TAXATION IN A

NUTSHELL
MANAGERIAL EMPLOYEES

ITEMS

(RR 2-98, merely copied the defnition of Labor Code)

RESIDENTS

INCOME
TAX
PAYERS

RANK AND FILE

A managerial employee is one who is vested with powers or prerogatives to lay down and ALL EMPLOYEES NOT FALLING WITHIN THIS DEFINITION
execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, ARE CONSIDERED RANK-AND-FILE EMPLOYEES.(RR 2-98)
assign, or discipline employees, or to effectively recommend such managerial actions.

NON-RESIDENTS

NRA

NRAEBT

NRANEBT

EXEMPT FROM PAYMENT OF

Grossed up monetary value of fringe In the case of aliens, the tax rates to be applied on fringe
benefit furnished or granted to the benefit shall be as follows:
1. NRANEBT - 25%
employee (except rank and file)
2. Aliens employed by regional HO - 15 %
3. Aliens employed by OBU - 15%
Tax Rate
Grossed
4. Aliens employed by Petroleum Service - 15%
Up Divisor
Year
5. Contractors and Subcontractors - 15%
32% FWT
68%
2000 Gross up divisor is the difference between 100% and the
applicable rates.

Deductions

Not Applicable
Fringe Benefit include, but not be limited to the following:
Housing
Expense Account (expenses incurred by the managerial employee to be reimbursed by the management)
Vehicle of any kind
Household personnel, such as maid, driver and others
5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual
rate granted.- ( difference between the legal rate and the one granted to the management)
6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic
clubs and 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-lire insurance premiums or similar amounts on excess of what the
law allows.

Applicabl
e

Fringe Benefit that is not A.

1.
taxable under Sec. 32 (B) 2.
Exclusions from Gross 3.
Income
4.

1.

The
following
fringe
benefits are not taxable
2.
under Sec. 33 Fringe
Benefit Tax:
3.
4.

Fringe Benefits which are authorized and exempted under special laws. The 13th month Pay and Other
Benefits with the ceiling of P30,000 may be increased through rules and regulations issued by the Secretary
of Finance considering the effect on the same of the inflation rate at the end of the taxable year;
Contributions of the lawyer for the benefit of the employee to retirement, insurance and hospitalization benefit
plans; (EXEMPT from FIT as provided under 33C)
Benefits given to the Rank and File Employees, whether granted under a collective bargaining agreement or
not; and
The De minimis benefits benefits which are relatively small in value offered by the employer as a means of
promoting goodwill, contentment, efficiency of Employees

Prepared by: JOEL V. OFILAN, PUP

College of Law

Taxable under Net Income Tax

If the requirements are not present,

taxable.

MANAGERIAL EMPLOYEES

RANK AND FILE

Managerial Employee notwithstanding the wordings of Sec. 33 that the tax imposed is payable by
the employer in the same manner as under section 57A of the NIRC, the employer is a mere
withholding agent. The employer is the one who is obliged by law to file the return and pay the tax.

The Rank and File Employee himself

ITEMS
Liable To Pay
&
File the Return

Exception : 1. If it is for the convenience of the management

2. If it is necessary to the trade and business of the management

Requirement
for Free Housing to
Be Exempt from
Income Tax

RR 2-98 provides that:

1.
2.
3.

The only requirement is that it is for the convenience of the

management;

It is for the convenience of the management;

Free Housing is located within 50 meters from the place of the management

Housing Privileges of Military officials of the AFP

4. Temporary housing for an employee who stays in the unit for 3 mos. or
less
Under 33B10, The management can claim deduction for the premium it has

Claim of
Deduction for the
Insurance
premium paid by the
management for the
life of its employee

paid for the life and health of the managerial employee provided it must be in
excess of what the law allows. What does it mean? The GSIS and SSS laws are
amended that there is now an obligation among the management to have
minimum insurance coverage for the life of the worker. If the insurance paid by
the management is more than what is allowed by GSIS and SSS laws, then the
diference is the fringe benefits.

Section 36A4 is worded in a qualified manner. The

management cannot claim the premium as a
deduction if it is the beneficiary, directly or indirectly.
Therefore, if it the company is not the beneficiary,
directly or indirectly, it could claim the premium as a
deductions.

Under Section 34A1 a1 last phrase, the fringe benefits given by the
management to the managerial employee may be claimed as a deduction as
business expense provided that the FIT has been already paid.
(First it must be an insurance which is more than the laws allows. Second FIT on
fringe benefits should have been paid already.)
Rules :
1. Rates :

RC,NRC, NRAE 32%

NRANE 25%
Employees of RHQ or ROHQ, OBU, Foreign Service Contractor or Subcontractors engaged in Petroleum Operations in the Phils 15%
2. TAX BASE : Monetary grossed- up value

DE MINIMIS BENEFITS
1.
2.
3.

These are facilities or privileges furnishes 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 health, goodwill, contentment and efficiency of the employees ( RR No. 03-98)
The list is exclusive. All others not included are not considered De Minimis hence, it is subject to Income tax
The enumerated benefits are exempt from income tax up to the extent of the ceiling provided, any excess is taxable if such is beyond the P 30, 000 threshold for the exempt
13th month pay and other benefits.

BENEFITS (MUM-RUM-LECOP)
Monetized Value of vacation and sick leave credits paid to
government officials and employees
Monetized Unused VL credits of private employees
Medical cash allowance to dependents of employees
Rice Subsidy
Uniform of Clothing Allowance
Actual yearly Medical benefits
Laundry Allowance
Employees achievement awards
Gift during Christmas and Major anniversary bonus
Daily meal allowance for OT and graveyard shift
CBA/Productivity scheme of the employer

VALUE ALLOWED
No limit as to number of credits
Not exceeding 10days/year
Not exceeding P750/employees per
semester or P125/mo.
P 1,500 or 1 sack of 50KG/mo.
Amounting to not more than P1,500
P 5,000/annum
P 10,000/annum
P 300/month
P 10,000
P 5,000/employee per annum
Not exceeding the 25% of the basic
minimum wage on a per region basis
P 10,000

NOTE
Before determining whether the excess of allowable
value is taxable, the total excess thereof must be
added to his P 13th month pay and other benefits.
Should the sum thereof exceeds the P 30,000, the
excess amount over said P 30,000 is taxable.

DEDUCTIONS FOR THE EMPLOYER:

General Rule:
Any benefits given by employer wheteher considered as de minimis or fringe nebefits subject to income tax shall be considered as deductible expense . The fringe
benefit tax is also deductible.
Exception: if the basis of computation of the fringe benefit tax is depreciation value, the zonal or the fair market value, only the actual FBT paid shall constitute a
deductible expense. The value of the FB is not deductible.
Exception to the Exception: if the aforesaid Zonal or fair Market Value is greater than its cost, the excess amount shall be allowed as a deduction from the
employers gross income as FB expense.