COMPENSATION

INCOME
Income
Amount of money or its
equivalent, representing gains
or profits that flows into the
taxpayer from whatever
source other than those
representing return of capital.
Income
•Taxable • Non-taxable
• Compensation • Life Insurance proceeds
• Business Income • Return of premium
• Gains from Property
• Gifts, bequest, devices
• Passive Income
• Compensation for injuries
• Other Taxable income
• Retirement benefits
• Other non-taxable income
Requisites for Taxable Income

•There must be a profit or gain

•The profit must be realized
•The profit must not be excluded by law from
taxation
Taxable Income

•Compensation
•Business Income
•Gains from Property
•Passive Income
•Other Taxable income
Compensation Income

•All remuneration for services

performed by an employee for the
employer under the employer-
employee relationship.
Employer-employee relationship

When the person for whom the services is

performed has the right to control and direct
the individual who performs them, not only as
to the result but as to the details and means
the result is accomplished
Compensation Income
• Salary, Wage or Fee
• Commission
• Honoraria
• Allowances
• 13th month pay
• Holiday, night differential, overtime, and hazard pay
Compensation Income

•Separation pay
•Retirement pay
•Sick leave/vacation leave pay
•Fringe benefits
Salary, Wage or Fee

•Salary- earning paid on a regular interval

•Wage- paid on an hourly basis
•Fee- implies payment to an individual
with authority
Are all salaries,
wages, and fees
taxable?
Tax-exempt compensation
Compensation income of
minimum wage earner provided
that the minimum wage earner
has no other source of income

The first 250,000 income of any

individual
Tax-exempt compensation

Holiday pay, overtime pay,

night shift differential pay,
hazard pay of minimum
wage earner
Mr. Liberatos receives a monthly
salary of 8,300 as an employee of AA
Company. The rate was fixed as
statutory minimum wage in the area.
He also receives 1,200 overtime pay
per month.
Ms. Imelda, an employee of BB
Corporation, receives a salary of
9,800, the minimum wage in their
area. She also earns income as an
Avon product distributor. 5,000
Ms. Nagpintas, an employee of CC
Corporation, receives a salary of
6,800, the minimum wage in their
area. She also receives a taxable
allowance of 1,200 every month
Mr. Alfredo receives 20,000 salary
per month when the minimum wage
in their locality is 12,000 per month.
Commission

Payment made based on

certain percentage of output
Commission is taxable even if the
employee is receiving it as a minimum
wage earner
Honoraria

Earnings derived from services

undertaken by an expert
Taxable even if the employee is receiving
it as a minimum wage earner.
Allowances

Received by an employee in
addition to regular compensation
fixed to his/her position.
Samples:
Transportation, representation,
responsibility, etc.
Allowances

Generally, allowances are

taxable but could be
exempt from tax upon
satisfaction of the
following conditions:
Allowances

•The allowance is spent in

pursuit of trade or business.
•The employee is required to
account for the expenses.
Allowances
Mr. Mix is employed by Friers Co. and is
receiving 22,000 salary plus 5%
commission on net sales and is provided
representation and travelling allowance of
6,000 monthly. During the year, the
company earned net sales of 4,500,000.
Determine the gross compensation
income.
13th month pay and other benefits
Other benefits: bonus, productivity
incentive, loyalty award, gifts in cash or
in kind, other benefits,

Not taxable if the accumulated amount

do not exceed 90,000.
13 th month pay and other benefits
Mr. Eduardo receives 30,000 monthly salary.
He receives an average of 4,000 travel
allowance subject to liquidation every month.
Furthermore, their company pays 13th month
and 14th month salary plus groceries worth
12,000 during December. Being a the
employee of the year, he also received 25,000
cash reward. Determine his taxable
compensation income.
Holiday, Overtime, Night Shift
Differential, and Hazard Pay
These compensation are generally
taxable and will only be exempt from
tax if received by a MWE with no other
source of income other than
salary/wages.
Separation Pay
Not taxable if the employee was laid off for
the reason beyond the employee’s control

