Republic of the Philippines

Department of Education
REGION I
SCHOOLS DIVISION OF CANDON CITY
Candon City, Ilocos Sur

BUSINESS MATHEMATICS
Quarter 2 – Week 4 - Module 4
Prepared by: Sadiri Mat T. del Rosario

Lesson
Taxable & Non-taxable Benefits;
1 Standard Deductions

I. OBJECTIVES:
1. Define each of the benefits given to wage earners (ABM_BM11SW-IIe-5)
2. Distinguish taxable from nontaxable benefits (ABM_BM11SW-IIe-6)
3. Enumerate the standard deductions with the corresponding computation
(ABM_BM11SW- IIe-7)

II. GUIDE QUESTIONS:

1. What are the different benefits given to wage earners and how do you define them?
2. How do you distinguish taxable from nontaxable benefits?
3. What are standard deductions?
4. How are standard deductions computed?

III. DISCUSSIONS
A. Benefits to Wage Earners
Listed below are possible benefits that employers give to their employees. Not all in this
list are obligatory for employers to give. Some benefits are obligatory following the nature of jobs
that employees do. For instance, a mining company has to give hazard pay to its miners. For
accurate reference of obligatory benefits, you may further refer to Presidential Decree no. 442 or
also known as the Labor Code of the Philippines.
The Benefits of the Wage Earner:
1. Long-term benefits: retirement, death, disability
2. Minimum wage earner tax exemption.
3. Bonuses and allowances (e.g. travel, rice, meal, clothing, and laundry).
4. 13th month pay, holiday pay, special pay, overtime pay, night shift differential, and hazard pay.

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5. Leave incentives: vacation, sick, maternity, paternity, solo parent, and others.
6. Health-related benefits and insurances.
Retirement benefit, in reality, is like a savings account of the employee with the mandatory
withholding of portions of his or her salary by employer for deposit to said account. When the
employee retires, he or she receives it in the form of a lump sum retirement or pension money.
Minimum Wage Earner Tax Exemption (RA 9504) is a benefit given to employees whose
salary is at the minimum set by the Department of Labor and Employment for each particular
region in the country.
Maternity/ Paternity Benefit is a benefit that can only be availed by a female or male
employee, respectively, when a child is delivered by the female. The male applying for such
benefit must be the legitimate spouse of the female delivering the child and whom he is cohabiting
as provided by the Paternity Leave Act of 1996 (RA 8197).
Bonuses/ Allowances (travel, rice, meal, clothing, etc.) are benefits given by the company
to their employees to boost their loyalty or reward corporate team efforts.
B. The computations of some benefits are as follows:
1. Retirement Benefit
The minimum retirement pay is given by R = 22.5 x P x T, where R is the retirement pay,
P is the daily rate, and T is the number of years served.
2. 13th Month Pay
Let x be the annual basic salary of an employee. 13th month pay = x ÷ 12
3. Maternity Benefit
Let x be the average monthly salary of the employee. Then 2.6x and 2x for caesarean and
normal delivery, respectively.
4. Holiday Pay
Holiday pay refers to payment of the regular daily wage for any non-working regular
holiday. If the employee worked on a holiday, then he will receive twice his daily wage.
C. Taxable and Nontaxable Benefits
Taxable and nontaxable benefits are determined through understanding “De Minimis”
benefits. De minimis benefits are minimal benefits and ordinary privileges granted by the employer
on top of the employee’s basic compensation. They are facilities or privileges furnished or offered
by an employer to his employees that are of relatively small value and are offered or furnished by
the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of
his employees.

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 De minimis benefits are not considered as taxable for income tax purposes of employee
nor subject to the fringe benefit tax. As to which benefits are considered de minimis, refer to the
BIR Revenue Regulations (RR) that discuss these benefits. For purposes of self-learning
discussions, refer to RR No.3 – 2015 which are the latest revised and amended versions of the
original RRs (No. 3 -1998, No. 10-2000, and No. 5-2008).

De Minimis Benefits as per RR No. 8-2011, the following benefits are not taxable:
1. Monetized unused vacation leave credits of private employees not exceeding ten (10)
days during the year.
2. Monetized value of vacation and sick leave credits paid to government official and
employees.
3. Medical cash allowance to dependents of employees, not exceeding P750 per employee
per semester or P125 per month.
4. Rice subsidy of P1,500 or one (1) sack of 50 kg rice per month amounting to not more
than P1,500.
5. Uniform and clothing allowance not exceeding P4,000 per annum.
6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance, and routine consultations, not
exceeding P10,000 per annum.
7. Laundry allowance not exceeding P300 per month.
8. Employees achievement awards, e.g., for length of service or safety achievement, which
must be in the form of tangible personal property other than cash or gift, with an annual
monetary value not exceeding P10,000 received by the employee under an established
written plan which does not discriminate in favor of highly paid employees.
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000
per employee per annum.
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-
five percent (25%) of the basic minimum wage on a per region basis.

