INCOME TAXATION

Name:_________________________________ Date:_____________________
Section:_______________________________ COMPENSATION & FRINGE BENEFIT TAX

1. As a rule, fringe benefits furnished or granted in cash or in kind b an employer to an individual employee
may be subject to the fringe benefit tax, if given to
A. Rank and File employees B. Managerial Employees C. Those holding supervisory positions
a. Only A and B
b. Only A and C
c. Only B and C
d. A,B and C
2. The fringe benefit tax is
A. Imposed on the employer B. Withheld at source C. Deductible expense by the employee
a. Only A and B
b. Only A and C
c. Only B and C
d. A,B and C
3. Which of the following is subject to the fringe benefit tax?
a. Compensation income of the rank and file employees
b. Fringe benefit of the rank and file employees
c. Compensation income of the managerial employees
d. Fringe benefit of the managerial employees

4. The following concepts denotes exemption from the fringe benefit tax, except
a. Convenience of the employer
b. Necessity to the business or trade
c. Welfare and benefit of the employees
d. De minimis benefits

5. With regard to the amount on which the fringe benefit tax rate is applied, which statement is wrong?
The tax benefit rate is applied on
A. The monetary value of the fringe benefit
B. The gross-up monetary value of the fringe benefit
C. The amount deductible by the employer from gross income
D. Both amounts of the fringe benefit and the fringe benefit tax

6. The following fringe benefits are not subject to fringe benefit tax, except
a. If required by the nature of or necessary to the trade, business or profession of the employer
b. Contribution of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans
c. Benefits given to rank and file employees
d. If given for the convenience or advantage of the employee

7. Basic rules on fringe benefits tax, except

a. Fringe benefits given to rank and file employees are not subject to fringe benefit tax
b. Fringe benefits given to a supervisory or managerial employee are subject to fringe benefit tax
c. De minimis benefits whether given to rank and file employee or to a supervisory or managerial
employee are not subject to fringe benefit tax
d. The fringe benefit tax is a tax imposed on managerial or supervisory employee

8. Which of the following statements is correct?

a. Fringe benefit given to employees is subject to fringe benefit tax
b. Fringe benefit given to employees is exempt from fringe benefit tax
c. If the fringe benefits is taxable, the tax will be paid by the employer
d. Fringe benefits may be given to managerial, supervisory and rank and file employees

9. Daily meal allowance for overtime work is a de minimis benefit if not exceeding what percent of the basic
minimum wage?
A. 10%
b. 15%
c. 20%
D. 25%
10. Facilities or privileges furnished or offered by an employer to his employees that are of 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.
a. Fringe benefit
b. fringe benefit tax
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c. de minimis benefit
d. grossed up monetary value

11. The following fringe benefits are not subject to fringe benefit tax except

a. Fringe benefits given to rank and file employees, whether granted under a collective bargaining agreement
or not
b. Contributions of the employer for the benefit of the employees to retirement, insurance or hospitalization
benefit plans
c. De minimis benefits as defined in the rules and regulation to be promulgated by the secretary of finance,
upon recommendation by the commissioner
d. Fringe benefits furnished or granted by the employer to its managerial and supervisory employees

12. Which statement is wrong? The fringe benefit tax is

a. imposed on the employer
b. imposed on the rank and file employee if the amount of the benefit exceeds the ceiling allowed by the tax
code
c. withheld at source
d. deductible by the employer

13. Alohomora Corporation gave the following cash benefits to a rank and file employee in 2018:
Uniform Allowance 8,000
Rice subsidy 28,000
Monetized unused leave credits (12days) 18,000
Safety achievement award 10,000
Medical allowance to dependents of the employee 2,000
Medical benefits 12,000
13th month pay 35,000
Christmas bonus 35,000
The fringe benefit that shall be considered part of taxable income is?

