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Revenue Regulation (RR) No. 5-2011

Revenue Regulation (RR) No. 5-2011. Amendments to RR 2-98, 3-98, as last amended by RR 5-08, with Respect to “De Minimis Benefits”. Presented by: LILYBETH A. GANER Revenue Officer Assessment Division, RR 19-Davao City. De Minimis Benefits :

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Revenue Regulation (RR) No. 5-2011

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  1. Revenue Regulation (RR) No. 5-2011 Amendments to RR 2-98, 3-98, as last amended by RR 5-08, with Respect to “De Minimis Benefits” Presented by: LILYBETH A. GANER Revenue Officer Assessment Division, RR 19-Davao City

  2. De Minimis Benefits: RR No. 10-2000 provides that the following shall be considered as “de minimis” benefits NOT subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employee:

  3. The term “De Minimis” benefits which are exempt from the FBT shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. The following are considered as “de minimis” benefits granted to each employee:

  4. a.) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year; b.) Monetized value of vacation and sick leave credits paid to the gov’t. officials and employees; c.) medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month; d.) rice subsidy of P1,500 or one (1) sack of 50 kg rice per month amounting to not more than P1,500;

  5. e.) uniform and clothing allowance not exceeding P4,000 per annum; f.) 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 per annum; g.) laundry allowance not exceeding P300 per month

  6. h.) 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;

  7. i.) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; j.) 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;

  8. Note: All other benefits given by employers which are not included in the above enumeration shall not be considered as “de minimis” benefits, and hence, shall be subject to income tax as well as withholding tax on compensation in come.* * Means Fringe Benefit Tax (RMC 20-11)

  9. Revenue Memorandum Order No. 26-2011 Guidelines: Tax treatment on Separation Benefits received by officials and employees due to death, sickness, or other physical disability and the issuance of Cert. Of Tax Exemption from income tax and withholding tax

  10. Sec. 32(B)(6)(b) NIRC: - any amount received by an official or employee or his heirs - due to death, sickness or physical disability, or for any cause beyond the control of the employee - shall be excluded from gross income and exempted from income tax - regardless of the age or length of service

  11. Before: Request for rulings from the Law Division of the National Office are secured by the separated employees of private entities, and submit to the employers as proof of exemption from income and withholding tax Now: - Certificate of Tax Exemption shall be issued by the Regional Director. - However, request for ruling is still processed in Legal Division, National Office.

  12. Documentary Requirements: • Letter request (employee, heir or employer); • Death – Certified true copy of Death Cert. • Sickness/Physical Disability: -Sworn affidavit of attending physician and employer’s head of office or representative; -Clinical Record -Laboratory examination or medical certificate (Checklist of Requirement)

  13. Separation Benefit is exempt from: - Income tax [Sec. 32(B)(6)(b) NIRC] and -withholding tax (Sec. 79 NIRC, RR 2-98, RR 6-01, RR 12-01) However, Income received prior to separation. Not exempt

  14. Revenue Regulations No. 1-68 Private Retirement Benefit Plan Regulations Pursuant to Sec. 79(B)

  15. Scope: • RA 4917 – exempts from all taxes the Retirement Benefits received by officials and employees of private firms under a reasonable private benefit plan maintained by the employer and all amounts received on account of involuntary separation (death, sickness, physical disability, any cause beyond control)

  16. Requirements for Exemption: (a) The plan must be reasonable; (b) Retiree must have been in service for at least 10 yrs and not less than 50 y.o. (c) Retiree have not availed of the privilege under a retirement benefit plan of the same or another employer

  17. Reasonable Benefit Plan may consist of: • Pension; • Gratuity; • Stock bonus; • Profit-sharing plan (contributory on non- contributory on the part of the employee

  18. Requisites of a Reasonable Retirement Benefit Plan: • Written Program – definite provisions essential for qualification; • Permanency – permanent and continuing program; • Coverage: Percentage Basis: – must cover >=70% of all officials & employees - (eligibility) 70% of all officials & employees and 80% of eligible must be covered

  19. - Excluding: (a) employed less than the minimum length of time stated in the plan; (b) works 20 hrs a week or less; (c) seasonal employees (=<5 mos.) (2) Classification Basis – with prescribed classification set-up and limit coverage * certain classification * prescribed age * years of employment (should not be discriminatory)

  20. (d) Contribution – employer, officials & employees or both contribute to a trust fund * with a purpose to distribute the corpus and income of the fund in accordance with the plan (e) Impossibility of Diversion – the corpus or income of the fund should not be diverted but only for the exclusive benefit of the officials or employees

