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Tax Refund or Tax Payable?
After receiving your 13th Month Pay, perhaps the other much-awaited payment you are longing to receive is the Tax Refund. However, not all workers are entitled to a Tax Refund.
13th Month Pay
13th MONTH PAY
A lot of people are asking me about 13th Month Pay, some of them are employees, some are employer, and some are professional and/or contractual. For common reference of everyone, I have compiled my answers on those queries.
I. DEFINITION
It is a mandatory benefit provided to employees pursuant to Presidential Decree No. 851 which requires employers to grant 13th month pay to all its rank and file employees, no later than December 24 of each year.[1]
II. REQUISITE
By analyzing the definition of 13th Month Pay, we may arrive on the general requisite to receive such bonus, as follows:
NO.1 – ONLY EMPLOYEES ARE ELIGIBLE TO RECEIVE 13th MONTH PAY
The major requisite to be entitled for 13th Month Pay is the establishment that there is an employer-employee relationship between you and your employer.
Employer-employee can be identified as it may be explicitly stated in the contract. However, in the absence of such statement, one can identify by using the four-fold test [2]
(a) the selection and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employer’s power to control the employee on the means and methods by which the work is accomplished
In the absence of employer-employee relationship, you cannot demand for 13th Month Pay from your employer. However, if 13th Month Pay was received in the absence of employer-employee relationship, such shall be form-part of your business income and not to be considered as compensation income.
NO.2 – THE EMPLOYEE HAVE WORKED FOR AT LEAST ONE (1) MONTH
Upon establishment of employer-employee relationship, you have to identify the duration that you have worked for the Company. If it’s at least one (1) month from your stating date, then you may be qualified to 13th Month Pay.
NO. 3 – RANK AND FILE EMPLOYEES ARE ENTITLED TO RECEIVED
After establishing that two requisite are present, you have to know if your position in the organizational chart. The labor code is clear that only RANK AND FILE EMPLOYEES are entitled to receive the 13th Month Pay, hence the Company may opt not to give 13th Month Pay to employees who have title as Managers or Supervisory. The labor code defines such as follows:
“Managerial employee” is one who is vested with the 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.
All employees not falling within any of the above definitions are considered rank-and-file employees for purposes of this Book.
–Art. 212. Definitions OF LABOR CODE
Take note that the law provides the minimum requirement only, hence the company has the prerogative whether who will receive the 13th Month Pay and whether it will exceed the minimum amount required by the law.
III. TAXABILITY
13th Month Pay is not automatically considered tax exempt since it shall form-part of the non-taxable benefits (bonus) of P90,000 as mentioned on the tax code, to wit:
“(e) 13th Month Pay and Other Benefits. — Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed Ninety thousand pesos (P90,000) which shall cover:
“(i) Benefits received by officials and employees of the national and local government pursuant to Republic Act No. 6686;
“(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986;
“(iii) Benefits received by officials and employees not covered by Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and
“(iv) Other benefits such as productivity incentives and Christmas bonus.”
-Section 32 (E) of National internal revenue code, as amended
Hence, any excess of the sum of item i to item iv to P90,000 shall form part of taxable income and consequently subject to withholding tax on compensation.
Disclaimer: This blog was created to guide the readers only and shall not be considered as substitute for an expert opinion. It is advisable to contact your preferred consultant on this matter.
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[1] http://bwc.dole.gov.ph/faqs-on-13th-month-pay
[2] https://www.projectjurisprudence.com/2019/07/the-four-fold-test-in-labor-law.html
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