BIR implements higher tax exemption for 13th month pay and other benefits

March 26, 2015

On February 12, 2015, President Benigo C. Aquino approved Republic Act No. 10653, a law which increases the tax exemption ceiling for the 13th month pay and other benefits of employees from PhP30,000.00, to PhP82,000.00. In line with this, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulations 3-2015 (“RR 3-2015”) to guide revenue officials and employers on how to treat and compute the higher tax exemption as prescribed under Republic Act No. 10653.

Under RR 3-2015, the PhP82,000.00 increase applies only to the 13th month pay, and other benefits accrued beginning January 1, 2015. Such “other benefits” include Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind, and other benefits of similar nature actually received by officials and employees of both government and private offices.

RR 3-2015 further explained that basic salaries and regular allowances form part of the employee’s gross income subject to tax. RR 3-2015 also noted that the exclusion from gross income is not applicable to self-employed individuals, and income generated from business.

BIR Commissioner Kim S. Jacinto-Henares added that employers must see to it that the computation in the year-end adjustments as reflected in the Certificate of Compensation/Tax Withheld (“BIR Form No. 2316”) are correct. Such form must be issued by the employer to the employee, on or before January 31 of the succeeding year. Should the employment terminate before the end of the calendar year, the employee must immediately furnish the new employer with the accomplished BIR Form No. 2316 as provided by the previous employer, for the withholding tax computation of the regular salary and subsequent year-end adjustment.