Dear PAO,
I am a fresh graduate and have landed on my first job. So far, I am enjoying my work as a private therapist. My co-workers tell me that I am lucky I was hired because our employer is very generous. For instance, we are granted company outings and a couple of bonuses if we perform well. I am just wondering if the bonuses will be taxed. Is the 13th month pay also taxed? I am a bit excited to receive these benefits and I am hoping these will not be taxed. Any advice will be highly appreciated. Thank you.
Jemmah
I am a fresh graduate and have landed on my first job. So far, I am enjoying my work as a private therapist. My co-workers tell me that I am lucky I was hired because our employer is very generous. For instance, we are granted company outings and a couple of bonuses if we perform well. I am just wondering if the bonuses will be taxed. Is the 13th month pay also taxed? I am a bit excited to receive these benefits and I am hoping these will not be taxed. Any advice will be highly appreciated. Thank you.
Jemmah
Dear Jemmah,
Taxes are the life-blood of the state. Hence, income is generally subjected to taxes. This includes income of individual persons. However, there are types of individual income which are not included in the imposition of taxes. As provided for under Section 32B, Chapter VI of Republic Act (R.A.) No. 8424, otherwise known as the National Internal Revenue Code of the Philippines, the following are exempt from taxation: (1) Life insurance; (2) Amount received by the insured as return of premiums; (3) Value of properties received as gifts, bequests and devises; (4) Compensation for injuries or sickness; (5) Incomes which are exempt under treaty; (6) Retirement benefits, pensions and gratuities; (7) Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement when the recipient was selected without any action on his part to enter such contest and he is not required to render substantial future services as a condition of receiving the prize or award; (8) Prizes and awards in sports competition sanctioned by the national sports association; (9) 13th month pay and other benefits; (10) GSIS, SSS, Medicare and other contributions; (11) Gains from sales of bonds, debentures or other certificate of indebtedness with maturity of more than five years; and (12) Gains from redemption of shares in mutual funds as defined under Section 22 (BB), Id.
Taxes are the life-blood of the state. Hence, income is generally subjected to taxes. This includes income of individual persons. However, there are types of individual income which are not included in the imposition of taxes. As provided for under Section 32B, Chapter VI of Republic Act (R.A.) No. 8424, otherwise known as the National Internal Revenue Code of the Philippines, the following are exempt from taxation: (1) Life insurance; (2) Amount received by the insured as return of premiums; (3) Value of properties received as gifts, bequests and devises; (4) Compensation for injuries or sickness; (5) Incomes which are exempt under treaty; (6) Retirement benefits, pensions and gratuities; (7) Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement when the recipient was selected without any action on his part to enter such contest and he is not required to render substantial future services as a condition of receiving the prize or award; (8) Prizes and awards in sports competition sanctioned by the national sports association; (9) 13th month pay and other benefits; (10) GSIS, SSS, Medicare and other contributions; (11) Gains from sales of bonds, debentures or other certificate of indebtedness with maturity of more than five years; and (12) Gains from redemption of shares in mutual funds as defined under Section 22 (BB), Id.
From the foregoing, it can be said that the 13th month pay of employees is not taxable. However, there is a limit as to the maximum amount of the 13th month pay which is exempt from tax. Under Section 32B, Chapter VI of R. A. No. 8424, the benefit must not exceed P30,000. Any amount in excess thereof may be subjected to tax. Nevertheless, the said provision of the law has already been amended by R. A. No. 10653, which now provides that 13th month pay along with other benefits such as productivity incentives and Christmas bonuses is exempt from the imposition of taxes so long as it does not exceed P82,000.
Accordingly, the 13th month pay as well as the bonuses which you may receive from your employment may be excluded from taxation as long as the total amount thereof does not exceed P82,000. If there is an excess amount, the same shall be subjected to the imposition of appropriate taxes.
We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net
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