Tax De Minimis

Question 1

These are benefits that are considered minimal in value, thus when it is given to employees, it is not Taxable

Answer 1

De Minimis Benefits
(Keep in mind if they exceed then they aren’t immediately taxable but instead move on over to be totaled in the 13th month/other bonuses category, and if the total exceeds 90k then it is now taxable)

Question 2

What’s the article that provides the definition of Minimum Wage Workers?

Answer 2

RA 9504
They are compensation Income of minimum wage earners in the private sector and others being paid the statutory minimum wage

Compensation income of employees in the public sector with salary that does not exceed the statutory minimum wage in the non agricultural private sector

Question 3

What is the threshold for the following De Minimis Benefits?
Rice Subsidy

Uniform and Clothing Allowance

Actual Medical Assistance

Laundry Allowance

Employee Achievement Awards

Answer 3

Their thresholds are
Rice = 2k or 1 sack of 50kg rice worth 2k or less per month

Uniform/Clothes = Not exceeding 6k per annum

Medical Assistance to Employee’s Dep=Not exceeding 3k per year
Medical Assistance to Employee = Not exceeding 10k per year

Laundry = Not exceeding P300 per month

Employee Awards (Tangible property other than cash/gift certificate) = Annual Monetary Value not exceeding 10k

Question 3

Arises from habitual engagement in any commercial activity involving regular sale of goods and services by an individual or a corporation.

Answer 3

Business Income (Legal/Illegal and Registered/Unregistered)
Its all taxable

Question 3

Arises from the exercise of a profession or business income from the sale of services

Answer 3

Professional Income

Question 3

What is the threshold for the following De Minimis Benefits?
Gifts given during Christmas and Major Anniversary Celebrations

Daily Meal Allowance for overtime work/graveyard shifts

Benefits Received by an employee by virtue of a collective bargaining agreement and productivity incentives

Answer 3

Their thresholds are
Gifts given during Christmas and Major Anniversary Celebrations
=Not Exceeding 5k per employee per year

Daily Meal Allowance for overtime work/graveyard shifts
=Not exceeding 25% of the basic minimum wage

Benefits Received by an employee by virtue of a collective bargaining agreement and productivity incentives
=Both combined should not exceed 10k per employee per taxable year

Question 4

What is exempted in an minimum wage employee’s earnings

Answer 4

All of their earnings are exempt from tax except from the moment it exceeds the minimum wage
Ex: If the minimum wage is 400 in your area, and you’re paid 402 pesos, that whole 402 pesos is now fully taxable

Additionally their benefits are also excluded from tax as long as it uses the minimum wage rage

If they have other sources of income besides their minimum wage occupation, the minimum wage earnings are still exempt.

Question 4

This refers to the rate fixed by the Regional Tripartite Wage and Productivity Board of the Department of Labor and Employment

Answer 4

Statutory Minimum Wage

Question 4

When is a minimum wage earner subject to income tax?

Answer 4

If they receive additional compensation, such as commissions, fringe benefits, honoraria, etc. that is in excess of 90k, and the excess will be subject to income taxes

Question 4

Business Entity Engages in Buying and Selling goods or products without changing the form or appearance of the product

Answer 4

Merchandising/Buy and Sell Business

Question 5

Business engaged in buying and selling goods by changing the form of the product through a certain process

Answer 5

Manufacturing

Question 5

Refers to the amount due to the employee who has been terminated from service for causes authorized by law

Answer 5

Separation Pay (Taxable)
Except if: Termination is due to job threatening sickness/death/disability and beyond the control of the employee like Retrenchment, Downsizing.

Question 5

These are Business Entities engaged in agriculture, farm operation, or production of farm animals

Answer 5

Farming (A classification of business income)

Question 5

What are the methods of recognizing farming business income?

Answer 5

Cash Basis - Used if the business does not maintain inventory or doesn’t take account of the value of the inventory

Accrual Basis - Computed by considering the value of the inventory

Crop Year - Adopted when the time to produce the crop is more than one year (the income isn’t recognized until the crop is collected

Question 5

What are the methods of recognizing construction income

Answer 5

Percentage Completion Method - Gradually Recognizes the income by % level

Completed Contract Method - Only Recognized when the contract is done

Question 5

Interest Income or Yield from local currency bank deposits are subject to what type of tax?

Answer 5

Final Tax
(Basically the bank withholds the tax from you and gives it to the BIR)

Question 6

What are the final tax rates on short term interest income?

Answer 6

Individuals except NRANETB = 20%
NRANETB = 25%
Corporation except NRFC = 20%
NRFC = 25%

In long term (5+ years) its basically the same except individuals are exempt

Question 6

If a long term gets preterminated before it reaches 5 years, all previous untaxed interest will be subjected to final tax, what are the tax rates based on the holding period?

Answer 6

Less than 3 years = 20%
Less than 4 years = 12%
Less than 5 years = 5%

Question 6

What are the foreign currency deposit with foreign currency depository banks tax rates?

Answer 6

Resident Individual = 15%
NR Individual = Exempt
Domestic and RF Corps = 15%
NRFC = Exempt