DOF, BIR Propose Higher Tax-Exempt Benefits for Public and Private Sector Workers

Good News!!!

The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) have proposed raising the ceilings for tax-exempt benefits for employees in both the private and public sectors. The move aims to shield workers’ take-home pay from inflation while promoting inclusive growth.

In a statement, DOF Secretary Ralph Recto said the increase in tax-exempt benefits “will have a minimal impact on government revenues but will definitely make a significant difference for our workers.”

The proposal would allow higher non-taxable allowances and benefits to account for rising living costs and to boost competitiveness across sectors, all while maintaining prudent fiscal management.

Key elements of the proposal

Private-sector changes: The ceiling for monetized unused vacation leave credits would rise from 10 to 12 days.

Public-sector changes: Government employees’ monetized vacation credits would remain uncapped.

Medical and living-cost supports: Dependents’ medical cash allowances would rise from ₱1,500 to ₱2,000 per semester; rice subsidies would increase from ₱2,000 to ₱2,500 per month; and the annual uniform and clothing allowance would climb from ₱7,000 to ₱8,000.

Other benefits: Annual medical assistance would increase from ₱10,000 to ₱12,000; laundry allowance from ₱300 to ₱400 monthly; annual employee achievement awards from ₱10,000 to ₱12,000; and Christmas or anniversary incentives from ₱5,000 to ₱6,000.

Overtime and night-shift meals: The tax-free meal allowance would be raised from 25% to 30% of the minimum wage.

Combined incentives: The annual ceiling for collective bargaining agreement (CBA) and productive incentives would rise from ₱10,000 to ₱12,000.

The DOF also signaled possible further exemptions, with Recto directing the BIR to explore exemptions for certain taxpayer segments from the obligation to withhold and remit creditable withholding taxes. The two agencies are also considering simplification measures to reduce compliance costs.

Note to our readers:

The above proposals are just ceilings for the authorized De Minimis Benefits and not an adjustment to the existing allowances and incentives. 

What’s next:

Issuances from the DOF and BIR detailing the exact new ceilings, eligible benefits, and the implementation timeline are expected. Employers and payroll professionals will be guided on how to transition, while taxpayers await clarifications on the new rules.