Is PEI, CNA taxable?

Beginning FY 2016, the Productivity Enhancement Incentive (PEI) is given not earlier than December 15 of every year to all qualified government employees at Five Thousand Pesos (P5,000) each for the purpose of improving the government employees’ productivity.

As a general rule, all compensations received by a government employee is taxable, except when it is expressly exempted by law from taxation.

So, is PEI taxable? The answer is a yes and a no.

According to the Internal Revenue Code, particularly Revenue Regulation No. 1-2015, PEI combined with the benefits received by virtue of a collective bargaining agreement (CBA) is exempted from income tax; provided it does not exceed ten thousand pesos (P10,000.00).

Section 1 of the Regulation states that:

Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes [are exempt from income tax] provided that the total annual monetary value received from both CBA and productivity incentive schemes combined do not exceed ten thousand pesos (P10,000.00) per employee per taxable year.

Therefore, PEI is not taxable up to P10,000.00. However, since government employees are only entitled up to P5,000.00 of PEI, the remaining P5,000.00 may be attributed to the benefits received by government employees from collective bargaining agreement or commonly known as Collective Negotiation Agreement (CNA).

Based on the guidelines, government employees may receive up to P25,000.00 of CNA incentives per year.

[READ: Guidelines on the grant of CNA incentives]

Foregoing considered, the remaining portion of the CNA incentives, after deducting the tax-exempt P5,000.00, is further subject to the P90,000.00 tax-exempt threshold. Anything in excess of the threshold is already taxable.

[READ: Guidelines on the grant of PEI]

[YOU MAY ALSO LIKE: Step-by-Step Guide in Computing Annual Income Tax]