MODULE 9- COMPENSATION INCOME
EMPLOYER-refers to any person for whom an individual performs any service of whatever
nature as employee of such person.
EMPLOYEE-refers to any individual who is 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 FUNCTION
1. Managerial employees- who are given powers or prerogatives to lay down and execute
managerial policies and/or to hire, transfer, suspend layoff, recall, discharge, assign or
discipline employees.
2. Supervisory employees- who effectively recommend such managerial actions if the
exercise of such authority is not merely routinary or clerical in nature but requires the use
of independent judgment.
3. Rank and File employees- those who hold neither managerial nor supervisory functions.
TYPES OF EMPLOYEES AS TO TAXABILITY
1. Minimum Wage Earner- employees who are recipients of minimum wage. They are
exempt from income tax on their compensation.
2. Regular employees- Employees who are subject to the regular progressive income tax.
The Tax Model on Compensation Income
Gross Compensation Income P xxx,xxx
Less: Non-taxable compensation xxx,xxx
Taxable Compensation Income xxx,xxx
Gross Compensation Income
- Generally, includes all remunerations received under an employer-employee relationship.
NON-TAXABLE COMPENSATION
A. Mandatory deductions
- Includes employee’s mandatory contribution to GSIS, SSS, PhilHealth, HDMF, and union
dues.
B. Exempt Benefits
1. Benefits excluded and/or exempted under NIRC and special laws.
2. Benefit exempt under treaty or international agreements.
3. Benefits necessary to the trade, business, or conduct of profession of the employer.
4. Benefits for the convenience or advantage of the employer.
EXEMPT BENEFITS UNDER THE NIRC AS AMENDED AND SPECIAL LAWS
1. Remunerations received as incidents of employment
-Exempt Retirement Benefits
-Exempt termination benefits
-Social Security, retirement, gratuities, pensions and similar benefits from foreign
government agencies and other institutions, private and public.
- Benefits from SSS
-Benefit from GSIS
2. De Minimis benefits
3. 13th Month Pay and other benefits not exceeding P90,000
4. Certain benefits of minimum wage earners.
De Minimis Benefits
-are facilities or privileges such as entertainment, medical services, or courtesy discounts on
purchases that are relatively small value and are furnished by the employer merely as a means of
promoting the health, goodwill, contentment or efficiency of his employees.
1. Monetized unused vacation leave credits of private employee not exceeding 10 days during the
year.
2. Monetized unused vacation and sick leave credits and paid to government officials and
employees.
3. Medical cash allowance to dependents of employee not exceeding P 1,500 per employee per
semester or P3000 annual
4. Rice Subsidy not exceeding P2,000 or 1 sack of 50kg rice per month or P24,000 annual.
5. Uniform and Clothing allowance not exceeding P6,000 per annum
6. Actual Medical Assistance- not exceeding P10,000 per annum
7. Laundry Allowance- not exceeding P300 per month
8. Employee achievement award- must be in the form tangible property other than cash or gift
certificates with an annual monetary value not exceeding P10,000
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum (i.e Christmas gift and anniversary gifts)
10. Daily Meals allowance for overtime work and night or graveyard shift not exceeding 25% of
the basic minimum wage on per region basis
11. Benefits received by an employee by virtue of collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total amount monetary value received from both
CBA and productivity incentive schemes combined do not exceed P10,000 per employee per
taxable year.
Taxable De minimis benefits
1. Excess de minimis over their regulatory limits.
2. Other benefits of relatively small value that are not included in the list of de minimis
benefits.
Treatment of Taxable De minimis benefits
a. Rank and file employees- taxable de minimis is treated as other compensation income
under the category 13th month pay and other benefits.
b. For Managerial and supervisory employees- taxable de minimis is treated as fringe benefit
subject to fringe benefit tax.