§Sickness
§Disability
§Death
§Reorganization
§Bankruptcy
Separation Pay
• Nilo, a known latecomer in the company was dismissed from
employment due to inefficiency in service. He received a separation pay
of 80,000. Is this amount taxable to him?
Retirement Pay
Not taxable if received from SSS or
GSIS

Not taxable if received from the

employer upon satisfaction of the
conditions.
Retirement Pay
The retirement plan is approved by BIR
The employee has served the entity for
more than 10 years
The employee is at least 50 y/o
The retiree had it for the first time
The retirement pay is equitable to all
employees, regardless of the position
Retirement Pay
• Emily, an employee of Alaga Co., retired fomr the
company in 2010 at the age of 60 receiving a
retirement pay of 250,000. She started working in the
company in 1991but transferred to Australia in 1997 to
2003 until she returned back to Alaga Co. The company
maintains a private pension plan.
Sick Leave and Vacation Leave
Pay given to an employee on its leave
is still taxable.
However, monetized vacation leave of
10 days or less in a year is tax exempt.
The excess then is added to the taxable
income.
Globe provides employees opportunities for continuous learning through its program called
Globe University. This offers over 100 skills and leadership training courses. Over 2,900 people
have benefited, and almost 1,000 leaders have emerged from these courses alone. These
courses are powered by digital learning tools and taught by our expert partners in the field
using different methodologies.
Every quarter or semester, Globe holds an organization-wide town hall event called Ka-Globe
Jam. This is where its senior leaders, led by Globe President and CEO Ernest Cu, summarize
and celebrate quarterly business results, achievements, and milestones of the company.
Through the feedback mechanism of The Hub, Globe identifies employee concerns regarding
any company policy, standards, or process.
Globe also allows employees to strike a balance between work and life in its headquarters in
Taguig City through the various in-house facilities: a gym, bank, salon, pharmacy, and carwash,
among others.
Employee Protection – Employees are entitled to sick leave benefits that will provide
financial security even if they have lost the ability to earn in times of sickness or injury.

Time Off With Pay – Employees are also entitled to leave benefits that will allow for the
continuity of their wage earnings even if they are on vacation or have to attend to
emergency matters requiring their presence.

Health Care – The Corporation provides a comprehensive medical program for

employees and their dependents to protect them against the financial burden that
comes with illness or injury.

Flexible Loan Facilities – The Corporation offers an interest free loan facility that is
tailored to address the various financial needs of the employees. Its flexibility lies in
the loan purpose, amount, and guidelines.
Educational Program – This helps meet the financial requirements of employees who
desire to pursue further studies. It includes loan facilities for the educational needs of
employees’ dependents.

Rice and Clothing Allowances – The Corporation provides a monthly sack of rice to each
rank-and-file employee. Employees also receive a clothing allowance for their proper
work attire.

Insurance and Death Benefits – Financial assistance is extended to the bereaved family
to help defray expenses incurred as a result of the demise of the employee or an
immediate family member of an employee.

Retirement Benefits – The Corporation provides a noncontributory fund to assist the

employee in preparing for a comfortable life even after retirement.
FRINGE BENEFITS
Additional Benefits
Fringe Benefits
Any good, service, or other
benefit granted in cash or in
kind by an employer to an
individual employee in addition
to the basic salary
Samples of Fringe Benefits
• Housing • Educational assistance
• Expense Account to employee or
dependents
• Vehicle
• Life or health
• Household Personnel insurance and other
• Membership Fees in premiums in excess of
social or athletic club what the law allows
• Expenses for foreign
travel
• Holiday and Vacation
Expenses
Fringe Benefits
Position Taxation
Rank-and-file Basic tax
Supervisory or
Final tax- 35%
Managerial
DE MINIMIS
BENEFITS
‘small value, nontaxable compensation’
1. Monetized Unused Vacation Leave
• Maximum of 10 days
• Antonio was allowed 20 days leave in a year. In 2018, he only used 8
days vacation. To compensate for the 12 days, he was paid 500 for each
of the 12 days he did not use (6,000). How much of the amount will be
taxable?
2. Paid Vacation and Sick Leave for Gov’t
officials and employees
•Not taxable

