore
the
remuneration
paid
for
such
services
is
considered
as
compensation.
Any remuneration paid for casual labor performed for a corporation is considered as compensation;
(5) Compensation for services by a citizen or resident of the Philippines for a foreign government or an
international organization. — Remuneration paid for services performed as an employee of a foreign
government or an international organization is exempted. The exemption includes not only remuneration
paid for services performed by ambassadors, ministers and other diplomatic officers and employees but
also remuneration paid for services performed as consular or other officer or employee of a foreign
government
or
as
a
non-diplomatic
representative
of
such
government.
6) Damages. — Actual, moral, exemplary and nominal damages received by an employee or his heirs pursuant to a final
judgment or compromise agreement arising out of or related to an employer-employee relationship.
7) Life Insurance. — The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise, provided however, that interest payments agreed under the policy for the
amounts which are held by the insured under such an agreement shall be included in the gross income.
(8) Amount received by the insured as a return of premium. — The amount received by the insured, as a return of
premium or premiums paid by him under life insurance, endowment, or annuity contracts either during the term or at the
maturity of the term mentioned in the contract or upon surrender of the contract.
(9) Compensation for injuries or sickness. — Amounts received through Accident or Health Insurance or under
Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amount of any damages
received whether by suit or agreement on account of such injuries or sickness.
(10) Income exempt under treaty. — Income of any kind to the extent required by any treaty obligation binding upon the
Government of the Philippines.
(11) Thirteenth (13th ) month pay and other benefits. —
(a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the
government, (whether national or local), including government-owned or controlled corporations, and or private offices
received after the twelfth (12th) month pay; and
(b) Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind and other
benefits of similar nature actually received by officials and employees of both government and private offices.
The above stated exclusions (a) and (b) shall cover benefits paid or accrued during the year provided that the total
amount shall not exceed thirty thousand pesos (P30,000.00) which may be increased through rules and regulations issued
by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on
the same of the inflation rate at the end of the taxable year.
(12) GSIS, SSS, Medicare and other contributions. — GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of
individual employees
SEC 32 (B) Exclusions from Gross Income
(1) Life Insurance. — The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise,
provided however, that interest payments agreed under the policy for the amounts which are held by the insured under such an agreement shall be included in
the gross income.
(2) Amount received by the insured as a return of premium. — The amount received by the insured, as a return of premium or premiums paid by him under life
insurance, endowment, or annuity contracts either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract.
(3) Compensation for injuries or sickness. — Amounts received through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation
for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness.
(4) Income exempt under treaty. — Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines.
(5) Retirement benefits, pensions, gratuities, etc
(6) Thirteenth (13th ) month pay and other benefits – not exceeding P30 000
(7) GSIS, SSS, Medicare and other contributions
FRINGE BENEFITS
A. Basic Concepts
Underlying Laws and Regulations – Fringe Benefits Tax
• Section 33 of the National Internal Revenue Code [NIRC]
• Revenue Regulations (RR) No. 3-98 and amendments (RR Nos. 8-2000, 10-2000, 5-2011 and 8-2012)
38
Fringe Benefits: Definition
What are Fringe Benefits?
“Fringe Benefit” means any good, service or other benefit furnished or granted in cash or in kind by an
employer to an individual employee (except rank and file employees) such as, but not limited to, the
following:
1)
2)
3)
4)
5)
Housing;
Expense account;
Vehicle of any kind;
Household personnel, such as maid, driver and others;
Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted;
Sec. 33(B), Tax Code
39
Fringe Benefits: Definition
Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs
or other 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-life insurance premiums or similar amounts in excess of what the law
allows.
6)
Sec. 33(B),Tax Code
40
Person Liable for FBT
Who is liable to FBT?

41
The EMPLOYER, whether individual, professional partnership or a corporation, regardless of whether the
corporation is taxable or not, or the government and its instrumentalities except when:
1) the fringe benefit is required by the nature of or necessary to the trade, business or profession of the
employer; or
2) when the fringe benefit is for the convenience or advantage of the employer,
is liable for FBT.