14. The following are considered as de minimis benefits granted to each employee except,
a. monetized unused sick leave credits of private employees not exceeding 10 days during the year
b. monetized unused vacation leave credits of private employees not exceeding 10 days during the year
c. monetized value of vacation leave credits paid to government officials and employees
d. Monetized value of sick leave credits paid to government officials and employees

15. Which of the following is not considered as de minimis benefits?

a. employees achievement award for length of service or safety achievement in the form of cash or gift
certificate not exceeding 10,000 per year
b. medical cash allowance to dependents of employees not exceeding 1,500 per year
c. gifts given during Christmas and major anniversary celebrations not exceeding 5,000 per year
d. medical allowance to cover medical and health care needs, annual medical/executive check up, maternity
assistance and routine consultations not exceeding 10,000 per year

16. In 2018, Stupefy corporation allowed its sales manager to incur expenses subject to reimbursement, as
follows:
Electricity (meralco)-70% in the name of A Corporation 20,000
Water (Maynilad)- 70% in the name of A corporation 2,000
Grocery (SM) 10,000
Gasoline of Company car 12,000
Representation and transportation-Business trip 4,000
The amount subject to fringe benefit tax is

17. The grossed-up monetary value of fringe benefit subject to fringe benefit tax received by a non-resident
alien individual not engaged in trade or business in the Philippines is computed by dividing the monetary
value of the fringe benefit by
a. 75%
b. 68%
c. 85%
d. 15%

18. As a means of promoting the health, goodwill and efficiency of his employees, employer A gave rank and
file employee B the following fringe benefits in 2018:
a. Monetized unused vacation leave of 15 days 15,000
b. Rice subsidy 32,000
c. Uniform and clothing allowance 8,000
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 d. Achievement award for length of service in the form of tangible personal property 15,000
e. Gifts given during Christmas and major anniversary celebrations 10,000
f. 13th month pay 68,000
The amount of fringe benefits is?

19. The employer’s deductions for the benefits given?

20. The following data belong to Accio corporation for the year 2018
a. Educational assistance to supervisors and their children 100,000
b. employer contribution for the benefit of the employees to retirement, insurance and hospitalization benefit
plans 80,000
c. Year’s rental for an apartment paid by the corporation for the use of its comptroller 120,000
The fringe benefit tax due is

21. Wingardium Laviosa Corp, a regional operating headquarter of a MNC in the Philippines provided its
employees cash and non cash fringe benefits in 2018 as follows:
Total amount of fringe benefits 1,000,000
60% of said amount was given to rank and file employees
40% of said amount was given to corporate officers as follows
a. To resident citizens (taxed at regular rates)-45%
b. To non resident aliens not engaged in business in the Philippines-35%
c. To special aliens and Filipino employees- 20%
The fringe benefit tax due is

22. Aguamenti Co., paid a monthly salary of P100,000 and the monthly rental of P68,000 for a condominium
unit for the General Manager.
Determine the monthly fringe benefit tax payable

23. Expecto Patronum Co., owns a condominium unit which is being used by the president of the corporation.
It has a fair market value per real property tax declaration of 2,100,000 and a zonal value of 3,000,000
Determine the fringe benefit tax due

24. Mr. Avada Kedavra is a mining engineer employed by Hogwarts Co., a mining firm. The company’s mine is
in Mindanao. Mr. Avada Kedavra was provided by the company with living quarters at the mine site. The
fair rental value of the living quarters is P15,000 a month.
Determine the fringe benefit tax due

25. In addition to other fringe benefits, Mr. Ferula, a chief accountant, availed of the car plan of his employer,
weasley Company. Under the plan, Mr. Ferula shouldered only 50% of the cost of the car, with the
company shouldering the other 50%. Mr. Ferula paid 340,000 for the car. The car was registered in the
name of Mr. Ferula.
Determine:
a. The fringe benefit tax due
b. The deductible expense of the employer

26. In 2018, Stupefy company purchased a 2nd hand car for its chief accountant as a fringe benefit. The cash
purchase price of the car was 120,000. The company paid 30,000 as a down payment plus four equal
annual installment of 30,000 (120,000 plus 30,000 interest). The ownership was transferred to the chief
accountant
Determine the fringe benefit tax due

27. In 2018, A sales manager, purchased a brand new car amounting to P500,000 of which P200,000 was
contributed by the company as his fringe benefit.
Determine the fringe benefit tax due

28. In 2018, Sectum Sempra Corp hired Miss Norris as sales manager for cosmetics. She was given the
following compensation and fringe benefit:
Salary 200,000/month
Three maids 4000/per maid/month
Personal driver 8,000/month
Home owner’s Association dues 1,200/year

Determine the fringe benefit tax due

29. In 2018, dumbledore the owner of hogwarts Supermarket lent 100,000 to snape, the supermarket
manager. It was stipulated in their agreement that the amount should be paid in one year with an annual
interest of 3%.
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 Determine the fringe tax due.

