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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
13th month pay is exempted from payment of withholding tax on compensation.
13th month pay is not subject to income tax provided that such amount does not exceed Ninety Thousand Pesos (PhP90,000.00). (BIR Revenue Regulation No. 11-2018)
BIR Revenue Regulation No. 11-2018 (BIR R.R. No. 11-2018) removes 13th month pay from the list of income payments subject to withholding tax on compensation. As such, 13th month pay is not taxable provided that such amount does not exceed Ninety Thousand Pesos (PhP90,000.00). (Section 6, BIR R.R. No. 11-2018)
BIR Revenue Regulation No. 11-2018 amended certain provisions on of Revenue Regulation No. 2-98, as amended, to implement Further Amendments introduced by Republic Act No. 10963 of the Tax Reform for Acceleration and Inclusion (TRAIN) Law, relative to withholding of income tax issued on January 31 2018.
The law says:
Pursuant to BIR Revenue Regulation No. 2-98 [Section 2.78.1(B)(11) thereof] as amended by BIR Regulation No. 11-2018, among other income payments, the following are exempted from the requirement of withholding tax on compensation but may be subject to income tax depending on the nature or source of income earned by the individual recipient:
xxx
(11) Thirteenth month pay and other benefits:
(a) Thirteenth-month pay equivalent to the mandatory one (1) month basic salary of official and employees of the government (whether national or local), including government-owned or controlled corporations, and/or private offices received after the twelfth month pay; and
(b) Other benefits such as Christmas bonus, productivity incentives, loyalty award, gift in cash or in king, and other benefits of similar nature actually received by officials and employees of both government and private offices, including the Additional Compensation Allowance (ACA) granted and paid to all officials and employees of the National Government Agencies (NGAs) including State Universities and Colleges (SUCs), Government-Owned and/or Controlled Corporations (GOCCs), Government Financial Institutions (GFIs) and Local Government Units (LGUs).
The above stated exclusions under (a) and (b) shall cover benefits paid or accrued during the year, provided that the total amount shall not exceed ninety thousand pesos (PhP90,000.00), which may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering among others, the effect on the same of the inflation rate at the end of the taxable year. (Section 6, BIR R.R. No. 11-2018)
What does the term “equivalent of 13th month pay” include?
The law says:
The term “equivalent” of 13th month pay shall refer to Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary of an employee. [par. 2(d), Revised Guidelines on the Implementation of the 13th Month Pay Law)
May an employer demand bonus from his employer?
Jurisprudence says:
A “bonus” is a gratuity or act of liberality of the giver. It is something given in addition to what is ordinarily received by or strictly due the recipient. A bonus is granted and paid to an employee for his industry and loyalty which contributed to the success of the employer’s business and made possible the realization of profits.
Generally, a bonus is not a demandable and enforceable obligation. For a bonus to be enforceable, it must have been promised by the employer and expressly agreed upon by the parties. (Lepanto Ceramics, Inc. v. Lepanto Ceramics Employees Association, G.R. No. 180866, March 02, 2010)
Read also: When is a bonus demandable?
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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