“De Minimis Benefits” as per RR No. 8-2012 amends uniform and clothing allowance
previously as not exceeding P4,000 per annum to P5,000 per annum effective January 1, 2012.
“De Minimis Benefits” as per RR No. 1-2015 further amend previously issued regulations to
include:
(k) Benefits received by an employee by virtue of a collective bargaining agreement (CBA)
and productivity incentive scheme combined do not exceed ten thousand pesos (Php10,000)
per employee, per taxable year.

Any excess in the ceiling amounts of de minimis benefits stipulated in the Revenue
Regulations become part of the employee’s taxable income provided that such amount(s) when

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added to bonuses, and the 13th month pay will yield a total of more than P82,000 in which case,
the excess above the P82,000 ceiling becomes taxable (RR No. 3-2015, dated March 9, 2015).
D. Standard Deductions
Taxes are part of standard deductions such that the determination of the taxable and
nontaxable benefits is a prerequisite to proper computation of taxable income to account for the
employee’s withholding taxes. Other standard deductions aside from withholding tax are as
follows:
1. SSS Premium (for private employees) or GSIS Premium (for government employees)
2. Philhealth
3. Pag-IBIG
4. Pag-IBIG/SSS Loan
5. Retirement Fund
6. Charges/ Miscellaneous

Withholding tax is the amount contributed by any wage earner to the government. SSS
(Social Security System) or GSIS (Government Services Insurance System) collects
annual/quarterly/monthly contributions from its members to ensure that they will receive their
benefits. Philhealth and Pag-IBIG are almost the same with SSS/GSIS only that Philhealth
focuses on providing discounts when it comes to health-related problems, while Pag-IBIG Fund
focuses on providing monetary assistance for lands or mortgages. Charges/Miscellaneous can be
best interpreted as deductions made by the employer for some other reasons (e.g. tardiness/
absences).

E. How to Compute for Standard Deductions

1. Rate of Contributions to SSS

All employees of private enterprises are covered by the Social Security Service. Self-
employed individuals even those that are not can voluntarily become members. Monthly
contributions of members are based on their compensation. Current SSS contribution rate is 11%
of monthly wage credit not to exceed P16,000.00. The amount is shared by both employer and
employee with 7.37% and 3.63%, respectively.
Self-employed and voluntary members pay the whole of the 11% on whatever is their
monthly income declared at the time of registration. OFWs have a minimum monthly salary credit
of P5,000.00. Non-working spouse’s contribution is based on 50% of the working spouse’s last
posted monthly salary credit but in no case shall it be lower than P1,000.00.
For easy reference, you may upload the updated table of SSS Contributions for employed,
self-employed, voluntary, and non-working spouses through the internet.

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2. Rate of Contributions to Philhealth
All employees (private and government) are to be members of Philhealth. The intention is
to cover the employee and his beneficiaries’ medical expenses in times of sickness.
Below is the top part of the list of Philhealth contributions of employers and employees:
Salary Total Mo.
Salary Bracket Employee Employer
Base Premium
1. 8,999** and below 8,000 200 100 100
2. 9,000 – 9,999.99 9,000 225 112.50 112.50
3. 10,000 – 10,999.99 10,000 250 125 125

* Employee share represents half of the total monthly premium while the other half is shouldered by the
employer.
** For a Kasambahay helper receiving a wage of less than Five Thousand Pesos (P5,000) per month, the
employer will shoulder both the employee and employer’ share based on the premium schedule.

3. Rate of Contributions to GSIS

All government employees holding permanent and non-permanent positions are members of the
GSIS. Premium contributions are based on monthly compensation.
There are two types of insurance coverage:
a. Regular – refers to compulsory premium payments on life insurance and retirement
benefits.
b. Employees Compensation Fund – refers to premium payments paid by your government
agency so you get full coverage in case of a work-related accident.
Rate of premium contributions are as follows:

Personal Personal Government Government

Type of insurance
Share Share Share Share
coverage
Life Retirement Life Retirement
Regular 2% 7% 2% 10%
Employees 1% not to
None 0% None
compensation fund exceed P100

F. How to Compute for Withholding Taxes

Withholding tax on compensation is the tax withheld from income payments to
individuals arising from an employer-employee relationship. Withholding tax table maybe
procured from the nearest BIR office and in the internet.
To be able to compute your BIR Withholding Tax for the month, the following information
are needed. (You may also refer to the payslip of a relative for other informations not included
here).
• Your BIR Tax Status (Single/Married)

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 • Do you have any dependents and how many?
• How much is your SSS/Philhealth and Pag-IBIG contributions?
• Allowances and other benefits (if any)
• Copy of the latest BIR Withholding Tax table

G. Pag-IBIG Fund Contributions

The Home Development Mutual Fund (HDMF), more popularly known as the Pag-IBIG
Fund, was established to provide a national savings program and affordable shelter financing for
the Filipino workers. The Fund offers its members short-term loans and access to housing
programs. With the signing of Republic Act No. 9679, membership is mandatory for all SSS and
GSIS-covered employees; uniformed personnel of the AFP, BFP, BJMP, and PNP; OFWs as well
as Filipinos employed by foreign-based employers.
The monthly contribution is shown below:
Percentage of Monthly Compensation
Monthly Employee Share Employer Share
Compensation
P1,500 and below 1% 2%
Over P1,500 2% 2%

Therefore, a person who earns P12,000 per month will contribute 2% of such salary or
P240 to the Pag-IBIG Fund.

