Revenue Regulations No. 029-2025

Further amending the “De Minimis” Benefits Provisions of Revenue Regulations (RR) No. 2-98 as Amended, Increasing the Ceiling of Non-Taxable Benefits

Pursuant to Sections 4 and 244 in relation to Section 33 of the Tax Code of 1997, these regulations are hereby promulgated to further amend RR No. 2-98, as amended by RR No. 004-2025, with respect to “De Minimis” benefits which are exempt from income tax on compensation as well as from fringe benefit tax.

Section 1. Section 2.78.1 of RR No. 2-98, as amended by RR No. 004-2025, is hereby further amend to read as follows:

“Section 2.78.1. Withholding of Income Tax on Compensation Income

(A) Compensation Income Defined.

(3) Facilities and privileges of relatively small value

• Monetized unused vacation leave credits of private employees not exceeding twelve (12) days during the year;
• Monetized value of vacation and sick leave credits paid to government officials and employees;
• Medical cash allowance to dependents of employees not exceeding P2,000.00 per employee per semester or P333.00 per month;
• Rice subsidy of P2,500.00 or more (1) sack of 50 kg. rice per month amounting to not more than P2,500.00;
• Uniform and clothing allowance not exceeding P8,000.00 per annum;
• Actual medical assistance, e.g., medical allowance to cover medical and healthcare needs. Annual medical/executive checl-up, maternity assistance, and routine consultations not exceeding P12,000.00 per annum;
• Laundry allowance not exceeding P400.00 per month;
• Employee’s achievement awards, e.g., for length of service or safety achievement, in any form, whether cash, gift certificate, or any tangible personal property, with an annual monetary value or not exceeding P12,000.00 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 P6,000.00 per employee per annum;
• Daily meal allowance for overtime work and night/graveyard shift not exceeding thirty percent (30%) of the basic minimum wage on a per region basis; and
• Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive scheme provided that the total annual monetary combined value received from both CBA and productivity incentive schemes combined do not exceed twelve thousand pesos (12,000.00) per employee per taxable year.

Section 2. REPEALING CLAUSE – All existing rules and regulations and other issuances or parts thereof which are inconsistent with the provisions of these Regulations are hereby amended, modifies or repealed accordingly.

Section 3. EFFECTIVITY – These Regulations shall take effect after fifteen (15) days following its publication in the Official Gazette or in the BIR Official Website, whichever comes first.

There are several reasons why employees choose to be separated from work, like looking for better opportunities, a better work environment, better salaries and benefits, or a role that best suits their passions. During times of separation of employees in their company, the payroll or human resources personnel are tasked with computing his or her final pay. This article tackles the things you should know and consider when verifying or making final payments to employees in the Philippines. 

1. 13th-month pay and other benefits 

One of the items to consider in the computation of final pay is the addition of pro-rated 13th-month pay and other benefits. Employers are required to pay their rank-and-file employees a 13th-month pay benefit. However, this is not required for supervisory and managerial employees and is a company discretionary benefit. 13th-month pay is part of the non-taxable or exempt compensation income, particularly in the 13th-month pay and other benefits up to the Php 90,000 annual limit only. If the 13th-month pay and other benefits exceed Php 90,000, then the excess will be considered taxable compensation. 

Formula: 13^th Month Pay = Total Net Earned During the Year / 12 months 

Sample Computation:  

13^th Month Pay = Php 360,000/12 months = Php 30,000.00 

2. Withholding tax due or refund 

To compute the separated employee’s withholding tax due or refund. The payroll or human resources personnel should consolidate/annualize the separated employee’s payroll registers during the year. Sum up the gross compensation and deduct all the non-taxable or exempt compensation to get the net taxable compensation. The net taxable compensation will then be the basis for the withholding tax on compensation for the covered period. 

Below is the revised withholding tax table, effective January 1, 2023. This table will be used for the computation of the withholding tax. 

Sample Computation: 

The tax due will be compared to the remitted taxes for the year. For example, there is a tax remitted to the BIR (Bureau of Internal Revenue) or the BIR Form No. 1601C from previous months of Php 20,000. Since the correct tax due after consolidation is only Php 17,550, there is a tax refund of Php 2,450. This tax refund will be included in his or her final pay. 

3. Structure of final pay 

Once the 13th-month pay and tax due or refund have been computed, this is to be added or deducted from the gross compensation income of the separated employee. Gross compensation comprises the following but is not limited to: 

1. Net basic salary (Monthly basic pay less late or tardiness, undertime, and absences) 

2. Overtime and night shift differential 

3. Holiday and premium pay 

4. 13^thmonth pay 

5. Other benefits and allowances 

Include an additional tax refund portion if there is an excess of the withheld tax from the annualized withholding tax due. 

