DOF and BIR Propose Higher Tax-Exempt “De Minimis” Benefits for Workers

The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) have recently submitted proposals to increase the ceilings for tax-exempt de minimis benefits granted to employees. These are small-value benefits that employers provide — such as rice subsidies, uniform allowances, or medical assistance — which remain exempt from income tax up to prescribed limits.

The proposal seeks to update those limits in recognition of the rising cost of living, inflation, and the need to ease the financial burden on workers. This initiative aligns with the government’s broader policy to provide tax relief to those who need it most, while promoting fairness and inclusivity in the Philippine tax system.

These proposed updates are designed to reflect the realities of today’s economy — one marked by persistent inflation and rising prices of essentials.

Objectives of the Proposal

1. Enhance Workers’ Purchasing Power – Increasing de minimis ceilings allows employees to retain more of their benefits tax-free, effectively boosting disposable income.

2. Maintain Relevance Amid Inflation – Many ceilings have remained unchanged for several years, despite significant inflation that has eroded their real value.

3. Support Inclusive Growth – By easing the tax burden on ordinary workers, the government aims to ensure that economic gains translate into tangible improvements in everyday life.

4. Simplify Compliance – Updated thresholds help employers avoid unintentional breaches of outdated ceilings and reduce administrative complexities in payroll management.

Implications for Employees and Employers

For Employees

Workers stand to gain higher take-home benefits without any additional tax deduction. This adjustment directly increases their net compensation and provides immediate relief from the impact of inflation.

For Employers

Businesses can now offer slightly higher non-taxable allowances as part of their compensation strategy. This enables companies to remain competitive and maintain employee morale without incurring additional tax liabilities. Moreover, clearer and higher limits simplify payroll compliance and reduce the risk of misclassification of taxable benefits.

Economic and Social Context

The proposal emerges at a time when the Philippines continues to grapple with elevated prices for food, fuel, and other necessities. Inflation has significantly reduced the purchasing power of workers, particularly those in the lower- and middle-income brackets.

By adjusting de minimis thresholds, the government acknowledges that keeping benefit limits static effectively increases the tax burden on employees over time. This measure restores the intended relief these benefits were designed to provide and aligns tax policy with social equity.

Implementation Considerations

Should the proposal be approved, the DOF and BIR will issue new revenue regulations to guide employers in implementing the updated ceilings. Companies will need to:

• Review their current payroll and benefits structures;

• Adjust internal policies and systems to reflect new ceilings;

• Train HR and accounting personnel on the updated guidelines; and

• Communicate changes clearly to employees to ensure transparency and awareness.

Broader Impact on the Economy

While the proposed adjustments will slightly reduce tax collections, the DOF expects the fiscal impact to be minimal. The increased take-home pay of workers could stimulate consumer spending — providing a mild but positive boost to domestic demand.

In the long run, maintaining the real value of de minimis benefits contributes to employee satisfaction, productivity, and loyalty — factors that are crucial in a competitive labor market.

Final Thoughts

The proposal to raise the ceilings for de minimis benefits is a welcome step toward modernizing the Philippine tax framework and ensuring that it remains responsive to economic realities. It balances fiscal prudence with compassion — offering targeted relief to millions of Filipino workers while preserving employer flexibility.

As this measure progresses through consultation and approval, both employers and employees should stay informed and prepared for compliance updates once the new regulations are formally issued.

About Aureada CPA Law Firm

Aureada CPA Law Firm is a full-service accounting and legal firm offering integrated expertise in taxation, corporate compliance, and labor law. Our team provides advisory and compliance support to help businesses and professionals navigate complex tax and regulatory environments with confidence.