RULES ON CIEs

Basically, the only deduction allowed for CIEs would be the following:a. Basic Personal Exemption of P50,000;b. Additional Personal Exemption of P25,000 for each qualified dependent child but for a maximum of four (special provision on fostered child/ren); andc. Actual Premium Payments for Hospitalization or Health Insurance but for a maximum of P200 per month of P2,400 per year.

From the Gross Taxable Compensation Income (GTCI) we deduct the above- enumerated items to arrive at the Net Taxable Compensation Income (NTCI) which is the basis to be applied the Graduated Income Tax Table for Individuals with rates from 5% to 32%.

What are included as part of GTCI?In general, all items of compensation are included except when a provision of the law excludes an item of compensation. In this regard, the difference between what are regular benefits and what are other benefits are inevitable.

All regular benefits are taxable items except for 13th Month Pay. Other benefits together with 13th Month Pay enjoys an exemption for the first P30,000 while the rest are taxable benefits already together with the regular benefits.

Under the Labor Code of the Philippines, the following are the Mandatory Benefits or Regular Benefits of CIEs:1. Basic Pay2. Over-time Pay3. Holiday Pay4. Night Shift Differential5. Hazard Pay6. 13th Month Pay

De Minimis Benefits are compensation that are not subject to Income Tax if received within the prescribed limitations as provided under existing rules. In excess of the limits, they are still exempt but the excess/es are treated as other benefits enjoying exemption on the first P30,000 together with 13th Month Pay and Other Benefits.

Under the rules, de minimis benefits shall be limited to the following:i. Monetized VL/SLii. Rice Subsidyiii. Clothing Allowanceiv. Productivity Incentivesv. Christmas/Anniversary Giftsvi. Laundry Allowancevii. Family health Allowanceviii. Actual Medical Benefitsix. Meal on Over-time

Under the rules, the following items are also exclusions from GTCI:a. Contribution as member of the SSS/GSIS;b. Contribution as member of the Pag-ibig Fund;c. Contribution as member of the Philhealth;d. Contribution as member of Employees Association or Union.

What is the treatment of ALLOWANCES given to CIEs?

Allowances shall be treated for tax purposed depending on how it is received by the employee. If such is received on a regular basis, it is a regular benefit subject to income tax. If the allowance is not received on a regular basis, the allowance is other benefits enjoying the exemption of the first P30,000 together with 13th Month Pay and all other benefits.

FRINGE BENEFITS TAX

Only CIEs who are holding at least managerial or supervisory positions are liable to FBT when receiving fringe benefits that are enumerated under the rules to be subject thereto which are the likes of:1. Housing;2. Personnel such as driver or house maid;3. Vacation privileges;4. Educational assistance;5. Interest lower than the market rate;6. Motor vehicle.

The enumerated benefits and the likes of it, when received by a rank-and-file employee shall be treated as other benefits. When received by a CIE holding at least managerial or supervisory position, the benefits shall not for part of the computation of the CIEs compensation income, rather, it shall be subjected to FBT, a final tax on income.

On the presumption that the fringe benefit is received net of the FBT, the computation of tax is hereby presented:

VALUE OF BENEFITXXXXXX

DIVIDED BY68%

GROSSED UP MONETARY VALUEXXXXXX

MULTIPLIED BY TAX RATE32%

FRINGE BENEFITS TAXXXXXXX

Under existing rules, there are laid down guidelines on the valuation of fringe benefits for purposed of computing FBT and the very basics are as follows:a. When involving a housing privilege and the real property in owned by the employer, the value of the housing benefit shall be the FMV or Acquisition Cost whichever is higher DIVIDED BY 20 (or multiplied by 5%) and DIVIDED BY 2 (or multiplied by 50%);b. When involving the use of a motor vehicle, the of the benefit is the cost of the motor vehicle DIDIVED BY 5 and DIVIDED BY 2 (or multiplied by 50%);

For (a) and (b), the values arrived at are the value of the benefits. It has yet to be GROSSED-UP or DIVIDED BY 68% which is the basis for the 32% or FBT.