IV. EXAMPLES
A. Computing for Taxable and Non-taxable benefits
Illustration: Mr. Ramos received the following compensation and benefits for a year, working as
a Project Engineer.
Annual Basic Salary P300,000
th
13 Month Pay and Bonuses P75,000
Uniform Allowance P5,000
Laundry Allowance P4,000
Rice Subsidy P27,600
Compensation Non-taxable Taxable
Annual Basic Salary P300,000
De Minimis Benefits:
Clothing Allowance P5,000
Laundry Allowance P3,600
Rice subsidy P18,000

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 Other Benefits:
13th month pay & bonuses P75,000
Excess Laundry Allowances P400
Excess Rice Subsidy P9,600
P82,000 P3,000
Total P108,600 P303,000
Notice that nontaxable amounts are those that are stipulated as ceilings under the Revenue
Regulations for “De Minimis” benefits (computed for a year or 12 months), the excesses of which
are treated under “Other benefits” to determine if there is an excess beyond P82,000. In this case,
the total is P85,000 including 13th month pay & bonuses. The excess of P3,000 (P85,000 –
P82,000), is treated as taxable income.

B. Computing for Withholding Taxes

Illustration:
Let us assume the following:
• Basic Salary: P15,000 • SSS Contribution: P500
• Status: Single (No dependents) • Philhealth Contribution: P250
• Overtime Pay: P2,500 • PAG-IBIG Contribution: P100
• Late/ Undertime deduction: P500
To get your taxable income, add the following: basic salary and overtime pay then deduct
the late/under time deduction, SSS, Philhealth, and Pag-IBIG Contributions. Your taxable income
for the month is P16,150.
With the help of the BIR Withholding Tax Table, look for the nearest amount to your
taxable income under the monthly category.

Table 1. BIR Withholding Tax Table (monthly)

In this case, the nearest value is the P15,833.00 with P1,875 as exemption plus the 25%
of the excess of your taxable income over your tax base.
P16,150.00 (taxable income) – P15,833 (tax base) = P317.00

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 P 317.00 x 25% = P79.25
P79.25 + P1,875.00 = P1,954.25 your BIR Withholding Tax for the month.

V. GENERALIZATION
There are several benefits given to wage earners such as retirement, death, disability,
minimum wage earner tax exemption, bonuses and allowances (e.g. travel, rice, meal, clothing,
and laundry), 13th month pay, holiday pay, special pay, overtime pay, night shift differential, and
hazard pay, leave incentives: vacation, sick, maternity, paternity, solo parent, and others and
health-related benefits and insurances. Annual basic salary is taxable. De minimis benefits are
non-taxable. Stipulated excesses of de minimis when added to the regular benefits must not exceed
the ceiling of P82,000. Otherwise, the excess will be treated as taxable. Other standard deductions
aside from withholding tax are SSS Premium (for private employees) or GSIS Premium (for
government employees), Philhealth, Pag-IBIG, Pag-IBIG/SSS Loan, Retirement Fund, and other
Charges/ Miscellaneous.

VI. EXERCISES
DIRECTIONS: From among the choices below, write the letter of the word that corresponds to
what is being described:
A. VACATION D.MATERNITY LEAVE G. SICK LEAVE J. OVERTIME
B. 13th MO.PAY E. “DE MINIMIS” H. RETIREMENT K. MINIMUM
C. BONUSES F. HOLIDAY PAY I. PATERNITY LEAVE WAGE TAX
EXEMPT’N.

_____1. Compensation given when an employee is required to work beyond regular hours or days
of work.
_____2. This is availed by husband when legal wife delivers their child.
_____3. This is a benefit given to employees whose salary is at the minimum set by the Department
of Labor and Employment for each particular region in the country.
_____4. This is given to employees to cover up for their absences due to illness or temporary
medical conditions.
_____5. These are benefits given by the company to their employees to boost their loyalty or
reward corporate team efforts.
_____6. A benefit that can only be availed by a female employee.
_____7. This is like a savings account of the employee with the mandatory withholding of portions
of his or her salary by employer.

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_____8. This refers to payment of the regular daily wage for any non-working regular holiday.
_____9. Benefits that are relatively of small value.
_____10. This is the equivalent of a month’s salary or one-twelfth of the annual salary.

VII. REFERENCES
Lopez, Brian Roy C., Leah C. Martin-Lundag, and Keneth Adrian P Dagal. 2016. Business Math.
Quezon City: Vibal Group, Inc.

Lopez-Mariano, Norma D. 2016. Business Mathematics. Manila: Rex Book Store.

VIII. ANSWER KEY

10. B
9. E
8. F
7. H
6. D
5. C
4. G
3. K
2. I
1. J

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