Fringe Benefits Tax

Fringe Benefit Tax, Defined.
Means any good, service or other benefit furnished or granted in cash or in kind by an employer (individual or corporation) to an individual employee, except rank or file. A fringe benefit is either taxable or exempt.

Other Definition of Terms

The term rank and file employees means all employees who are holding neither managerial or supervisory position.

Managerial employee - is one who is vested with powers or prerogatives to lay down and execute management policies and or to hire, transfer, suspend, lay off, recall, discharge, assign or discipline employees.

Supervisory employees- are those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment.

Grossed-up Monetary Value- the whole amount of income realized by the employee which includes the net amount of money or net monetary value of property which has been received plus the amount of fringe benefit tax due thereon.

De Minimis Benefits- facilities or benefits furnished or offered by an employer to his employees that are of small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees.

Nature of the Fringe Benefit Tax

The Fringe Benefit Tax shall be treated as a final income tax of the employee. (2nd par. Sec. 2.33 (a), RR No. 3-98)

Fringe Benefits, Defined.

For purposes of taxation, fringe benefit means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employee) such as but not limited to the following:

1. housing
2. expense account
3. vehicle of any kind
4. household personnel, such as maid, driver, and others
5. interest on loan at less than market rate to the extent of the difference between the market

rate and actual rate granted
6. membership fees, dues, and other expenses borne by the employer for the employee in social

and athletic clubs or other similar organizations
7. expenses for foreign travels
8. holiday and vacation expenses
9. educational assistance to the employer or his dependents
10. life or health insurance and other non-life insurance premiums or similar amounts in excess of

what the law allows

Employers Subject to the Fringe Benefits Tax

a. the fringe benefits granted to the employee (other than rank and file) is taxable to the employer

unless exempted;
b. whether the employer is an individual, professional partnership, or corporation;
c. whether the corporation is taxable or not;
d. whether the employer is the government and its instrumentalities.

NOTE: Fringe benefits whether paid by non-profit or non-stock corporations or the government are subject to the fringe benefit tax.

Taxation of Fringe benefits received by resident employees except rank and file employees.

As a general rule fringe benefits are subject to a final tax to be paid by the employer unless exempted. The rate is

a. 34 %, effective January 1, 1998
b. 33 %, effective January 1, 1999
c. 32 %, effective January 1, 2000 and thereafter

Based on the grossed up monetary value of the fringe benefit furnished or granted to the employee by the employer, whether an individual or corporation unless exempted.

The Grossed up monetary value of the fringe benefits represents:

1. The total amount of income realized by the employee;
2. Which includes the net amount of money or net monetary value of the property which has been received;
3. Plus the amount of fringe benefit tax thereon otherwise due from the employee but paid by the employer for an in behalf of his employee.

The grossed up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by
a. 66 %, effective January 1, 1998
b. 67%, effective January 1, 1999
c. 68%, effective January 1, 2000 and thereafter

Determination of amount subject to Fringe Benefits Tax

In general, the computation of the fringe benefits tax would entail
a. valuation of the benefit granted, and
b. determination of the proportion or percentage of the benefit which is subject to the fringe benefit tax.

General guidelines for valuation of Fringe Benefits subject to FBT:

a. if the fringe benefit is granted in money, or is directly paid for by the employer, then the value is the amount granted or paid for;

b. if the fringe benefit is granted or furnished by the employer in property other than money and ownership is transferred to the employee, then the value of the fringe benefit shall be equal to the fair market value of the property as determined by the Commissioner of Internal Revenue;

c. if the fringe benefit is granted or furnished by the employer in property other than money but ownership is not transferred to the employee, the value of the fringe benefit is equal to the depreciation value of the property.

When Fringe Benefits irrespective of kind are not taxable or when exempt from Fringe Benefit Tax.

(1) where such fringe benefit is required by the nature of , or necessary to the trade, business or profession of the employer;
(2) when the fringe benefit is for the convenience or advantage of the employer.

Kinds of Fringe Benefits that are not taxable or not subject to the FBT

1. Fringe benefits which are authorized and exempted from tax under special laws;
2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans.
3. Benefits given to the rank and file employees whether granted under a collective bargaining agreement or not;
4. De minimis benefits as defined in the rules and regulations by the Secretary of Finance, upon the recommendation of the Commissioner.


The fringe benefit tax, therefore, does not apply to fringe benefit granted by an employer to an employee under the following circumstances:
1. if it is received by rank and file employee;
2. even if received by a supervisory or managerial employee, if the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer, or when granted for the convenience or advantage of the employer himself.
3. If it is exempt under section 33 (c. ) of the tax code.