Fringe Benefits: Tax Rate and Base
In General:
•
Effective January 1, 2000 and thereafter:
Tax Rate
32%
Tax Base
Grossed-up monetary value (GMV) of the fringe benefit
furnished or granted to the employee (except rank-and-file
employees) by the employer
where the GMV of the fringe benefit shall be determined by dividing the actual monetary value by
68% (i.e., 100% - 32%).
42
Valuation of FBT
Conditions
43
Valuation
• If the fringe benefit is granted in money, or is directly
paid for by the employer
The value is the amount granted or paid for.
• If the fringe benefit is granted or furnished by the
employer in property other than money and
ownership is transferred to the employee
The value of the fringe benefit shall be equal to the fair
market value (FMV) of the property as determined in
accordance with Sec. 6(E) of the Tax Code (zonal value
or assessed value).
• If the fringe benefit is granted or furnished by the
employer in property other than money but
ownership is NOT transferred to the employee
The value of the fringe benefit is equal to the
depreciation value of the of the property.
B. Classification of Employees
Classification of Employees
a. Managerial Employee
‒
one who is vested with powers or prerogatives to lay down and execute management policies
and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees.
b. Supervisory Employees
‒
those who, in the interest of the employer, effectively recommend such managerial actions if
the exercise of such authority is not independent judgment merely routinary or clerical in
nature but requires the use of.
c. Rank and File Employees
‒
45
means all employees who are holding neither managerial nor supervisory position.
C. Fringe Benefits Subject to FBT
Fringe Benefits Subject to FBT: Housing
Housing Privilege
a. Lease of residential property for residential
use of employee
Monetary Value (MV)
50% x rental payments
Sec. 2.33(B)(1)(a), RR No. 3-98
47
Fringe Benefits Subject to FBT: Housing
Housing Privilege
b. Assignment of residential property for
use of employee as his usual place of
residence
Monetary Value (MV)
[5% (FMV) or ZV, whichever is higher] x
50%
Where:
• ZV – Zonal Value of the land and improvement, as declared in the Real Property
Declaration Form
• FMV – Fair Market Value as determined by the Commissioner of Internal Revenue
Sec. 2.33(B)(1)(b), RR No. 3-98
48
Fringe Benefits Subject to FBT: Housing
Housing Privilege
c. Purchase of residential property on
installment basis for residential use of
employee
Monetary Value (MV)
5% x AC x 50%
Where:
• AC – Acquisition Cost, exclusive of interest
Sec. 2.33(B)(1)(c), RR No. 3-98
49
Fringe Benefits Subject to FBT: Housing
Housing Privilege
Monetary Value (MV)
d. Purchase of residential property and
ownership thereof is transferred in the
name of the employee
FMV or ZV, whichever is higher
Sec. 2.33(B)(1)(d), RR No. 3-98
50
Fringe Benefits Subject to FBT: Housing
Housing Privilege
e.
Purchase of residential property and
ownership thereof is transferred to
the employee for his residential use,
at a price less than the employer's
acquisition cost
Monetary Value (MV)
FMV or ZV, whichever is higher less the
cost to the employee
Sec. 2.33(B)(1)(e), RR No. 3-98
51
Fringe Benefits Subject to FBT: Expense Account
The following are treated as taxable fringe benefits:
1. In general, expenses incurred by the employee but which are paid by his employer, except when:
a. the expenditures are duly receipted for and in the name of the employer, and
b. the expenditures do not partake the nature of a personal expense attributable to the employee.
2. Expenses paid for by the employee but reimbursed by his employer, except only when:
a. the expenditures are duly receipted for and in the name of the employer, and
b. the expenditures do not partake the nature of a personal expense attributable to the said
employee.
Sec. 2.33(B)(2)(a) and (b), RR No. 3-98
52
Fringe Benefits Subject to FBT: Expense Account
3.
Personal expenses of the employee (like purchases of groceries for the personal consumption of the
employee and his family members) paid for or reimbursed by the employer to the employee whether
or not the same are duly receipted for in the name of the employer.
