De Minimis Benefits: an update on the Salary-And-Benefits’ Mini-Me’s. UPDATED LIST OF DE MINIMIS BEN

We may often hear of the term “de minimis benefits”, and the unfamiliar ear can’t help but imagine an army of Dr. Evil mini clones from the movie Austin Powers giving out some sort of treat or “benefits”. But surely our tax code couldn’t be talking about a diminutive version of something…or could it?

“DE MINIMIS” BENEFITS

De minimis is a Latin expression meaning "about minimal things". Section 33 (C) (4) of the National Internal Revenue Code (NIRC) provides that de minimis benefits, as defined in the regulations are non-taxable forms of fringe benefits. The regulations that the said section is referring to are Revenue Regulation (RR) and 2-98 and 3-98 which define “DE MINIMIS" benefits as those facilities or privileges furnished or offered by an employer to his employees as a means of promoting the health, goodwill, contentment, or efficiency of the latter, and most importantly, are of relatively small value. Thus, in a sense, these are “mini” emoluments that are relatively small as compared to regular salaries and allowances.

WHAT THEN, IS THE SIGNIFICANCE OF THESE “MINI” BENEFITS?

Under our laws, all kinds of compensation are generally subject to some sort of tax, either as income or fringe benefits. However, because of their relatively small values, the law exempts these de minimis benefits from any kind of tax even though like fringe benefits, these are given on top of an employee’s regular salaries and wages.

UPDATED LIST OF DE MINIMIS BENEFITS UNDER RR 11-2018

The term “small” is a subjective term, thus making it necessary for the law to define the extent of what can be considered “de-minimis”. So, just how small is “small”?

As mentioned earlier, RR 3-98 originally defined and enumerated the list of what qualifies as the so-called “de-minimis” benefits, and up to what extent/amount. However, due to inflation rates and the rising costs of living, the said items and amounts have been updated several times over the past years (RR 10-2000, RR 5-2008, RR 5-2011, RR 8-2012, RR 1-2015). Under the widely talked-about RA No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, the list was once again updated (as laid out under RR 11-2018), increasing the thresholds for certain benefits, namely:

1. The ceiling for Medical cash allowances to dependents of employees was doubled to P1,500 per employee per semester or P250 per month, from P750 per employee per semester or P125 per month;

2. Rice subsidy remains at one (1) sack of 50 kg. rice per month, but the value of was increased to P2,000.00 from P1,500;

3. The ceiling for uniform and clothing allowance was increased to P6,000 from P5,000 .

Thus, the updated list of benefits that qualify as “de-minimis” benefits are now as follows:

1. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year (RR 11-2018)

2. Monetized value of vacation and sick leave credits paid to government officials and employees (RR 5-2011)

3. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per semester or P250 per month (RR 11-2018)

4. Rice subsidy of P2,000 or one (1) sack of 50 kg. rice per month amounting to not more than P2,000 (RR 11-2018)

5. Uniform and Clothing allowance not exceeding P6,000 per annum (RR 11-2018)

6. 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 P10,000.00 per annum (RR 5-2011)

7. Laundry allowance not exceeding P300 per month (RR 5-2011)

8. 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 (RR 5-2011)

9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum (RR No. 5-2011)

10. 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 (RR No. 5-2011)

11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total monetary value received from both CBA and productivity incentive schemes combined do not exceed P10,000.00 per employee per taxable year (RR No 1-2015)

Any amount in excess or benefits not included in the aforementioned list are therefore generally taxable and subjected to withholding tax whether as income or fringe benefits, depending on whether he is a rank-and-file or a managerial employee, respectively. However, it must be noted that under RR 11-2018, the ceiling for tax-exempt “Thirteenth month and additional benefits” has also been increased to P90,000.00, from P82,000.00. There are varied interpretations as to whether or not amounts in excess of the allowed ceilings for de-minimis benefits can be absorbed as part of the P90,000.00 ceiling. As such, it would be best to consult and/or discuss with a tax practitioner regarding the issues on the said matter.