  21. (f) Non-discriminatory – no discrimination in contributions or benefits; (g) Non-forfeitures – must provide for non-forfeitable rights on benefits or amount credited to his account; (h) Forfeitures – must provide that forfeitures must not be applied to increase the benefits any employee would receive at any time prior to the termination of the plan. Forfeited amounts must be used to reduce the employer’s contribution

  22. (i) Trust – retirement fund should be administered by a trust. INVOLUNTARY SEPARATION all amounts of separation benefit are EXEMPT From all terms and attachment, garnishment, levy, seizure except to pay a debt in a criminal action

  23. Definition of Terms: (a) Pension Plan – established plan by employer to provide systematically for the payment of determinable benefits after retirement (b) Profit-sharing Plan – plan to provide for the participation in the profits by employees or their beneficiaries; (c) Stock-Bonus Plan – similar to profit sharing except that contributions by employer is not dependent on profit. Benefits are distributable in stock.

  24. (d) Gratuity Plan – for payment of definitely determined benefits of the employees after retirement. Same as pension plan but benefits are paid immediately after retirement (e) “at no time shall any part of the corpus or income of the fund be used for, or diverted to, any purpose other than for the exclusive benefit of the said officials and employees” - includes all objects or aims not solely designed for the proper satisfaction of all liabilities to employees covered by trust

  25. (f) “for any cause beyond the control of said official and employee” - separation was not in his own making, not be asked for or initiated by him Note: Whether or not a separation is beyond the control of the official or employee, being essentially a question of fact, shall be determined on the basis of the prevailing facts and circumstances.

  26. INVESTMENT Generally, the fund may be used by the trustees to purchase any investments permitted by trust agreement. However, the exemption of the trust income under Sec. 56(b) of NIRC may be denied if: • Lends any part of it income w/o adequate security and reasonable rate of interest; • Pays any compensation in excess of a reasonable allowance for salaries for other personal services actually rendered;

  27. (c) Makes any part of its services available on a preferential basis; (d) Makes any substantial purchase more than adequate consideration in money or money’s worth; (e)Sells substantial part of its securities or properties for less than money’s worth; (f)Engages in any transaction whish results to diversion of its income or corpus;

  28. Determination of Qualification: - Before availing of the privileges afforded by the Plans, employers must submit to the CIR, fill out the BIR Form 17.60 and accompanied by written program constituting the plan and the trust instrument. Coverage of the exemption: - RA No. 4917, June 17, 1967 (Pls. See Retirement Benefit Plan Information Sheet attached in your hand outs)

  29. Revenue Memorandum Circular (RMC) No. 27-2011 Revocation of BIR Ruling Nos. 002-99, DA-184-04, DA-569-04 and DA-087-06

  30. BIR Ruling Nos. 002-99 dated Jan.12,1999 rendered an opinion regarding Sec 32(B)(7)(f) of the NIRC of 1997, to wit: “Since the law and implementing regulations do not categorically state that the exemption covers only the regular GSIS and Pag-Ibig contributions, it is safe to conclude that GSIS optional and Pag-Ibig 2 contributions are likewise excludible from the gross income of the taxpayer and hence, exempt from income tax”

  31. BIR Ruling Nos. 002-99: -being abused; -money being invested in programs are not being taxed; -employers find difficulty to comply with the withholding of the correct tax since voluntary contributions by their employees may not always pass thru them

  32. GSIS Contribution - (RA 8291) means the amount payable to GSIS by the member and the employer in accordance with Sec. 5 of this Act; - it shall be mandatory for the member and the employer to pay the monthly contributions specified in the following schedule; SSS Contribution -(RA 8292) the amount paid to the SSS by and on behalf of the member in accordance with Sec. 18 of this Act.

  33. SSS Employee’s Contribution: - (RA 8282) (a) beginning as of the last day of the calendar month when an employee’s compulsory coverage takes effect and every month thereafter during his employment, the employer shall deduct and withhold from such employee’s monthly salary, wage, compensation or earnings, the employee’s contribution in an amount corresponding to his salary, wage, compensation or earnings during the month in accordance with the following schedule.