30. In 2018, Mr. Aperecium The Vice President for Finance of granger Corporation incurred the following
expenses in attending a 3-day foreign business convention:
Plane tickets (USA travel)
First class $1,000
Economy $500
Hotel accommodation (USA) $2700
Inland Travel $600
Assume $1.00 = 50

Determine the fringe benefit tax due assuming

31. In 2018 Hufflepuff Corporation paid for the annual rental of residential house used by its general manager
amounting to 136,000. The entry to record the benefit is
a. Fringe benefit expense 136,000
Fringe benefit tax expense 64,000
Cash 200,000

b. Fringe benefit expense 136,000

Fringe benefit tax expense 32,000
Cash 168,000
c. Fringe benefit expense 68,000
Fringe benefit tax expense 32,000
Cash 100,000
d. Fringe benefit expense 68,000
Fringe benefit tax expense 64,000
Cash 132,000
32. Identify whether or not the following are subject to fringe benefits tax:
a. Fringe benefit required by the nature of or necessary to the trade or business of the employer.
b. Fringe benefit for the convenience or advantage of the employer.
c. Fringe benefit given to rank and file employees.
d. Housing privilege of the AFP
e. Housing units situated inside or adjacent to business or factory (located within 30 meters from the
perimeter of the business)
f. Temporary housing for an employee who stays in the housing for 3 months or less.
g. Representation and entertainment allowances which are fixed in amount and regularly received by
employee.
h. Use by employee of aircraft (including helicopters) owned and maintained by the employer.
i. Cost of economy and business class airplane tickets for foreign travel.
j. De minimis benefits
k. Educational assistance granted to employees’ dependents through competitive scheme under
scholarship program of the company.
l. Cost of premiums borne by the employer for the group insurance of his employees.
m. Contribution of the employer for the employee under SSS and GSIS laws.
n. Contribution of employer for the benefit of the employee to retirement, insurance and hospitalization
benefit plans.

33. Compensation income is earned when an employer-employee relationship exist. Which of the following
income represents income earned through emploee-employer relationship?
I . Professional fees
II. Wages
III. Pension pay
IV. Capital gain
a. I only c. II and III only
b. I and III only d. I, II ,III and IV
Answer: C
I: “Professional” fess are classified as business income
IV: Capital gains are derived from sale/disposal/exchange/barter of capital assets

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34. Pedro is a member of the board of directors of ABC Company. During the current taxable year, Pedro
received director's fees amounting to P300,000 from quarterly board meetings he attended. Such fees
should
a. form part of Pedro's gross compensation income, whether or not he is at the same time an employee
of the corporation
b. form part of Pedro's gross compensation income only if he is at the same time an employee of the
corporation
c. Both “a” and “b” are correct
d. neither “a” nor “b” is correct
Answer: B

35. Which of the following compensation will be subject to graduated rates?

a. basic salary whether or not the employee is a minimum wage earner
b. basic salary only if the employee is not a minimum wage earner
c. 13th month pay and other benefits not exceeding P90,000
d. fringe benefits received by supervisory or managerial employee
Answer: B

36. Which of the following items that reduces salaries of employees is not an exclusion form gross income?
a. GSIS or SSS contributions
b. Pag-Ibig contribution
c. Labor Union Dues
d. None of the choices
Answer: D
37. One of the following compensation income of an individual taxpayer is not and exclusion from gross
income?
a. monetized vacation leaves not exceeding 10days a year
b. separation pay of an employee who resigned from his employment
c. retirement benefits of an employee under qualified benefit plan who has worked for an
employee for at least 10years, who at the time of retirement is not less than 50years of age, and who avails of
the retirement for the first time
d. all of these
Answer: B
Separation pay, in general is taxable compensation income unless the reason for the separation is beyond the
control of the employee such as but not limited
- Retrenchment
-Illness

