CHAPTER 4 FRINGE BENEFITS AND FRINGE BENEFITS TAX

Definition

Fringe benefit means any good, service, or other benefit furnished or granted by an employer in cas or

in kind, in addition to basic salaries, to an individual employee (except rank and file employee).

Examples

  Housing

  Expense account

  Vehicle of any kind

  Household personnel

  Interest on loan at less than market rate to the extent of the difference between the market rate

and the actual rate granted

  Membership fees, dues and other expenses in social and athletic clubs or other similar organizations

  Expense for foreign travel

  Holiday and vacation expenses

  Educational assistance to the employee or his dependents

  Life or health insurance and other non-life insurance premiums or similar amounts in excess of what

the law allows

Imposition of Fringe Benefit Tax

Fringe benefit tax is imposed on the on the grossed up monetary value of the fringe benefit. It is subject

to a final withholding tax. It is imposed on the employee but the employer is required by law to pay the

tax on behalf the employee.

Exemptions to Fringe Benefit Tax

1.  Fringe benefits which are authorized and exempted from income tax under the Code or under any

specific 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 on 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 or advantage of the employer (“convenience

of the employer” rule)

 

Convenience-of-the-Employer Rule

Allowances furnished by the employer to employees as a condition for employment and for the

convenience of the employer are not taxable to the employee.

Fringe Benefits to Rank and File Employees

Rank and file employees are employees who hold neither managerial nor supervisory position. Fringe

benefits form part of their gross compensation income Fringe benefits given to rank and file employees

are exempt from fringe benefit tax but are taxable as ordinary income.

De Minimis Benefits

The following shall be considered as “de minimis benefits” not subject to income tax as well as

withholding tax on compensation income of both managerial, supervisory and rank-and-file employees:

1.  Monetized unused vacation leave credits of private employees not exceeding 10 days during the

year;

2.  Monetized value of vacation and sick leave credits paid to government officials and employees;

3.  Monetized cash allowance to dependents of employees not exceeding P750 per employee per

semester or P125 per month;

4.  Rice subsidy of P1,500 or one sack of 50 kilogram rice per month amounting to not more than

P1,500;

5.  Uniform and clothing allowance not exceeding P5,000 per annum;

6.  Actual medical assistance not exceeding P10,000 per annum;

7.  Laundry allowance not exceeding P300 per month;

8.  Employees’ achievement awards with an annual monetary value not exceeding P10,000

received by the employee under an establish written plan which does not discriminate in favor

of highly paid employees;

9.  Gifts during Christmas and major anniversary celebrations not exceeding P5,000 per employee

per annum;

10. Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the

basic minimum wage on a per region basis

All other benefits given by employers which are not included in the above enumeration shall not be

considered as “de minimis benefits,” and hence, shall be subject to income tax as well as withholding tax

on compensation.

Employer Gives Benefit Beyond the Ceiling

 

The amount of de minimis benefits conforming to the ceilings herein prescribed shall not be considered

in determining the P30,000 of other benefits. However, if the employer pays more than the ceiling, the

excess shall be taxable to the employee receiving the benefits only if such excess is beyond P30,000.

Such excess, therefore, shall be considered as ordinary income of the employee and shall from part of

his taxable income.

Tax Rate and Tax Base

The monetary value of the fringe benefit is divided by 68% to arrive at the grossed-up monetary value.

The grossed-up monetary value is then multiplied by the tax rate of 32% to get the fringe benefit tax.

Housing Privilege

As a general rule, housing benefits given to employees are subject to tax. The following, however, are

not considered as taxable fringe benefits:

1.  Housing privilege of military officials of the Armed Forces of the Philippines;

2.  A housing unit which is situated inside or within the maximum of 50 meters from the perimeter of

the business premises or factory;

3. 

Temporary housing for an employee who stays in a housing unit for 3 months or less

Guidelines for Valuation and Determination of the Monetary Value

ANNUAL VALUE OF BENEFIT  VALUE OF BENEFIT 

Case 1 –  Leases (as lessee) residential property for the use of the employee

- Monthly rental paid by the employer

Case 2 –  Owns residential property which was assigned to an officer for his use as residence

5% of FMV of land and improvements -

Case 3 –  Purchases residential property on installment basis and allows the employee to use the same

as his residence 

5% of acquisition cost excluding interest -

Case 4 –  Purchases a residential property and transfers ownership thereo in the name of the employee

- Acquisition cost or FMV, whichever is higher

Case 5 –  Owns residential property which was assigned to an officer for his use as residence

- FMV of CIR and FMV of Assessor, whichever is

higher, minus the cost to the employee