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); and
c. 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 13 th 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 Pay
2. Over-time Pay
3. Holiday Pay
4. Night Shift Differential
5. Hazard Pay
6. 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/SL
ii.
Rice Subsidy
iii.
Clothing Allowance

iv.
v.
vi.
vii.
viii.
ix.

Productivity Incentives
Christmas/Anniversary Gifts
Laundry Allowance
Family health Allowance
Actual Medical Benefits
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 BENEFIT

XXXXXX

DIVIDED BY
GROSSED UP MONETARY
VALUE
MULTIPLIED BY TAX RATE
FRINGE BENEFITS TAX

68%
XXXXXX
32%
XXXXXX

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 10 th day after the close of every
month (as always, all creditable withholding tax are due by the 10 thday 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.