Sec. 2.33(B)(2)(c), RR No. 3-98
53
Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind
Motor Vehicle
Monetary Value (MV)
a. Purchase of motor vehicle in the name
of the employee
Acquisition Cost (AC)
Sec. 2.33(B)(3)(a), RR No. 3-98
54
Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind
Motor Vehicle
Monetary Value (MV)
b. Cash is provided to the employee for
the purchase of the motor vehicle, the
ownership of which is placed in the
name of the employee
Amount of cash received by the employee
• Please note that if the cash received by the employee was subjected to a withholding
tax as compensation income under RR No. 2-98, the same shall not be subject to FBT.
Sec. 2.33(B)(3)(b), RR No. 3-98
55
Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind
Motor Vehicle
c. Purchase of car on installment basis
and the ownership of which is placed
in the name of the employee
Monetary Value (MV)
AC (exclusive of interest) / 5 years
Sec. 2.33(B)(3)(c), RR No. 3-98
56
Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind
Motor Vehicle
Monetary Value (MV)
d. Employer shoulders a portion of the
amount of the purchase price of the
motor vehicle, the ownership of which
is placed in the name of the employee
Amount shouldered by the employer
Sec. 2.33(B)(3)(d), RR No. 3-98
57
Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind
Motor Vehicle
Monetary Value (MV)
e. Employer OWNS and maintains a fleet
of motor vehicles for the use of the
business and the employees
[AC/5] x 50%
• Does NOT include motor vehicles in the fleet which are normally used for sales, freight, delivery
service and other non-personal use.
Sec. 2.33(B)(3)(e), RR No. 3-98
58
Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind
Motor Vehicle
f. Employer LEASES and maintains a
fleet of motor vehicles for the use of
the business and the employees
Monetary Value (MV)
50% x Rental payments
• Does NOT include motor vehicles in the fleet which are normally used for sales, freight, delivery
service and other non-personal use.
Sec. 2.33(B)(3)(f), RR No. 3-98
59
Fringe Benefits Subject to FBT: Motor Vehicle of Any Kind
Motor Vehicle
h.
Use of yacht owned and maintained
or leased by the employer
Monetary Value (MV)
Depreciation of the yacht at an estimated
life of 20 years
Sec. 2.33(B)(3)(h), RR No. 3-98
60
Fringe Benefits Subject to FBT: Household Expenses
 Expenses of the employee which are borne by the employer for household personnel, such as
salaries of household help, personal driver of the employee, or other similar personal
expenses (like payment for homeowners association dues, garbage dues, etc.) shall be
treated as taxable fringe benefits.
Sec. 2.33(B)(4), RR No. 3-98
61
Fringe Benefits Subject to FBT: Interest on loan at less than Market Rate
 If the employer lends money to his employee free of interest or at a rate lower than 12%,
such interest foregone by the employer or the difference of the interest assumed by the
employee and the rate of 12% shall be treated as a taxable fringe benefit.
 The benchmark interest rate of 12% shall remain in effect until revised by a subsequent
regulation.
 This shall apply to installment payments or loans with interest rate lower than 12% starting
January 1, 1998.
Sec. 2.33(B)(5), RR No. 3-98
62
Fringe Benefits Subject to FBT: Membership Fees, Dues, and Other
Expenses
 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.
Sec. 2.33(B)(6), RR No. 3-98
63
Fringe Benefits Subject to FBT: Expenses for Foreign Travel
a. Reasonable business expenses which are paid for by the employer for the foreign travel of his employee for
the purpose of attending business meetings or conventions shall NOT be treated as taxable fringe benefits.
In this instance, inland travel expenses (such as expenses for food, beverages and local transportation)
EXCEPT lodging cost in a hotel (or similar establishments) amounting to an average of US$300 or less per
day, shall NOT be subject to FBT.
The expenses should be supported by documents proving the actual occurrences of the meetings or
conventions.
The cost of economy and business class airplane ticket shall NOT be subject to a fringe benefit tax.
