You may have heard of the term de minimis benefits. As an employee, you’re lucky to receive this because it’s tax-exempt. Meanwhile, employers can consider this as a tax-deductible expense. It would be prudent to keep tabs on all your transactions and official receipts to log them correctly in your bookkeeping and accounting systems. In this way, you can collect supporting pieces of evidence which the BIR will ask for compliance.
The term de minimis is rooted in the Latin phrase “de minimis non curat lex.” The translation for this is the law does not concern itself with trifles. In this modern world, de minimis is used for many different contexts pertaining to matters that are trivial for any regulating authority to fret over. Learn more about these benefits below:
What is a De Minimis Benefit?
The de minimis benefits are benefits presented or given to employees aside from the regular compensation they get from their employers. Giving these benefits is mandated by law where employees will be able to get certain small benefits and allowances that will not be subject to income tax. It can include small gifts, food and transportation allowances, and many more.
These benefits will be one of the ways you can give recognition to the hard work and efforts your employees make. These minor perks with a capped monetary value can promote employee contentment and serve as a reward to boost efficiency. It is small in value so it varies from fringe benefits like vehicle plans, housing assistance, or foreign travel costs. Unlike fringe benefits which are taxable, de minimis benefits are not calculated into your employees’ taxable income and withholding tax. If this is confusing for you, you can seek accounting assistance and payroll services.
The New De Minimis Benefits Under TRAIN Tax Law
There are new de minimis benefits under the TRAIN tax law and as of January 1, 2018, the new de minimis benefits are as follows:
1. Can monetize their unused vacation leave credits not exceeding 10 days in a year.
2. Can monetize the value of vacation and sick leave credits paid to government officials and employees.
3. Medical cash allowance to the dependents of the employees that should not exceed 1,500 pesos for each employee in a semester or 250 pesos per month
4. Rice subsidy worth 2,000 pesos or one sack of rice (50 kg) per month and should not exceed 2,000 pesos
5. Clothing and Uniform Allowance that should not exceed 6,000 pesos per year
6. Medical Assistance that should not exceed 10,000 pesos and such as a medical allowance to cover healthcare and medical needs, annual medical checkups, routine consultations, maternity assistance, etc.
7. Laundry allowance that should not exceed 300 pesos per month
8. Achievement awards for employees in a form of tangible personal property with an annual monetary value that should not exceed 10,000 pesos. It must be given to the employee under a written plan that does not discriminate favoritism against highly paid employees.
9. Presents during Christmas and major anniversary celebrations that should not exceed 5,000 each employee per year.
10. Employees who work overtime or employees who have night shifts have a daily meal allowance that does not exceed 25% of the basic minimum wage.
11. The benefits employees receive by collective bargaining and annual monetary value received from this and the productivity incentive schemes should not exceed 10,000 pesos per employee.
How does the TRAIN law affect Individual tax?
Provided under the Revenue Regulations No. 15-2011, all the benefits that are not mentioned above shall not be considered “de minimis benefits” and should be subject to the income tax rate. This has had several amendments since its inception. Before, the ceiling cap was P30,000. But with the TRAIN law, it was increased to P90,000. Now, anything given beyond the amount limit is part of other benefits which will be subject to the current ceiling amount.
If you’re wondering whether or not the de minimis benefits will affect your business taxes, the answer is in a way because you can use it as a deductible expense. However, it will not affect your employees’ taxable income. It will only influence the final computation when the de minimis benefit amount exceeds the allowed amount of 90,000 tax exemption. Anything beyond that will be subject to taxable income and withholding tax.
This article is here to give you a general idea of the topic. If you wish to know more and delve deeper into this topic to help you with your business and widen your knowledge, you always have the choice to seek guidance from an expert or consultant. Give our accounting firm a call for payroll services and tax compliance. We offer free 30-minute consultations to assist you in ironing out any issues.