Fringe Benefits

Fringe Benefits Defined

It means any good, service, or other benefit
furnished or granted by an employer in cash
or in kind in addition to basic salaries, to an
individual employee (except rank-and-file
employee).
Fringe benefit subject to fringe benefit tax is
not included among the items of gross
income. It is subject to a final withholding tax.
Generally, taxable fringe benefit and fringe
benefit tax constitute allowable deductions
from the gross income of the employer.


Tax Base
Fringe benefit tax is imposed on the
grossed up monetary value of the
fringe benefit furnished, granted or
paid by the employer to managerial
and supervisory employees (except
rank-and-file).
The employer may be an individual,
professional partnership or
corporation.


Rates
Fringe benefit tax is withheld by the employer
and is imposed at the following rate:
Effective January 1, 1998
34%
Effective January 1, 1999
33%
Effective January 1, 2000
32%
The grossed up monetary value shall be
determined by dividing the monetary value by
the following percentages:
Effective January 1, 1998
66%
Effective January 1, 1999
67%
Effective January 1, 2000
68%

 Mr. AA is the manager of Malayan Inc. In

2012, his employer rewarded him with a
pre-owned Mitsubishi Lancer purchased
for P408,000 cash registered under Mr.
AAs name.
Compute the fringe benefit tax.

Solution:
Acquisition cost of car

408,000
Divide by
Gross up monetary value
P600,000
Multiply by
Fringe benefit tax
P192,000

P
68%

32%

 Fringe benefit received by

nonresident alien not engaged in
trade or business is subject to a tax
of 25% based on the grossed up
monetary value.

 In 2012, Ms. A, a NRA-NETB and

employed as chief executive officer in
a domestic corporation was provided
by the employer with a maid and
personal driver who stay with her
household. Annual salaries of the maid
and driver were P48,000 and P87,000,
respectively. The fringe benefit tax to
be paid by the employer is:

Salaries
P135,000
Divide by
75%
Grossed- up monetary value
P180,000
Multiply by
25%
Fringe benefit tax
P
45,000

A fringe benefit tax of 15% is imposed on

the following based on grossed up
monetary value:
a. those alien employed by regional or area
headquarters of multinational company
b. offshore banking unit of a foreign bank
established in the Philippines
c. foreign service contractor engaged in
petroleum operations in the Philippines
d. Filipino employees employed and have
the same position as those held by alien
employees

The gross-up monetary value is computed

by dividing the monetary value of the
fringe benefit by 85% and multiply by
15% to get the fringe benefit tax.
Ms. A is an alien employed as finance
manager of foreign service contractor in
petroleum operations in the Philippines.
Her daughter educational expenses are
being shouldered by her employer. For
the year 2012, expenses related thereto
amount to P170,000. How much is the
fringe benefit tax due from the
employer?

Solution:
Educational expenses
P170,000
Divide by
85%
Grossed-up Monetary Value
P200,000
Multiply by
15%
Fringe Benefit tax
P 30,000

 Employees in special economic zones,

including Clark Special Economic Zone
and Subic Special Economic and Free
Trade Zone are taxed at the normal
rate (34%, 33%, 32%) or at special
rates (25% and 15%), as the case may
be.

Monetary Value
Guidelines
1. if it is granted in money, directly paid
by employer, the value is the amount
granted or paid for
2. if granted or furnished by employer in
property other than money and ownership
is transferred to employee, the value is
equal to fair market value of property
3. same in #2 except that the ownership
is not transferred, the value is equal the
depreciation value of property.

1. Housing privilege
a. if employer leases a residential property where the employee
resides, the monetary value is 50% of the rental paid
b. if employer owns a residential property where the employee
resides, the monetary value is the higher between the market
value or the zonal value times 5% to get the annual value and,
times 50% to get annual monetary value.
c. if employer purchases a residential property where employee
resides, the value is the acquisition cost, exclusive of interest
times 5% to get the annual value and, times 50% to get the
annual monetary value.
d. if employer purchases a residential property and transfer the
ownership to employee, the value is the acquisition cost or
zonal value which ever is higher.
e. If employer purchases a residential property and transfer the
ownership the employee for residential use at a price less than
the employers acquisition cost, the value is the fair market
value or zonal which ever is higher less cost to employee.

