This circular clarifies the taxability of the medical allowances granted to qualified government civilian personnel under (EO) No. 64, series of 2024.
Medical allowances not exceeding ₱7,000 per annum shall be granted to each qualified government personnel as a subsidy for the availment of health maintenance organizations (HMOs) benefit beginning in year 2025. It will be categorized under the Standard Allowances and Benefits component of the Total Compensation Framework in Joint Resolution No. 4, series of 2019, and Republic Act No. 11466, known as the “Salary Standardization Law of 2019. The government officials and employees already receiving HMO-based health care services are excluded from this allowance.
II. TAXABILITY OF MEDICAL ALLOWANCE
Section 2.78.1(A)(3) of Revenue Regulations (RR) No. 2-98, as amended, states that de minimis benefits provided by employers to promote employee health, goodwill, contentment, or efficiency are not considered taxable compensation.
To clarify, the medical allowances to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding ₱10,000.00 per annum falls under the de minimis benefit. The premium paid to HMO providers under EO No. 64, series of 2024, is exempt from income tax and withholding tax pursuant to Section 2.78.1(A)(3) of RR No. 2-98, as amended. However, medical allowance benefits exceeding ₱10,000 will be part of “other benefit” which is subject to the ₱90,0000 ceiling. Amounts over the ₱90,000.00 threshold shall be subject to income tax and withholding tax on compensation.