Every Cent Counts
Let's talk about something that is on every business owner's mind: managing expenses. We all know that every cent counts in business, and we want to make as much money as possible while spending as little as possible. That's why keeping track of your tax payments is so important. It's a great way to legally lower your tax dues and save money.
Now, you might be thinking, "How can I lower my taxes legally?" The answer is simple: tax avoidance. This means declaring all deductibles, even the small ones. By doing this, you'll be surprised at how much you can lower your overall tax bill. And the best part is that it's completely legal.
But let's be clear. Tax avoidance is not the same as tax evasion. Tax evasion is illegal, and it's not paying taxes at all. On the other hand, tax avoidance is just taking advantage of all allowable deductions to reduce your tax liability.
So, what are allowable deductions or deductibles? These are any necessary expenses to generate income and sustain your business operations. It includes operating and overhead expenses. Let me give you some examples:
- Amortization
- Depreciation
- Utilities
- Fringe Benefits
- Office Supplies
- Bad Debts
- Donations and Charity Work
- Promotional Expenses
- Cleaning and Management Services
- Consultancy Fees
The Bureau of Internal Revenue (BIR) has provided a list of exemptions and exclusions from gross income that you should review before filing your taxes. Among the list is De Minimis Benefits.
What are De Minimis Benefits?
These are benefits with a small value given to employees in addition to their basic compensation for their general well-being. Since the amounts are small, they are not considered taxable compensation and are therefore not subject to income tax or withholding tax on compensation. For employers, the amount of de minimis is a deductible salary expense.
Now, let's take a closer look at the list of De Minimis Benefits under the TRAIN Tax Law, effective January 1, 2018:
- Unused vacation leave credits of private employees, not to exceed 10 days per year.
- The monetary value of vacation and sick leave credits paid to government officials and employees.
- Medical cash allowance to employees' dependents not to exceed ₱ 1,500 per semester or ₱ 250.00 per month.
- Rice subsidy of ₱ 2,000.00 or one sack of 50 kg. Rice costs no more than ₱ 2,000.00 per month.
- A uniform and clothing allowance of no more than ₱ 6,000 per year
- Actual medical assistance, such as a therapeutic benefit to cover medical and healthcare needs, annual medical/executive check-ups, maternity assistance, and routine consultations, with a yearly limit of ₱ 10,000.
- Laundry allowance of no more than ₱ 300 per month
There are other De Minimis Benefits that you should know, such as:
- Employee achievement awards, such as those for length of service or safety achievement, must be in the form of tangible personal property other than cash or gift certificates. It has a monetary value of no more than ₱ 10,000 per year and is received by the employee under a written plan. This benefit does not favor highly compensated employees.
- Any Christmas and major anniversary gifts received not exceeding ₱ 5,000 per employee once a year.
- Daily meal allowance for overtime and night/graveyard shifts is limited to 25% of the basic minimum wage per region.
It's essential to remember that any other benefits provided by employers that are not on this list are not considered "de minimis benefits" and are thus subject to income tax and withholding tax on compensation income. Any amount exceeding the prescribed de minimis limit will be considered as “Other Benefits” and will be subject to the income tax rate. Additionally, the TRAIN LAW ceiling amount for “Other Benefits” plus the 13th-month pay is ₱ 90,000.
How to Compute Your Employee’s Taxable De Minimis Benefits
Say, for example, Juan's end-of-the-year benefit tax computation:
Juan has a 13th-month pay of ₱ 80,000
Government Rice Allowance: ₱ 2,000 x 12 = ₱ 24,000 Rice allowance paid to Juan: ₱ 2,500 x 12 = ₱ 30,000 Rice allowance coverage: ₱ 30,000 - ₱ 24,000 = ₱ 6,000
Government Medical Benefits: ₱ 10,000 Medical Benefits paid to Juan: ₱ 16,000 Medical Benefits coverage: ₱ 16,000 - ₱ 10,000 = ₱ 6,000
General Tax Shield Coverage: ₱ 90,000 - (₱ 80,000 + ₱ 6,000 + ₱ 6,000) = - ₱ 2,000
De Minimis Benefits: ₱ 34,000 Non-taxable 13th-month and other benefits: ₱ 90,000 Taxable 13th month and other benefits: ₱ 2,000
If you're an employer, you know that calculating payroll taxes for each employee can be a huge headache. Not only does it take up a lot of time and effort, but there's always a risk of making a mistake and getting penalized by the government. Nobody wants that!
That's why it's important to find a better, faster, and easier way to do this. And I have some good news for you - such a solution exists!
Watch this short video to learn about an automated payroll system that can save you a ton of time and money.
With an automated payroll system, you don't have to worry about manually calculating all those benefit taxes for each employee. The system does it all for you, accurately and quickly. That means you can spend your time and energy on more important things, like growing your business.
In addition to using an automated payroll system, it's also a good idea to consult with a tax professional who can provide expert guidance on how to legally minimize your tax liability. They can help you navigate the complex tax code and ensure that you're taking advantage of all available tax credits, exemptions, and deductions.
You are not required to submit supporting documents. It is sufficient that your business submits a BIR monthly compensation return where the de minimis benefits are indicated (BIR Form No. 1601-C). But if specifically requested by BIR, your business may need to show your documents like accounting records. 2. Is de minimis part of the 13th-month pay?
No, de minimis is a separate benefit and does not fall under 13th-month pay. 3. Are de minimis benefits mandatory? Yes, de minimis benefits are mandatory and must be provided to all employees. The most recent law that prescribed the list of De Minimis Benefits is Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN).
And the latest BIR regulation that implemented the De Minimis Benefits is Revenue Regulation No. 11-2018.
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Conclusion
By keeping track of your tax payments and taking advantage of allowable deductions like De Minimis Benefits, you can save money for your business.
Remember, every cent counts in your business. If you manage your expenses wisely, you can maximize your profits and achieve your business goals. So don't let your tax payments deplete your finances—take control of your taxes today and start saving!
