Maximizing de minimis benefits and take-home pay

As featured on PhilStar:  Maximizing de minimis benefits and take-home pay

The start of the new year brings encouraging news for both employers and employees when it comes to compensation and benefits. A key development for taxpayers is Revenue Regulations (RR) No. 29-2025, which introduces an important update by raising the non-taxable limits for de minimis benefits. These benefits, which include rice subsidies, medical cash allowances, uniform and clothing allowances, laundry allowances, and employee achievement awards, have long provided practical support to employees while remaining non-taxable. By raising the limits, the regulations ensure that these benefits reflect the current cost of living and continue to offer meaningful value without increasing taxable income.

Here’s what’s new under RR 29-2025

De minimis benefits may seem modest, but together they can have a meaningful impact on an employee’s take-home pay. Under RR 29-2025, monetized unused vacation leaves for private employees increases to 12 days per year. Medical cash allowances for dependents increase to P2,000 per semester, and rice subsidies are now capped at P2,500 per month. Other allowances, such as uniforms, actual medical assistance, laundry, employee achievement awards, Christmas and anniversary gifts, and combined Collective Bargaining Agreement and productivity incentives, have also been increased. The updated limits for these benefits range from P400 per month to P12,000 per year, depending on the type of benefit. These changes allow employees to retain more of their compensation without being taxed, supporting both everyday expenses and year-end financial planning.

Comparative Summary of De Minimis Benefit Non-taxable Limits

Why This Matters

The expanded de minimis benefits translate directly to higher take-home pay without additional tax exposure. Benefits that were previously partially taxable can now be received in full, reducing surprises during annual tax reconciliation. These changes help soften the overall tax impact, particularly for rank-and-file employees who rely on non-cash benefits to manage daily expenses.

Despite the higher non-taxable limits, the tax-exempt nature of de minimis benefits remains dependent on proper classification and documentation. Employers should

ensure that these benefits are correctly reflected in the payroll records and must maintain adequate supporting documents. Without proper substantiation, otherwise exempt benefits may become taxable.

RR No. 29-2025 reflects a pragmatic approach to providing tax relief by expanding non-taxable compensation rather than adjusting income tax rates. By aligning de minimis benefits with real-world living costs, the regulation supports more predictable take-home pay, reduces year-end tax surprises, and strengthens personal financial planning.

As compensation structures evolve, both employers and employees are encouraged to better understand the tax treatment of their benefits, and not just base salary. Employees can use this insight to make informed decisions for their finances. In this sense, RR No. 29-2025 serves as a timely reminder for employers to conduct a thoughtful impact assessment not only from a tax reporting and compliance perspective, but also across payroll operations, internal policies, and overall business expense management as they transition into the new year. The updated benefits provide an opportunity for both employees and employers to enter 2026 with greater financial flexibility and a renewed focus on workplace well-being.