In letter (a), it is divided by 20 or multiplied by 5% because usually, the useful life of real properties is TWENTY YEARS and the benefit is actually the amount equivalent to the annual depreciation. It is divided by 2 or multiplied by 50% because the employer retains the ownership to the real property or the employee is not given title over the property.

In letter (b), it is divided by 5 because usually, the useful life of motor vehicles is FIVE YEARS and the benefit is actually the annual depreciation. It is divided by 2 or multiplied by 50% because the employer retains the ownership to the motor vehicle or the employee is not given title over the motor vehicle.

When cash is received, or when a property is received, the cash or the FMV of the property is the value of the benefit. Just the same, dividing it by 68% will be the GROSSED-UP VALUE and the basis for the 32% FBT.

The FBT is due from the employer as part of the fringe benefit of the employee and shall be paid via withholding tax system. That is why the fringe benefit is being GROSSED-UP because of the presumption that it is received by the CIE net of FBT to be settled by the employer.

Again, the benefits under these provisions do not form part of the compensation income of the CIE subject to the regular income tax rates form 5% to 32%.

IMPROTANT NOTEconsider the convenience of the employer rule in ascertaining the taxability of the CIEs compensation. Whether is be other benefits or among the likes of fringe benefits subject to FBT, when it is for the convenience of the employer will mean no income to the CIE and therefore not part of the compensation nor subject to final tax.

MISCELLANEOUS PROVISIONS FOR CIEs

WITHHOLDING TAX ON COMPENSATION INCOMEUnder the rules, the income of CIEs shall be subject to withholding on Income Tax every time the CIE is to receive a taxable compensation. The nature of the withholding is CREDITABLE representing advance payment on Income Tax.

The employer in obviously the withholding tax agent for compensation income and the rules mandates the remittance of the withholding tax on compensation not later than the 10th day after the close of every month (as always, all creditable withholding tax are due by the 10th-day rule).

In return of the withholding of tax on compensation, the employer shall issue to the CIE a Certificate of Taxes Withheld on Compensation using BIR Form 2316.

INCOME TAX RETURN (ITR)CIEs are mandated to file an ANNUAL INCOME TAX RETURN which shall be due not later than April 15 immediately after the close of the taxable year. As for all kinds of Tax Returns, the payment of tax shall co-inside with the filing of the return under the PAY-AS-YOU-FILE system.

The ITR shall be filed using BIR Form 1700 for CIEs. For married individuals, the rules mandates a CONSOLIDATED FILING of ITR of spouses wherein the souse shall be computing separately their Income Tax Dues while aggregating the amount payable or refundable as the bottom-line figure.

In the event that the spouse cannot practically file a consolidated return (or when it is improbable), the law permits a separate filing while the BIR is mandated to consolidate the returns of spouses.

SUBSTITUTED FILINGWhen the withholding tax for the entire taxable year shall be equal to the actual Income Tax Due, the CIE is no longer required to file an Income Tax Return under the Substituted Filing System.

When required an ITR by a third party, if under the Substituted Filing system, the CIE shall present BIR Form 2316.

INSTALLMENT PAYMENTWhen the Income Tax Due in the Income Tax Return is at least P2,000, the CIE may elect to pay on installment FREE OF PENALTIES. Under the rules, it shall be two (2) installment payment due as follows:a. 1st installment-due upon filing of the Income Tax Return (on of before April 15) representing at least of the Income Tax Due; b. 2nd installment-due on or before July 15 representing the remaining balance.

MINIMUM WAGE EARNERSWhen the CIE is receiving the minimum wage or less, the compensation income is always not subject to withholding tax.

The compensation income (basic pay, over-time pay, holiday pay, night shift differential, hazard pay) of Minimum Wage Earners shall be exempt from Income Tax provided:a. That other benefits and 13th month pay shall not exceed the P30,000;b. That the there in not other sources of income other than compensation, provided further, that passive income shall not be considered as other sources of income.

Any of the above circumstances will render the Minimum Wage Earner to be treated the same as that of a regular CIE in relation to his compensation income for tax purposes, except that, the Minimum Wage Earner will still not be subject to withholding tax on compensation.