  34. Philhealth Contribution - (RA 7875) the amount paid by or in behalf of a member to the Program for coverage, based on salaries or wages in the case of formal sector employees, and on household earnings and assets, in the case of the self-employed, or on other criteria as may be defined by the Corp. Pag-Ibig Contribution -(RA 9697) the amount payable to the Fund by the members and their employers

  35. Pag-Ibig Fund Generation and Contributions - the money of the Fund shall be generated by the provident savings that the covered employees shall contribute for the purpose every month, and the equal amounts that their respective employers shall mandatorily contribute. Rates: 1% -employee’s income is <= P1,500/mo. 2% -employee’s income is >P1,500/mo 2% -employer’s share for all employees (P5,000 max. X 2%)

  36. RMC 27-11, RMC 53-11: “Therefore, contributions referred to in Sec. 32(B)(7)(f) of the NIRC of 1997 cover only the mandatory/compulsory contributions of the concerned employees to SSS, GSIS, PHIC and HDMF. Thus, this Office holds that voluntary contributions to these institutions in excess of the amount considered compulsory are not excludible from the gross income of the taxpayer and hence, not exempt from Income Tax and Withholding Tax. Consequently, the exemption from withholding tax on compensation referred to in Sec. 2.78.1(B)(12) of RR 2-98 shall apply only to mandatory/compulsory SSS, GSIS, Medicare and Pag-ibig contributions”

  37. Effectivity: -the taxability of the voluntary contributions of employees to SSS, GSIS, PHIV and HDM shall apply to employees’ contributions beginning July 1, 2011

  38. RMC 21-2010 Reiteration of the Applicable Penalties for Employers Who Fail to Withhold, Remit, Do the Year-End Adjustment and Refund Employees of the Excess Withholding Taxes on Compensation

  39. Objective: • Emphasize the Employers to: 1. Withhold 2. Remit 3. Do the Year-End Adjustment 4. Refund employees of the excess of the Withholding Taxes on Compensation Sec. 80(A); Sec. 79(H); Sec. 24(A)

  40. Employer Sec. 80(A) NIRC, as amended Withhold & Remit Correct amount of tax BIR

  41. Sec. 79(H) * On or before year end but prior to payment of the compensation for the last payroll period, the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year - Sec. 24(A). *The difference of the tax due and tax withheld will either be withheld on Dec. or refunded to the employee not later Jan. 25, following year.

  42. FORMS TO BE USED For Monthly Remittance: COMPENSATION ==> BIR Form 1601C For Annual Information Return: COMPENSATION & FINAL===> BIR Form 1604CF For Certificate of Taxes Withheld: COMPENSATION ===> BIR Form 2316

  43. Due Dates: January to November – On or before the 10th day of the following the month, whether W/A is LT or Non-LT (RR 6-01) December - On or before Jan. 15 of the following year, whether W/A is LT or Non-LT (RR 6-01) Annually - On or before Jan. 31 of the following year (RR 3-02)

  44. Attachments Required: • Alphalist of Employees as of Dec. 31 with No Previous Employer within the Year; • Alphalist of Employees as of Dec. 31 with Previous Employer(s) within the year; • Alphalist of Employees Terminated before Dec. 31; • Alphalist of Employees Whose Compensation Income are Exempt from Withholding Tax but Subject to Withholding Tax • Alphalist of Employees other than Rank & File Who Were Given Fringe Benefits During the Year

  45. Effectivity of Substituted Filing • Optional for taxable year 2001 • Mandatory effective taxable year 2002

  46. START Preparation of BIR Form No. 1604 CF Before Jan. 31 Employer files w/ BIR the duly accomplished BIR FORM 1604CF On or before Jan 31 Subject to WTC? Employer shall issue 2306to the payee (FWT) n On or before Jan. 31 On or before April 15 y Entitled to subs- tituted filing? - n Employee files ITR together with 2316 & other pertinent docs Employer shall issue 2316 to employee y Employer/employee to execute sworn joint certification. Employer to furnish employee copy of 2316/cert. to employee. Employer to retain copy of joint cert. On or before Jan. 31

  47. Note: An illustrative example on the year-end adjustment is shown under Sec. 2.79(B)(5)(b) of Revenue Regulations (RR) No. 2-98, as amended.

  48. Failure to Comply 1. Non-withholding of tax - Employer fails to withhold the tax 2. Underwithholding - Employer fails to correctly withhold the tax 3. Non-remittance -Employer fails to remit total amount withhled

  49. 4. Underremittance -Employer’s remittance is less than total amount withheld 5. Late remittance -Employer remits correct amount withheld beyond the due date 6. Failure to refund excess taxes withheld • -Employer ails to refund excess taxes withheld to its employees

  50. Penalties for Non-Compliance: 1. Additions to the tax: a. Sec. 248 – 25% of the amount due (failure) 50% of the amount due (fraud) b. Sec. 249 – 20% interest per annum c. Sec. 251 – other penalties + total tax not withheld d. Sec. 252 - penalties + refundable amount

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