However, 30% of the cost of first class airplane ticket shall be subject to FBT.
Sec. 2.33(B)(7), RR No. 3-98
64
Fringe Benefits Subject to FBT: Expenses for Foreign Travel
b. In the absence of 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.
The business meetings shall be evidenced by official communications from business associates
abroad indicating the purpose of the meetings.
Business conventions shall be evidenced by official invitations or communications from the host
organization or entity abroad.
Otherwise, the entire cost thereof shouldered by the employer shall be treated as taxable fringe
benefits of the employee.
Sec. 2.33(B)(7), RR No. 3-98
65
Fringe Benefits Subject to FBT: Expenses for Foreign Travel
c. Travelling expenses which are paid by the employer for the travel of the family
members of the employee shall be treated as taxable fringe benefits of the
employee.
Sec. 2.33(B)(7), RR No. 3-98
66
Fringe Benefits Subject to FBT: Holiday and Vacation Expenses
 Holiday and vacation expenses of the employee borne by his employer shall be
treated as taxable fringe benefits.
Sec. 2.33(B)(8), RR No. 3-98
67
Fringe Benefits Subject to FBT: Educational Assistance
a. The cost of the educational assistance to the employee which are borne by the employer
shall, in general, be treated as taxable fringe benefit.
However, a scholarship grant to the employee by the employer shall NOT be treated as
taxable fringe benefit if:
- the education or study involved is directly connected with the employer's trade, business
or profession, and
- there is a written contract between them that the employee is under obligation to remain
in the employ of the employer for period of time that they have mutually agreed upon.
In this case, the expenditure shall be treated as incurred for the convenience and
furtherance of the employer's trade or business.
Sec. 2.33(B)(9), RR No. 3-98
68
Fringe Benefits Subject to FBT: Educational Assistance
b. 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 unless the assistance
was provided through a competitive scheme under the scholarship program of the company.
Sec. 2.33(B)(9), RR No. 3-98
69
Fringe Benefits Subject to FBT: Insurance Premiums
 The cost of life or health insurance and other non-life insurance premiums borne by the employer for his
employee shall be treated as taxable fringe benefit, except the following:
a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing
law, such as under the Social Security System (SSS), (R.A. No. 8282, as amended ) or under the
Government Service Insurance System (GSIS) (R.A. No. 8291 ), or similar contributions arising from
the provisions of any other existing law; and
b) the cost of premiums borne by the employer for the group insurance of his employees.
Sec. 2.33(B)(10), RR No. 3-98
70
Fringe Benefits Subject to FBT: Stock Options
 Any income or gain derived from stock option plans granted to managerial and
supervisory employees which qualify as fringe benefits is subject to fringe benefit tax
imposed under Section 33 of the Tax Code.
 The taxable fringe benefit is the difference of the book value (BV)/fair market value (FMV)
of the shares, whichever is higher, at the time of exercise of the stock option and the
price fixed on the grant date.
RMC No. 88-2012 dated December 27, 2012
71
D. Fringe Benefits that are Exempt from FBT
Fringe Benefits that are Exempt from FBT
In general, the fringe benefits tax shall not be imposed on the following fringe benefits:
1. Fringe benefits which are authorized and exempted from income tax under the Code or under any
special law;
2. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
3. Benefits given to the rank and file, whether granted under a collective bargaining agreement or not;
4. De minimis benefits;
5. If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade,
business or profession of the employer; or
6. If the grant of the fringe benefit is for the convenience of the employer (CONVENIENCE OF THE
EMPLOYER RULE).
Sec. 2.33(C), RR No. 3-98
73
Fringe Benefits that are Exempt from FBT
 The exemption of any fringe benefit from the fringe benefit tax imposed under Section 2.33 of RR
No. 3-98, shall not be interpreted to mean exemption from any other income tax imposed under
the Tax Code except if the same is likewise expressly exempt from any other income tax imposed
under the Code or under any other existing law.
