Hearts: Changes to de minimis benefits

By Ariel Lleva

The holidays are nearing and people, in the spirit of the Filipino Christmas, are starting to fill malls and shopping centers to find presents for their families and friends. Of course, it goes without saying that while gift-giving brings smiles to everyone, it may also add pressure to their wallets.

The government plays a supportive role in lightening this seasonal financial strain through its commitments on strengthening workers’ rights, bettering labor conditions and improving social protections. This Christmas, the implementation of an updated tax exemption is more than a policy — it’s a blessing that frees resources for kindness and generosity.

The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR), in line with the DOF’s Hearts (health, education, agriculture and environment, roads and infrastructure, technology and security and social protection) series, have recently proposed an increase in the threshold for de minimis benefits for employees in both the private and public sectors.

This initiative is in response to rising inflation and cost of living that continue to affect households nationwide. It also supports the government’s vision for inclusive growth, improved labor conditions and stronger social protection for Filipinos.

Proposed changes

The de minimis benefits are facilities or privileges of relatively small value provided by employers to promote the health, goodwill and efficiency of employees. These benefits, usually in the form of medical allowances, rice subsidy, clothing and other allowances, are exempt from withholding tax on compensation and fringe benefit tax.

The last adjustment was made earlier this year through Revenue Memorandum Circular 4-2025, which increased the uniform allowance and expanded coverage for employee achievement awards to include any form such as cash, gift, or any tangible property.

The new amendment proposal covers increments on the ceiling amount of de minimis benefits like leave monetization, subsidies, and collective bargaining agreement (CBA) incentives, among others:

• for monetized unused vacation leaves, an increase to 12 days per year from 10;
• medical cash allowance to dependents, P2,000 per semester or P333.33 per month from P1,500 or P250;
• rice subsidy, P2,500 per month from P2,000 or one 50-kilogram sack;
• uniform and clothing allowance, P8,000 per year from P7,000;
• actual medical assistance, up to P12,000 per year from P10,000;
• laundry allowance, P400 per month from P300;
• employee achievement awards, up to P12,000 annually from P10,000;
•  gifts during Christmas and major anniversaries; P6,000 per year from P5,000;
• daily meal allowance for overtime/night shift, 30 percent of minimum wage from 25 percent; and
• CBA and productivity incentives, P12,000 annually from P10,000.

Nontaxable 13th month pay

With the holiday season adding financial considerations for many households and elevated consumer prices placing more pressure on budgets, these proposed increases are definitely welcome, but if the government wants to make a greater impact, it must also increase the P90,000 threshold for nontaxable 13th month pay, bonuses and other benefits.

Currently, any de minimis benefits given in excess of the limits is included as part of “other benefits,” which are subject to the P90,000 cap. Any amount exceeding this becomes taxable. The ceiling was last raised in 2018 under the Republic Act 10963 or the Train Law, P90,000 from P82,000.

Considering the post-pandemic economic challenges alongside losses suffered from calamities, an upward adjustment will provide significant financial relief to employees. It is prudent and Hearts-wise to raise the P90,000 ceiling for the 13th month pay, bonuses, and other benefits.

With the new leadership at the BIR, we look forward to positive developments on the timely implementation of these proposals. Especially now that the holiday season approaches, such measures will be a meaningful gift to Filipino taxpayers who are partners in nation-building and who deserve support during these challenging times.

Ariel Lleva is a director at Landicho Abela & Co. (Deloitte Philippines), a member firm of the Deloitte network.