(Good for them )

3. Medical cash allowance to dependents
• Maximum of P250 a month
• Health insurance paid by employer for the employee’s dependents
4. Rice Subsidy
• Maximum of P2,000 or 50kg of rice per month
5. Uniform
• Maximum of P6,000 per year.
6. Actual Medical Assistance
• Maximum of P10,000 per annum
7. Laundry Allowance
• Maximum of P300 per month
 8. Achievement Award

• Maximum of P10,000
• Must be non-cash
• Must be based on a written policy not
discriminant of rank
9. Christmas and Anniversary Gift
• Maximum of P5,000 per year
10. Daily Meal Allowance for overtime
• Maximum of 25% of basic minimum wage in the region
11. Collective Bargaining Agreement and
Productivity Schemes
• Maximum of 10,000
What happens to the excess?

•Shall be considered ‘other benefits’ and

shall be added to maximize the 90,000
non-taxable 13th month pay and other
benefits
February 13, 2019
•Assignment on Employee Benefits
•List the inclusions in the employee benefits
package of any company you are interested in.
(Could be where your parents are working.
Individual)
•Sample Problems for Taxable Compensation
Mecca Del Ong
Mecca works as secretary to the president of Agham Inc. She receives
30,000 basic monthly salary. Aside from that, she also receive a fixed
2,000 representation allowance every month, 1,000 monthly rice
allowance, and 1,000 monthly uniform allowance. Because of her hard
work, she was awarded the employee of the year (2018) with 6,000
worth of groceries and 4,000 cash. Together with other employees, she
also got 13th month pay, 14th month pay, and 10,000 Christmas bonus.
Compute her gross taxable income
Jessefiel Vaal
Jess is a nurse at The Medical City-Sta. Rosa. She receives 18,000
basic pay in 2018. On the same year, she received 13th month pay and
10,000 performance bonus. Compute her gross taxable income.
Freddiemar Tolentino
Freddiemar is the CEO in Toyozu Co. He receives 75,000
monthly basic pay. He is also provided with a penthouse with a
monthly rent of 30,000. Starting July of 2018, he is given
5,000 monthly representation allowance. Before the year ends,
he received 13th month pay, 40,000 performance bonus, and
10,000 Christmas bonus. Compute his gross taxable income
for 2018
Ricky Tan
Ricky is a government employee with 49,000 monthly salary.
He took a month-long paid vacation on December 2018 for
family reasons. Despite that, he received a 13th month pay and
20,000 Christmas bonus. Compute Ricky’s gross taxable
income.
Michael Rey Caragay
Michael is an HR staff at Pineslight Inc. On a monthly basis, he
receives 25,000 basic pay, 1,000 clothing allowance, 2,000 rice
allowance, and 4,000 housing allowance. He received full 13th
month pay for the year as well 17,800 for 15 days unused
monetized vacation leave.
Lovely Mae Sabado
Lovely is the branch manager of Army Navy- Nuvali. She
receives 30,000 monthly salary, 2% annual profit share, 2,000
monthly transportation allowance, 2,500 monthly rice
allowance. She got 13th and 14th month pay for 2018.
The profit of the Army Navy- Nuvali Branch for 2018 amounted
to 2,400,000.
Erica Moreno
Erica works in FEU as a marketing instructor. She receive
40,000 monthly pay and 5,000 responsibility allowance as the
Department Chair. One of the perks she enjoys is the
scholarship FEU grants to all the workers’ children regardless
of their performance. In 2018, the school fees of Erica’s son
were all shouldered by FEU. This amount costs 80,000. She is
happy for having received her 13th month pay and 30,000
Christmas bonus.