Ch. 10 - Compensation Income

Question 1

What is an employer?

Answer 1

refers to any person for whom an individual performs any service of whatever nature as employee of such person

Question 2

If an employer is a non-resident engaged in trade or business in the Philippines, the employer is deemed

Answer 2

the person paying renumeration in their behalf

Question 3

What is an employee?

Answer 3

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. The term also includes an officer of a corporation

Question 4

Elements of employer and employee relationship under case law

Answer 4

1. Selection and engagement of employees
2. Payment of wages
3. Power of dismissal
4. Power of control

Question 5

The following are not considered employees

Answer 5

1. Consultants
2. Directors without management function
3. Talents and artists on TV shows or radio broadcasts
   (Their incomes or fees are considered business or professional income)

Question 6

Types of employees as to function

Answer 6

1. Managerial employees
2. Supervisory employees
3. Rank and file employees

Question 7

Those who are given powers or prerogatives to lay down and execute managerial policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign, or discipline employees

Answer 7

Managerial employees

Question 8

Those 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

Answer 8

Supervisory employees

Question 9

Those who hold neither managerial nor supervisory functions

Answer 9

Rank and File employees

Question 10

Types of employees as to taxability

Answer 10

1. Minimum wage earners
2. Regular employees

Question 11

refers to a worker in the private sector who is paid the minimum wage or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he or she is assigned

Answer 11

Minimum wage earner

Question 12

The statutory minimum wage refers to the

Answer 12

rate fixed by the Regional Tripartite Wage and Productivity Board of the DOLE or 5,000/month or 60,000/year, whichever is higher

Question 13

Non-Taxable Compensations

Answer 13

1. Mandatory Deductions
2. Exempt Benefits

Question 14

Exempt Benefits under the NIRC, as amended, and special laws

Answer 14

1. Remunerations received as incidents of employment
2. De minimis benefits
3. 13th month pay and other benefits not exceeding P90,000
4. Certain benefits of minimum wage earners

Question 15

What are taxable de minimis benefits

Answer 15

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

Question 16

Treatment of taxable de minimis benefits for rank and file employees

Answer 16

taxable de minimis is treated as other compensation income under the category “13th month pay and other benefits”

Question 17

Treatment of taxable de minimis benefits for managerial and supervisory employees

Answer 17

the taxable de minimis is treated as fringe benefit subject to final fringe benefit tax

Question 18

If the employee is a managerial or supervisory employee, the entire excess de minimis shall be

Answer 18

considered as other fringe benefits subject to fringe benefit tax and is not part of 13th month pay and other benefits

Question 19

Employees working in Philippine embassies or Philippine consulate offices are

Answer 19

not considered non-resident citizens and are therefore subject to Philippine income tax

Question 20

Benefits or allowances furnished by the employer to the employees to enable them to appropriately and effectively execute their duties as required by their employment are

Answer 20

exempt from income tax, this is referred to as “necessity of the employer rule”

Question 21

Benefits or allowances which are intended for the furtherance of the interest of the employer’s business or to ensure its smooth operations are

Answer 21

likewise exempt from income tax. This is referred to as the “convenience of the employer rule”