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BDB Laws Tax Law For Business appears in the opinion section of BusinessMirror every

Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).

Taxability of productivity incentive bonuses and


de minimis benefits
Most companies would agree that in order to maintain a good workforce, it is essential to
keep the workers motivated. Motivation, which is the reason for ones engaging in a
particular behavior, may be intrinsic (those internal to the person, such as satisfaction
one feels from the job) or extrinsic (those external, such as money or rewards).
Though employers may have no control over intrinsic motivators of their employees, they
may provide, to a certain extent, extrinsic motivation.
One way by which employers can motivate their workers is by coming up with incentive
programs for employees who meet certain performance goals. In addition to the 13th
month pay, which is required by law to be given, companies can come up with incentives
such as Christmas bonuses and productivity bonuses.
An employee whose performance was exceptional for the specific period may be given
rewards. These perks or awards may be given in the form of cash or in kind such as gift
certificates, Cellphone cards, meal passes, parking subsidies, massage/spa treatment
vouchers and others.
The plus side to these incentives is that they are tax free! Or, are they really?
Our Tax Code provides that gross benefits received by officials and employees of public
and private entities are excluded from the computation of gross income, provided,
however, that the total exclusions shall not exceed Thirty thousand pesos (P30,000).
Gross benefits include 13th month bonus and other benefits, among others. Under
Revenue Regulation 2-98, as amended, these benefits include Christmas bonuses,

productivity or incentive bonuses, loyalty awards, gifts in cash or in kind, and other
benefits of a similar nature actually received by officials and employees of both
government and private offices.
Also, facilities and privileges of relatively small value or de minimis benefits are
excluded from the computation of gross income. These are monetized unused vacation
leave credits of employees not exceeding ten (10) days during the year; medical cash
allowance to dependents of employees not exceeding P750.00 per employee per
semester or P125 per month; rice subsidy of P1,500.00 or one (1) sack of 50-kg. rice per
month amounting to not more than P1,500.00; uniforms and clothing allowance not
exceeding P4,000 per annum; actual yearly medical benefits not exceeding P10,000 per
annum; laundry allowance not exceeding P300 per month; 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 P10,000.00 received by the employee under an established written
plan which does not discriminate in favor of highly paid employees; gifts given during
Christmas and major anniversary celebrations not exceeding P5,000 per employee per
annum; flowers, fruits, books, or similar items given to employees under special
circumstances, e.g., on account of illness, marriage, birth of a baby, etc.; and daily meal
allowance for overtime work not exceeding twenty five percent (25%) of the basic
minimum wage.
In the computation of the P30,000 ceiling, the 13th month and other benefits, these de
minimis benefits are treated separately. Although there is no ceiling for the de minimis
benefits, the regulations provide for a limit in the amount of each de minimis benefit. Any
excess over the de minimis ceiling shall be considered in the computation of other
benefits. Also, any benefit that is not within the enumeration, having no threshold, is
generally considered as other incentives and is therefore subject to the P30,000
ceiling.
In all, what are excluded from gross income are de minimis benefits up to certain limits
and 13th month and other bonus up to P30,000. Amounts in excess of the limits form part
of the employees taxable income and are, therefore, subject to income tax.
We could only hope that our authorities would push for the total exemption of these
incentives, or at least increase the threshold of exclusion. After all, the tax code does
provide that the ceiling may be increased through rules and regulations issued by the
Secretary of Finance, upon recommendation of the Commissioner, after considering,
among others, the effect on the same of the inflation rate at the end of the taxable year.
With the seemingly unstoppable hiking of prices of oil and consequently other basic
commodities, every peso of increase in the take home pay of the worker is useful.
Many regard as noble the effort of our legislators to alleviate the condition of the working
class through the latest amendment of our income tax law. A revamp of our rules on
incentives and bonuses on top of the basic wages would be most welcome. Somehow,
with these measures, as more workers become more motivated, they become more
productive. In the end, what is achieved is a rise in the standard of living and an
improved quality of life for all.