Total deductions include the employee’s government contributions to Social Security Services (SSS), Philippine Health Insurance Corporation (PHIC), and Home Development Mutual Fund (HDMF) and any tax due, if any. 

To compute the final pay, add the semi-monthly or monthly gross compensation, 13^th month pay, and tax refund if applicable, then deduct the total deductions like SSS, PHIC, and HDMF contributions and tax due if applicable. 

Sample Computation: 

There are many factors that compose a final pay, and this article shows some of the common features of a final pay, its computation, and how it is done. 

The Certificate of Compensation Payment/Tax Withheld (CCPTW), also known as BIR Form 2316, is an essential part of the Philippine tax system. BIR Form No. 2316 summarizes all the employees’ earnings, deductions, and taxes withheld, if there are any. In this article, we will delve into the details of BIR Form No. 2316, its purpose, and its importance for both employers and employees. 

1. Goal and Relevance of BIR Form No. 2316

BIR Form No. 2316 serves as a summary of an employee’s compensation income, tax withheld, and other relevant information for a particular calendar year. It assists both the company and the employee by ensuring transparency and compliance with tax laws. BIR Form No. 2316’s main goals and significance include the following: 

• Proof of Income: It serves as a record of the wages an employee received from a certain employer during the year. 
• Tax compliance: By displaying the right amount of taxes withheld by the employer, BIR Form No. 2316 makes it easier to calculate the employee’s yearly income tax liability. 

2. Components of BIR Form No. 2316 

• Information on the Employee and the Employer: This section contains the name, address, and taxpayer identification number (TIN) of the Employee and the Employer. 
• Compensation Income: This section of the form comprises the employee’s annual compensation income, which includes their basic salary as well as any additional taxable benefits such as allowances, bonuses, commissions, and other related compensation income. 
• Non-taxable/Exempt Compensation Income: BIR Form No. 2316 accounts for the tax-exempt or non-taxable compensation that lowers taxable income, such as the minimum wage earner’s basic pay, holiday pay, overtime pay, and night shift differential; de minimis benefits; 13^th month pay and other benefits (maximum of Php 90,000.00); and other non-taxable compensation. 
• Taxes Withheld: The entire amount of taxes that the employer withheld from the employee’s compensation income is stated in this section. 
• Other required fields:  
  The signature portion of the employer and employee, in which the certificate has been made in good faith, verified, and, to the best of their knowledge, true and correct, gives consent to the processing of information as contemplated under the Data Privacy Act of 2012 (Republic Act No. 10173) for legitimate and lawful purposes.  
  The signature portion of the employer and employee to be accomplished under substituted filing. An employee is qualified under substituted filing of the Income Tax Return (BIR Form No. 1700) if he or she received purely compensation income from only one employer in the Philippines for the calendar year and if his or her taxes have been correctly withheld by the employer (tax due equals tax withheld). 

3. Employer’s Responsibilities 

• Accuracy and Completeness: Employers are responsible for making sure the data on the form reflects the employee’s pay, taxes withheld, and other pertinent information. 
• Release: Employers must deliver a copy of BIR Form No. 2316 to each employee by January 31st of the following year, except if the employee is separated before the calendar year ends. The employee will receive a copy of BIR Form No. 2316 upon release of the final payment. 
• Submission: Employers must provide BIR Form No. 2316 and the alphalist to the Bureau of Internal Revenue (BIR) no later than February 28th of the following year. 

4. Employee’s Responsibilities 

• Verification: Employees should thoroughly go over the form to make sure that all the information—including compensation income, taxes deducted, and exemptions—is accurate. 
• Record-keeping: For future reference, potential BIR audits, and supporting documents with their personal application in banks or other agencies, employees should keep a copy of their BIR Form No. 2316 and other pertinent tax papers. 

Therefore, BIR Form No. 2316 is an essential form that permits correct income tax calculation and compliance for both the employer and employees. Employers must provide this form to their employers as proof of their income for the year. Understanding the purpose, contents, and responsibilities associated with BIR Form No. 2316 ensures transparency, smooth tax operations, and adherence to tax laws.

The annualization of compensation is a crucial procedure used by employers in the Philippines to calculate the correct tax due or refund of employees at year-end or during the separation of employees from the company. This procedure is used to ensure fair taxation and an accurate calculation of the withholding tax on compensation. It reduces income fluctuations, minimizes tax fraud, and fosters fair tax obligations by distributing income and deductions over the entire course of the year, regardless of the actual pay period, to accurately estimate taxpayers’ tax obligations.  

