Q: Is the 13th Month pay taxable?
A: Under the National Internal Revenue Code (NIRC) as amended by Republic Act No. 10963, gross benefits received by officials and employees of public and private entities shall not form part of their taxable income; provided, however, it shall not exceed the Php90,000 per annum threshold. (Sec. 9(e) of RA No. 10963)
This means that the total 13th month pay and other De Minimis Benefits of rank and file employees received during the taxable year are exempted from income tax. Any excess to the ninety thousand exclusions provided by the law shall be subject to regular income tax, and shall be withheld by the employer.
On the other hand, the special treatment of fringe benefits under Sec 33. of the TRAIN Law states that any benefit/s received by an employee holding a managerial or supervisory position are subject to fringe benefit tax. A final tax of 35% of the grossed up monetary value of the fringe benefit received by way of transfer of use, transfer of cash, or transfer of ownership by the employer to the employee. Nonetheless, exceptions by necessity to the trade or business of the employer shall apply. The grossed up monetary value shall be determined by dividing the actual monetary value received by the employee to 65%.
Note: that this tax rate shall apply to resident citizens and resident aliens who are under the tax jurisdiction of the Philippines. The same rule shall apply to non-resident aliens engaged in trade or business, but shall be subject to 25% final tax. (Amended tax imposition- effective Jan 1. 2018 and onwards)
According to the case of Asian Transmission Corporation Vs. Commissioner of Internal Revenue, the list of Fringe Benefits that are not taxable are as follows:
- Fringe benefits which are authorized and exempted from tax under special laws;
- Contributions of the employer for the benefit of the employee to retirement; insurance and hospitalization benefit plans;
- Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and
- De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
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