Facts:
-Company for the past 7 years provide meals routinely to those who worked overtime whether exempt or non-exempt employees.
- A local policy was agreed upon allowing payment of meals only if there was prior approval from the department manager and only in instances where the manager asked the employee to work overtime for late hours.
- The company standard chart of accounts reflects an Account Code - Employee Meals (Employee Benefits). The account's definition is: "Payment for employees meals incurred during overtime, or where required by law. Must be approved and for the benefit or at the request of the Church entity, or required by law."
Issue:
Whether or not there is any income tax liability to the Employee-recipients of the meal benefit if the Company would charge the Meals against the account Employees Meals/Employees Benefits?
Legal Opinion:
No. Since the meals during overtime are given by the Employer within the business premises and is furnished to have the employees available for work during his meal period, the same is EXEMPT from Employer's FRINGE BENEFITS TAX (FBT) as well as from Employees GROSS INCOME and hence NON- TAXABLE as INCOME OF EMPLOYEES.
The issue on OVERTIME MEALS have two implications relative to the issue of its taxability: First, is Fringe Benefits Tax payable by the Employer and Secondly, the income tax on the equivalent value received by the Employees.
Employer's Exempt from FBT
Under the NIRC, the Fringe Benefits granted to the employee (other than rank and file employee) is taxable to the employer unless exempted. (Sec. 33 (A) NIRC). As a general rule fringe benefits are subject to a final tax to be paid by the employer unless exempted. The rate is: 32% effective Jan. 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.
Based on the law, there are kinds of fringe benefits that are NOT TAXABLE or NOT SUBJECT TO FBT.
a) Fringe benefits which are authorized and exempted from income tax under the tax code or special law.
b) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans.
c) Benefits granted to the rank and file employees.
d) De Minimis benefits as defined in the Rules and Regulation of the Secretary of Finance upon BIR recommendation.
The Company can claim for exception under item c and d.
The overtime meals provided to rank and file are exempt from fringe benefit tax. And the remaining amount, could qualify as De Minis benefits and hence not subject to the said fringe benefits tax.
The term "de minimis" benefits which are exempt from fringe benefits tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are relatively 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.
With this, the Company in providing the overtime meals will not be subject to FBT. However, the exemption of any fringe benefit from FBT shall not be interpreted to mean exemption from any other income tax imposed under the NIRC except if the same is likewise EXPRESSLY EXEMPT from any other income impose under the same Code or under any other existing law.
Value of the Meal received by the employees Not Part of Employees' Income
Under the law, the value to the employee of such meals so furnished shall be added to his compensation income for tax purposes. (Sec 2.78.1(2) Rev. Regs. No. 2-98) except when the same is furnished for the convenience of the employer. The convenience of the employer rule is considered as a basis for exemption both for the fringe benefits tax as well as for fringe benefits that are subject to compensation income.
There are two conditions for application of Convenience of Employer Rule where employer furnished MEALS not considered part of the Employee's Gross Income:
a) Furnished on the Employer's business premises
b) Furnished for the Convenience of the Employer ( To have the Employee available for work during his meal period) (No.2.3, RAMO N. 1-87)
Based on the foregoing, I am of the opinion that the overtime meals provided by the Company for those Employees During Overtime Work are exempt from either the Employer's Fringe Benefit Tax or from Employees Gross Compensation income. Thus, the Company can charge the expense on the Employees Meal/Employees Benefit.
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