 Thus, if the fringe benefit is exempted from the fringe benefits tax, the same may, however, still
form part of the employee's gross compensation income which is subject to income tax, hence,
likewise subject to a withholding tax on compensation income payment.
Sec. 2.33(C), RR No. 3-98
74
Fringe Benefits that are Exempt from FBT
What are “DE MINIMIS” benefits?
 The term "DE MINIMIS" benefits which are exempt from the fringe benefit tax shall, in general,
be limited to facilities or privileges furnished 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 the health, goodwill, contentment, or efficiency of his employees.
Sec. 2.33(C), RR No. 3-98
75
Fringe Benefits that are Exempt from FBT
What are the benefits considered as “de minimis” benefits?
The following are considered as “de minimis” benefits granted to each employee:
a. Monetized unused vacation leave credits of private employees not exceeding ten (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 P750 per employee per semester or P125 per
month;
d. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500;
e. Uniform and Clothing allowance not exceeding P5,000 per annum;
Sec. 2, RR No. 05-2011 dated March 16, 2011;
RR No. 08-2012 dated May 11, 2012
76
Fringe Benefits that are Exempt from FBT
f.
Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual
medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000
per annum;
g. Laundry allowance not exceeding P300 per month;
h. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the
form of a tangible personal property other than cash or gift certificate, with an annual monetary value
not exceeding P10,000 received by the employee under an established written plan which does not
discriminate in favor of highly paid employees;
i.
Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee
per annum;
j.
Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent
(25%) of the basic minimum wage on a per region basis.
Sec. 2, RR No. 05-2011 dated March 16, 2011
77
When Benefits Subject to WTW or FBT
The rules on the taxability of compensation and fringe benefits are summarized as follows:
Compensation
Shall be subject to WTW
Fringe Benefits
Shall be subject to WTW
Compensation
Shall be subject to WTW
Fringe Benefits
Shall be subject to FBT
Rank-and-File
Classification of the
Employee
Non-rank-and-file
• Managerial employee
• Supervisory employee
78
DEDUCTIONS FROM GROSS INCOME
(SEC 34 NIRC)
1. Premium Payments on Health and/or
Hospitalization Insurance (SEC 34)
2. Allowance for Personal Exemption
for Individual Taxpayer (Sec 35)
Premium Payments on Health and/or
Hospitalization Insurance [SEC 34 (M) NIRC]
SEC. 34. Deductions from Gross Income.
Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship
where no deductions shall be allowed under this Section other than under subsection (M) hereof, in computing taxable income subject
to income tax under Sections 24 (A); 25 (A); 26; 27 (A), (B) and (C); and 28 (A) (1), there shall be allowed the following deductions from
gross income;
xxxxxxxxxxxx
M) Premium Payments on Health and/or Hospitalization Insurance of an Individual Taxpayer. - the amount of premiums not to exceed
Two thousand four hundred pesos (P2,400) per family or Two hundred pesos (P200) a month paid during the taxable year for health
and/or hospitalization insurance taken by the taxpayer for himself, including his family, shall be allowed as a deduction from his gross
income: Provided, That said family has a gross income of not more than Two hundred fifty thousand pesos (P250,000) for the taxable
year: Provided, finally, That in the case of married taxpayers, only the spouse claiming the additional exemption for dependents shall be
entitled to this deduction.
Notwithstanding the provision of the preceding Subsections, The Secretary of Finance, upon recommendation of the Commissioner, after
a public hearing shall have been held for this purpose, may prescribe by rules and regulations, limitations or ceilings for any of the
itemized deductions under Subsections (A) to (J) of this Section: Provided, That for purposes of determining such ceilings or limitations,
the Secretary of Finance shall consider the following factors: (1) adequacy of the prescribed limits on the actual expenditure
requirements of each particular industry; and (2)effects of inflation on expenditure levels: Provided, further, That no ceilings shall further
be imposed on items of expense already subject to ceilings under present law.
