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Chapter 10: COMPENSATION INCOME
Employer-Employee Relationship
1. Selection and engagement of employees
2. Payment of wages 3. Power of dismissal 4. Power of control
Types of Employees as to Function
1. Managerial 2. Supervisorial 3. Rank and file
Types of Employees as to Taxability
1. Minimum wage earners
2. Regular employees
Tax Model
*Gross Compensation Income xxx,xx
x **Less: Non-taxable Compensation (xxx,xx x) ***Taxable Compensation Income xxx,xx x
*Gross Compensation Income – all remunerations received under an employer-
employee relationship.
**Non-taxable Compensation
A. Mandatory Deductions (GSIS, SSS, PhilHealth, HDMF, and union dues)
B. Exempt Benefits 1. Under the NIRC, as amended, and special laws 1. Remunerations received as incidents of employment 2. De minimis benefits (pretty fringe benefits) exempt from income tax: i. Monetized unused vacation leave of private employees (limit: 10 days) ii. Monetized unused vacation and sick leave of government employees (no limit) iii. Medical cash allowance to dependents of employees (limit: 1,500 per employee per sem or 250 per month) iv. Rice subsidy (limit: 2,000 or 1 sack of 50-kg rice per month not more than 2,000) v. Uniform and clothing allowance (limit: 6,000 per annum) vi. Actual medical assistance (limit: 10,000 per annum) vii. Laundry allowance (limit: 300 per month) viii. Employee achievement award in tangible property (limit: 10,000 in monetary value) ix. Christmas and major anniversary celebration gifts (limit: 5,000 per employee per annum) x. Daily meal allowance for overtime work and night or graveyard shift (limit: 25% of basic minimum wage per region) xi. Collective bargaining agreement (CBA) benefits AND productivity incentive schemes (limit: 10,000 per employee per taxable year) 3. 13 month pay and other benefits not exceeding 90,000 th
4. Certain benefits of minimum wage earners
2. Benefits exempt under treaty or international agreements 3. Benefits required by the nature of, or necessary to, the trade, business, or conduct of profession of the employer – necessity of the employer rule 4. Benefits for the convenience or advantage of the employer – convenience of the employer rule
Overtime pay Hazard pay Night shift differential pay Holiday pay Commissions Fees (director’s fees if director) Emoluments and honoraria Taxable retirement and separation pay Value of living quarters or meals Gains on exercise of stock options Profit sharing and taxable bonuses
13th MONTH PAY AND OTHER BENEFITS
1. 13th month pay: - Government employee: Christmas bonus equal to one-month salary + 5,000 cash gift - Private employee: one month-salary 2. Other benefits: a. Christmas bonus (private employees) b. Cash gifts (other than Christmas or anniversary gifts of private employees) c. Additional Compensation Allowance (ACA) of government personnel d. 14th and 15th-month pay, etc. e. Other fringe benefits of rank-and-file employees
TAX TREATMENT OF OTHER FRINGE BENEFITS
Rank and file employees – compensation income; part of 13th-month pay and other benefits Managerial or supervisorial employees – fringe benefits subject to FBT
Summary:
Regular Compensatio Gross CI n Supplemental Compensatio Gross CI First 90k – n Nontaxable CI 13th month pay and other Gross CI benefits Excess of 90k –Taxable CI
Limit under law -
Rank and File nontaxable Gross CI employee Excess – subject to 90k Other fringe benefits Limit under law - Managerial excluded employee Excess – subject to FBT
