COMPENSATION
INCOME
Topic 3
Review:
Compensation Income xxx
Business Income
Philippines xxx
Abroad xxx xxx
Taxable Income xxx
Compensation
◦ EMPLOYER – EMPLOYEE RELATIONSHIP
Employer – refers to any person for whom an individual performs any service of
whatever nature as employee of such person.
Is the person who has control over the payment of the employee
renumeration.
Employee – refers to any individual who is a recipient of wages and includes
officer, employee or elected official of the Government of the Philippines or any
political subdivisions, agency or instrumentality thereof.
Types of Employees as to Taxability
◦Minimum wage earners – employees who
are recipients of minimum wage. They are
exempt from income tax on their
compensation.
◦Regular employees – employees who are
subject to the regular progressive income
tax
The tax model on compensation
income
Gross compensation income xxx
Less: Non-taxable compensation xxx
Taxable compensation income xxx
Gross compensation income
– generally includes all
remunerations received under
an employer – employee
relationship.
Non-taxable compensation
◦ Mandatory deductions – GSIS, SSS, Philhealth, HDMF, and union dues
◦ Exempt benefits
A. Remunerations received as incidents of employment
B. De minimis benefits
C. 13th month pay and other benefits not exceeding P90,000
D. Certain benefits of minimum wage earners
A. Remunerations received as incidents of employment
a. Exempt retirement benefits under RA 7641 including exempt retirement
gratuities to government officials and employees
b. Exempt termination benefits
c. Benefits from the United States Veterans Administration
d. Social security, retirement gratuities, pensions, and similar benefits from foreign
government agencies and other institutions, private or public
e. Benefits from SSS, under the SSS Act of 1954, as amended
f. Benefits from GSIS under the GSIS Act of 1937, as amended
B. De minimis benefits
De minimis benefits are facilities or privileges such as entertainment, medical services or courtesy discounts on purchases that are
of relatively small value and are furnished by the employer merely as a means of promoting the health, goodwill, contentment, or
efficiency of his employees. De minimis benefits are petty fringe benefits exempt from income tax
1. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year
2. Monetized unused vacation and sick leave credits paid to government officials and employees
3. Medical cash allowance to dependents of employees not exceeding P1,500 per employee per semester, or P375 per month
4. Rice subsidy not exceeding P2.000 or 1 sack of 50-kg rice per month amounting to not more than P2,000
5. Uniform and clothing allowance not exceeding P6,000 per annum
6. Actual Medical Assistance, e.g., medical allowance to cover medical/executive check-up, maternity assistance and routine
consultations not exceeding P10,000 per annum
7. Laundry allowance not exceeding P300 per month
8. Employee achievement award, e.g. for length of service or safety achievement, which must be in the form of tangible
property other than cash or gift certificates, with an annual monetary value not exceeding P10,000 received by the
employee under an established written plan which does discriminate in favor of highly paid employees.
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum (i.e.,
Christmas gift anniversary gifts)
10. Daily meal allowance for overtime work and night or graveyard shift not exceeding 25% of of the basic minimum wage on a
per region basis overtime meal)
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes
provided that the total annual monetary value received from both CBA and productivity incentive schemes combined do
not exceed P10,000 per employee per taxable year
Determination of excess de minimis
benefits
Jun-jun, a private employee who is paid a P600 daily rate, receives the following benefits
during 2022:
Monetized unused vacation leave credits 9 days
Monetized unused sick leave credits 9 days
Medical assistance P7,000
Rice subsidy (2,500 per month) 30,000
Clothing allowance 9,000
Laundry allowance 6,000
Illustration 2: Bebang, a government rank and file employee, received the following
benefits:
Monetized unused VL credits (10days) P6,000
Monetized unused sick leave credits (15 days) 9,000
Uniform allowance 5,000
Laundry allowance 4,800
Determine the amount to be included in other benefits
C. 13th Month Pay and Other Benefits
1. 13th month pay
a. 13th month pay of government employees consists of Christmas
bonus equivalent to one-month salary plus P5,000 cash gift
b. 13th month pay of private employees is equivalent to one-month
salary
2. Other benefits
a. Christmas bonus of private employees
b. Cash gifts other than Christmas or anniversary gifts of private
employees
c. Additional compensation allowance of government personnel
d. 14th pay, 15th pay, etc
e. Other fringe benefits of rank and file employees
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