2. Expense account.
Expenses incurred by employee but are
paid for and reimbursed by employer
are taxable fringe benefits, except
when these are duly receipted for and
in the name of employer and these do
not partake the nature of a personal
expense attributable to employee

3. Motor vehicle of any kind

a. if employer purchases motor vehicle in the name of employee, the
value is the acquisition cost
b. if employer gives employee cash to purchase and own motor
vehicle, is equal to cash received by employee
c. if employer purchase a car on installment with employee as owner
is equal to acquisition cost exclusive of interest divide by 5 years
d. if employer partially shoulders the purchase price of a motor with
employee as owner, is equal to the amount shouldered by
employer
e. if employer owns and maintain a fleet of motors for business and
employees use, the monetary value is the acquisition cost divide by
5 years and times 50%.
f. if employer leases and maintains a fleet of motors for business and
employees use, is the rental payment of all motors times 50%
g. the use of aircraft owned and maintained by employer is treated as
business use and not subject to fringe benefit tax
h. the use of yacht whether owned and maintained or leased by
employer is a taxable fringe benefit. The value is the depreciation
of a yacht at useful life of 20 years.

4. Household expenses. Household employee borne by

employer such as salaries of driver, household help are
taxable fringe benefits
5. Interest on loan at less than market rate. If lend by
employer, at lower rate of 12%, the interest foregone or
the differences assumed by employee are taxable fringe
benefit

6. Membership fees, dues and other expenses borne by

employer for his employee for social and athletic clubs
are taxable fringe benefits of employee in full

7. Expenses for foreign travel. Reasonable business

expenses paid by employer for travel are not taxable.
Inland travel expenses except hotel at an average of
$300 or less per day are not subject to fringe benefit tax

8. Holiday and vacation expenses borne by employer

by his employee are taxable fringe benefits

9. Educational assistance to employee or his

dependents, are taxable fringe benefits except if
connected to business and the employee is obliged
to remain in the employ of the employer for period
agreed upon in the contract

10. Life or health insurance and other nonlife

insurance premiums in excess of what the laws
allows are taxable except those under SSS or GSIS,
and cost of premiums borne by employer for group
insurance of his employees

Fringe Benefits Not Subject to Fringe

Benefits Tax
1. those authorized and exempted from
income tax under the code or special law
2. contributions of employer for the benefit
of employee to retirement, insurance and
hospitalization
3. benefits of rank and file for collective
bargaining agreement
4. de minimis benefits
5. if the grant is required by the nature.
6. if it is for the convenience of employer

Accounting for fringe

benefits
1. During the year 2012, Holiday Corp.
paid month rental of a residential
house of its branch manager, Mr.
AA, amounting to P67,000.
Compute the fringe benefit tax due

Monthly rental
P67,000
X
50%
Monetary value P33,500
Divide by
68%
Grossed-up monetary value
P49,265
X 32%
Fringe benefit tax due P15,765

Fringe benefit expense

P67,000
Fringe benefit tax expense 15,765
Cash P82,765
To record fringe benefit expense
and fringe benefit tax paid on rental
of the residential property furnished
to Mr. AA

2. Plaza Corp. owns a condominium unit.

During the year 2012, the said
corporation furnished and granted the
said property for residential use of its
Senior Vice-President. The fair market
value is P
10m while its zonal value is P8m.
Compute monthly fringe benefit tax due.

Market value P10,000,000

X 5%
Annual value P500,000
X 50%
Annual monetary value
P250,000
Divide by
12
Monthly monetary value P20,833
Divide by
68%
Grossed-up monetary value P30,637
X 32%
Fringe benefit tax due P9,804

Fringe benefit tax expense 9,804

Cash/ Fringe benefit tax payable
9,804
To record fringe benefit tax
expense for the residential
property furnished to employees

Exercises/Problems

Multiple Choice. Select the best answer.

1. Fringe benefits is imposed on
a. Employers
b. Consultants
c. Rank and file employees
d. Managerial and supervisory
employees

2. The grossed up monetary value of

fringe benefit shall be determined by
dividing the actual monetary value
of the fringe benefit by
a. 66%
b. 67%
c. 68%
d. 69%

3. During the year 2012, DEF Corporation

paid for the monthly rental of a
residential house of its branch manager
amounting to P68,000
How much is the value of the fringe
benefit?
a.P68,000
b. 34,000
c.16,000
d. 11,333

4. Same information as in #3, how

much is the monetary value of the
fringe benefit?
a. 68,000
b. 34,000
c. 16,000
d. 11,333

5. Same information as in#3, how

much is the fringe benefit tax?
a. 16,000
b. 11,333
c. 6,000
d. None of the choices