In this article, we will delve into why annualizing payroll is important in the Philippines. 

1. Managing income fluctuations 

In the Philippines, a lot of workers have irregular revenue patterns where they get bonuses, commissions, or overtime compensation at various times of the year. By averaging out the earnings over the entire course of the year, annualizing payroll provides a solution to these revenue swings. It gives a more realistic picture of a person’s yearly income, enabling the proper estimation of tax liabilities. 

2. Ensuring fair taxation 

By preventing people from abusing their tax obligations, annualizing payroll provides fair taxes. Without annualization, taxpayers might be able to earn a lot of money in a brief period and then do nothing for the rest of the year to avoid paying higher tax rates. Annualization makes the tax burden more evenly distributed and ensures fair taxation by considering all revenue for the year. 

3. Calculating the correct tax withholdings and refunds if any 

By appropriately deducting taxes from employees’ salaries, employers play a critical role in annualizing payroll. Employers can calculate the right amount of tax to withhold from each pay period by annualizing it, considering the employee’s projected yearly income. By reducing the possibility of underpaying or overpaying taxes, this strategy ensures compliance with tax laws and calculates the proper withholding tax or refund of employees. 

4. Making tax law compliance easier 

Payroll annualization makes it easier for both employers and employees to remain compliant with Philippine tax laws and regulations. Employers can correctly record and submit the right amount of taxes to the Bureau of Internal Revenue (BIR), avoiding fines or legal concerns. Employees who have their salary annualized are better able to comprehend their tax liabilities.  

Therefore, annualizing payroll is an essential procedure that properly equates withholding taxes and adheres to the tax rules. Annualization reduces income swings and prevents tax fraud by dividing income and deductions over a full year. It allows for precise tax deductions from employee pay and makes it easier to comply with tax laws. Payroll must be annualized, and both employers and employees must be aware of this fact to maintain the Philippines’ tax system’s fairness, transparency, and compliance.

Under the Social Security Act of 1997, Republic Act No. 8282, it is the policy of the State to establish, develop, promote, and perfect a sound and viable tax-exempt social security system suitable to the needs of the people throughout the Philippines, which shall promote social justice and provide meaningful protection to members and their beneficiaries against the hazards of disability, sickness, maternity, old age, death, and other contingencies resulting in loss of income or financial burden. 

To carry out the purposes of this Act, the Social Security System (SSS) was born. The Social Security System is a social insurance program in the Philippines for compulsory and voluntary members. Compulsory members are those that are employed, self-employed, household helpers, and Overseas Filipino Workers (OFW), while voluntary members are the separated employees and the non-working spouse. SSS gives its members protection against the economic and social distress caused by contingencies such as sickness, maternity, disability, retirement, death, funerals, and unemployment. 

The employer is mandated to remit contributions to SSS from both employer and employee every month from the start of operation with at least one employee. The employees’ membership will be effective on the first day of employment. 

The table below shows the regular contributions for the SS, the Employees’ Compensation (EC) that is paid only by the employer, and the Workers’ Investment and Savings Program (WISP) that are administered by the SSS. The 2023 SSS contribution rate is 14%. The 14% is composed of a 9.5% Employer share and a 4.5% Employee share, while the minimum Monthly Salary Credit (MSC) increased from P3,000 to P4,000 and the maximum MSC from P25,000 to P30,000. The WISP contribution is only required for employees who have a monthly salary credit of PHP 20,500 and above.

Reference for the image: SSS

The basis for the computation of the SSS contribution is gross compensation. Compensation is defined as all actual remuneration for employment, except the part of the remuneration received during the month that is more than the maximum MSC as provided under the Social Security Act of 2018 and this IRR [Sec. 8, (f)], including but not limited to the following: 

To give a better understanding of how SSS contributions are identified and computed, let us have an example: 
A, an employee of XYZ Company, has a monthly basic salary of P30,000, transportation, communication, and meal allowances of P5,000, and a performance incentive of P5,000. The total gross compensation is P40,000. This will be used to identify the contributions of the employer and employee by selecting the appropriate range of compensation. For the 40,000, the range will be P29,750 and above, which would result in an SSS ER Contribution of P2,880, which is composed of Regular SS of P1,900, EC of P30, and WISP of 950, while for the EE’s SSS Contribution, it is P1,350, which is composed of Regular SS of P900 and WISP of P450. 

The deadline for the regular employer to remit and pay the contributions is on the last day of the month following the applicable month. The employer is liable to his or her employees and must pay their benefits on the employee’s behalf. If there are unpaid contributions, employers are bound to pay for all unpaid contributions and penalties and be held liable for a criminal offense punishable by a fine or imprisonment.