M) Premium Payments on Health and/or Hospitalization
Insurance of an Individual Taxpayer. - the amount of premiums
not to exceed Two thousand four hundred pesos (P2,400) per
family or Two hundred pesos (P200) a month paid during the
taxable year for health and/or hospitalization insurance taken by
the taxpayer for himself, including his family, shall be allowed as a
deduction from his gross income: Provided, That said family has a
gross income of not more than Two hundred fifty thousand pesos
(P250,000) for the taxable year: Provided, finally, That in the case
of married taxpayers, only the spouse claiming the additional
exemption for dependents shall be entitled to this deduction.
Summary:
 The insurance shall be taken by the individual taxpayer
himself and/or for his family;
 The amount being claimed shall not exceed P2,400.00 a
year or P200.00 a month per family;
 The family has a gross income of P250,000.00 or less for
the taxable year.
Allowance for Personal
Exemption for Individual
Taxpayer [Section 35 - NIRC]
Underlying Laws and Revenue Regulations
• Section 35 of the National Internal Revenue Code
• RA 9504 [Minimum Wage Law]
 Revenue Regulation10-2008
85
RA 9504 – Minimum Wage Law
AN ACT AMENDING SECTION 22, 24, 34, 35, 51, AND 79 OF REPUBLIC
ACT NO. 8424, AS AMENDED OTHERWISE KNOWN AS THE NATIONAL
INTERNAL REVENUE OF 1997
86
What is a minimum wage earner?
 The law defines a minimum wage earner as a worker in the
private sector paid the statutory minimum wage, or to an
employee in the public sector with compensation income of
not more than the statutory minimum wage in the nonagricultural sector where he or she is assigned.
What is minimum wage?
• A [statutory] minimum wage* is defined as the rate fixed by
the Regional Tripartite Wage and Productivity Board.
*The minimum daily wage in the National Capital Region for non-agricultural workers now stands at Php466.00. For other
private sector works, the minimum wage is at P429.00.
Salient features of income tax exemption of MWEs.
 The income tax exemption of minimum wage earners covers
the statutory minimum wage, holiday pay, overtime pay, nighshift differential pay and hazard pay.
89
Salient features of income tax exemption of MWEs.
Honoraria, commissions, fringe benefits and other benefits in
excess of the allowable statutory amount of Php30,000.00.
The taxpayer shall no longer enjoy the privilege of being a MWE,
and therefore, his/her entire earnings will be subject to income
tax and consequently, from withholding tax.
90
Salient features of income tax exemption of MWEs.
MWEs receiving other income, such as income from the conduct of
trade, business, or practice of profession, in addition to
compensation income, are not exempted from income tax on their
entire income earned during the taxable year.
This rule, notwithstanding, holiday pay, overtime pay, night shift
differential pay and hazard pay, etc. shall still be exempt from
withholding tax.
91
Salient features of income tax exemption of MWEs.
MINIMUM WAGE EARNER
The personal and additional exemptions for individual taxpayers:
Type of taxpayer
Old Law
New Law
Single
20,000
50,000
Head of Family
25,000
50,000
Married individuals
32,000
50,000
Additional exemption
for each qualified
dependent/child
8,000
25,000
Salient features of income tax exemption in RA 9504
 All individuals will have a maximum of P50,000 annual income tax
exemption. This simply means that a person earning a gross annual
salary of P180,000 (excluding the mandatory 13th month pay,
which is tax free) per year will only pay income tax on the
P130,000.
 The new exemption is for all persons whether single, married or
head of the family. In the old tax code, RA 8284 it gave single
individuals only a Php20,000 exception, head of families Php25,000
and married individuals Php32,000.
Salient features of income tax exemption in RA 9504
 For married couples, the new law increase the additional exemptions
based on the number of their children. In the old law, each couple is
allowed an exemption of Php8,000 per child up to 4 children. The new
law increases the exemption to Php25,000 per child up to 4 children.
 Therefore, a family with 4 children will have a maximum of
Php200,000. It is a substantial increase from the previous Php96,000
per family with 4 children. In theory, a family with 4 children earning
exactly or below Php200,000 per year will l[pmk,m be subject to
income tax.
,
Thank You.