The rise of de minimis benefit ceilings

At the start of every year, we write down resolutions — promises to change habits we know are no longer working. More often than not, those resolutions are postponed, recycled, and quietly carried over from one year to the next.

Philippine tax policy has not been immune to this pattern. Although the need to revisit the ceilings for de minimis benefits has long been apparent due to inflation pressures and the rising cost of living, these thresholds remained mostly unchanged for years.

With the issuance of Revenue Regulations (RR) No. 29-2025, the Bureau of Internal Revenue (BIR) has finally moved to update the non-taxable ceilings for these benefits effective Jan. 6, 2026. The regulation marks a modest but meaningful change — and a timely way to begin the year.

De minimis benefits are facilities and privileges of relatively small value furnished by the employers to employees to promote health, goodwill, contentment, or efficiency. These benefits are exempt from income and withholding taxes; provided, they fall within the prescribed ceilings.

RR 29-2025 raises the ceilings for these tax-exempt de minimis benefits, specifically:

Monetized unused vacation leave (private employees): from 10 days to 12

Medical cash allowance to dependents: from P1,500 per semester (P250 per month) to P2,000

Rice subsidy: from P2,000 per month to P2,500 per month, or its equivalent in kind (one 50 kg. sack of rice)

Uniform and clothing allowance: from P7,000 per annum to P8,000

Actual medical assistance: from P10,000 per annum to P12,000 per annum

Laundry allowance: from P300 per month to P400

Employee achievement awards: from P10,000 per annum to P12,000

Gifts during Christmas and major anniversary celebrations: from P5,000 per employee per annum to P6,000

Meal allowance for overtime and night/graveyard shift: from 25% to 30% of the applicable basic minimum wage on a per region basis

CBA benefits and productivity incentives: from P10,000 per employee per taxable year to P12,000

While the adjustments to the individual ceilings may not appear particularly significant, when considered cumulatively — across multiple benefit categories and over the course of a year — the increase in allowable non-taxable amounts can translate into meaningful financial impact.

STRATEGIC BENEFITS DESIGN: A PLANNING OPPORTUNITY
For employers, RR No. 29-2025 presents a strategic opportunity to reassess how compensation is structured. While it does not increase wages per se, it expands the space for a more thoughtful wage and benefits structuring. This allows employers to better complement salary adjustments with tax-efficient, non-taxable benefits that boost overall employee welfare.

Across-the-board salary increases result in permanent and compounding payroll costs. These not only affect withholding taxes, but also statutory contributions and future compensation bases. In contrast, properly structured de minimis benefits — within prescribed ceilings — allow employers greater flexibility to provide targeted, non-taxable support without proportionately increasing withholding tax obligations.

Redirecting a portion of contemplated salary adjustments into allowable de minimis benefits can yield mutual benefits for employers and employees alike. For employees, this translates to higher effective take-home benefits and preserves the tax-exempt status of benefits that directly address their daily needs. For employers, this approach can help reduce other incremental payroll costs. Plus, a well-designed de minimis benefits program can support employee morale and retention and boost productivity.

For instance, benefits like medical cash allowances and rice subsidies can help ease daily expenses. In my view, making these benefits more accessible in a non-taxable form demonstrates a company’s commitment to employee well-being.

SHOULD ADDITIONAL DE MINIMIS BENEFITS BE RECOGNIZED?
RR No. 29-2025 not only updates existing ceilings, but also raises a broader question: Should the de minimis framework expand to formally recognize other common benefits?

Examples could include transportation allowances, as well as technology or connectivity support that has become integral in an increasingly digital environment. Recognizing such items within the de minimis framework, subject to reasonable limits, would not create new forms of compensation, but rather acknowledges expenses that employees already regularly incur.

Given the challenges in passing minimum wage increases, expanding de minimis benefits to address such everyday needs may be seen as a pragmatic compromise. Adjustments to the de minimis framework offer a more flexible alternative that is comparatively easier to adopt than wage legislation. Although these measures are not a substitute for wider labor reforms or fair wage adjustments, they provide a practical way to deliver targeted support to employees.

A FINAL THOUGHT: INCREMENTAL BUT IMPORTANT
The adjustments under RR 29-2025 are practical and clearly welcome. However, the fact that these thresholds remained unchanged for several years, and were subsequently adjusted only to a limited extent, suggests that the updated ceilings may still fall short of fully reflecting prevailing inflation levels.

At the same time, although the regulation may not carry the sweeping impact of other recent measures like the VAT rules on digital services, its significance should not be underestimated. Changes to de minimis ceilings generally affect all employers and employees, cutting across industries and business sizes. Precisely because of this broad reach, even incremental adjustments carry meaningful implications for compensation planning, payroll compliance, and cost management.

Whether through periodic adjustments to existing ceilings or by recognizing additional benefits over time, I hope that the BIR will continue to revisit the de minimis framework on a regular basis, to avoid lagging behind economic realities. Much like a New Year’s resolution, the real value of this change lies not only in making one adjustment, but also in the commitment to revisit and refine it over time.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Clarissa Mae Sy is a manager in the Tax Services group of Isla Lipana & Co., the Philippine member firm of the PwC global network.

+63 (2) 8845-2728

clarissa.mae.sy@pwc.com