Tax Articles

As we look ahead to the new year, significant developments in the tax treatment of de minimis benefits have been issued by the Bureau of Internal Revenue (BIR) under Revenue Regulations (RR) No. 29-2025. These changes are particularly relevant for employers, human resource professionals, and employees alike, as they directly affect compensation planning, payroll processing, and year-end tax compliance.

De minimis benefits are compensation benefits or perks of relatively small value provided by employers to employees on account of employer-employee employment relationship. Pursuant to the Tax Code and existing regulations, these benefits are exempt from income tax, withholding tax on compensation, and fringe benefit tax, making them a useful tool for enhancing employee compensation packages without additional tax burdens.

As to what constitutes de minimis benefits is not specifically defined in the Tax Code. But the Tax Code authorizes the Secretary of Finance to promulgate, upon the recommendation of the Commissioner of Internal Revenue, such rules and regulations as are necessary to carry out efficiently and fairly the tax exemption provisions of the Tax Code, taking into account the peculiar nature and special need of the trade, business, or profession of the employer. And since the enactment of the Tax Code, several regulations have been issued defining what constitutes de minimis benefits and setting forth the limits for tax exemption purposes.

To recall, in February last year, the BIR amended the de minimis provisions in RR No. 2-98 to increase the ceiling on uniform and clothing allowances from ₱6,000 to ₱7,000 per year. It also expanded the definition of employee achievement awards to include cash and gift certificates, in addition to tangible personal property, provided they are given under an established written plan and do not discriminate in favor of highly compensated employees.

And only last December, as we concluded year 2025, the BIR issued a broader update further increasing the ceilings for several de minimis benefits effective today, January 6, 2026. Among the key revisions are:

• Monetized unused vacation leave credits for private employees now tax-exempt up to 12 days per year.
• Uniform and clothing allowance ceiling raised to ₱8,000 annually.
• Medical cash allowance for dependents increased to ₱2,000 per employee per semester (or ₱333 per month).
• Rice subsidy tax-exempt up to ₱2,500 per month or the equivalent value in rice.
• Actual medical assistance (e.g., routine consultations, maternity support, executive check-ups) is now tax-exempt up to ₱12,000 per year.
• Laundry allowance ceiling increased to ₱400 per month.
• Employee achievement awards—including cash, gift certificates, or tangible property—are exempt up to ₱12,000 per year, subject to certain conditions.
• Christmas and major anniversary gifts are tax-exempt up to ₱6,000 per employee per year.
• Daily meal allowances for overtime or night shifts not exceeding 30% of the minimum wage are also non-taxable.
• Benefits under collective bargaining agreements (CBAs) and productivity incentives up to ₱12,000 per employee annually.

With the effectivity of RR 29-2025, it is a good timing for companies to begin reviewing their compensation packages and payroll systems and policies to align with the updated thresholds. Pursuant to the Tax Code and existing rules, all other benefits given by employers to employees which are not considered as “de minimis” may become taxable, unless considered as part of other benefits which is subject to tax in excess of the prescribed ceiling which currently stands at ₱90,000.00 per annum.

The BIR’s recent expansion of de minimis benefit ceilings is a welcome development in response to rising cost of basic commodities and other economic conditions besetting every Filipino worker. For employers, these changes offer practical ways to enhance employee remuneration packages without adding tax burden to both employer and employees. As the 2026 tax year commences, proper planning of employees’ compensation packages will allow businesses to fully leverage these reforms while avoiding unintended tax exposures.