38. Which of the following is taxable?

a. separation pay received by a 50-year old employee due to the retrenchment program of the
employer
b. retirement pay from a benefit plan registered with the BIR where at the time the employee retired, he
was 57 years of age, retiring from the employment for the first time in his life, and was employed with the
employer for 8 years
c. social security benefit received by a balikbayan from employer abroad
d. none of the above
Answer: B

39. Statement 1: Amounts received by reason of involuntary separation remain exempt from income tax even if
the official or employee at the time of separation has rendered less than ten(10) years of service and/or
below fifty (50) years of age
Statement 2: Any amount received by an official or employee or by his heirs from the employer due to
death, sickness or other physical disability or for any cause beyond the control of the said official or employee,
such as retrenchment, redundancy or cessation of business are exempt from income tax.
a. both statements are correct
b. both statements are not correct
c. only the first statement is correct
d. only the statement is correct
Answer: A

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40. The taxpayer was retired by his employer in 2016 and paid P2,000,000 as a retirement gratuity without any
deduction for withholding tax. The corporation became bankrupt in 2018. Can BIR subject the P2,000,000
retirement gratuity to income tax in 2018?
1st Answer: Yes, if the retirement gratuity was paid based on a reasonable pension where the taxpayer
was 50 years old and has served the corporation.
2nd Answer: No, if the taxpayer was forced by the corporation to retire

a. 1st and 2nd answers are correct

b. 1st answer is correct but 2nd answer is wrong
c. 1st answer is wrong but 2nd answer is correct
d. 1st and 2nd answers are wrong
Answer: D
1st Answer is wrong. To be exempt, the retirement pay must be based on a reasonable retirement plan
and the employee must be at least 50 years old and should have served the company for at least 10 years
2nd Answer is wrong. Thew rules on tax exempt retirement pay and separation pay are different. 2nd
statement is applicable to separation pay rather than retirement pay.

41. JJ, an official of Excel Corporation, asked for an earlier retirement because he was immigrating to Canada
with his girlfriend. He was paid P3,000,000 as separation pay in recognition of his valuable services to the
corporation. Paul, another official of the same company was separated for occupying a redundant position.
He was given P1,000,000 separation pay to retire for the first time. He received P2,000,000 retirement pay.
Total income subject to withholding tax is _______.
a. P1,000,000 c. P 3,000,000
b. P2,000,000 d. P6,000,000
Answer: C

42. Which among the following is part of the taxable income of an employee?
I. Insurance premium provided by employer on the life insurance policy of the employee where the
designated beneficiary is the relative of the employee
II. Insurance premium pay paid by employer on the life insurance policy of the employee where the
designated beneficiary is the employer
III. The income tax of the employee paid by the employer as part of the employee's benefit
IV. The income tax of the employee advanced by the employer, deductible against future income of the
employee.
a. I only c. II and III only
b. I and III only d. III only
Answer: B

43. Statement 1: Remuneration for services constitutes compensation income even if the relationship of the
employer and employee does not exist at the time when payment is made between the person in whose
employ the services had been performed and the individual who performed them.
Statement 2: In general, fixed or variable allowances which are received by a public compensation,
fixed for his position or office , is compensation subject to income tax and consequently creditable withholding
tax on compensation income

a. both statements are correct

b. both statements are incorrect
c only the first statement is correct
d. only the second statement is correct
Answer: A
Statement 2: Basis: Section 2.78.1(A) of RR 2-98 as amended by RR 10-2008. Example of
fixed or variable allowances are transportation allowance, representation allowance, communication
allowance, living away from home allowance (LAFHA), and the like.

44. Statement 1: Representation and Transportation Allowances (RATA) granted under Section 34 of the
General Appropriations Act to certain official and employees of the government are considered
reimbursement for the expenses incurred in the performance one's duties rather than as additional
compensation.
Statement 2: The excess of RATA in statement 1, if not returned to the employer, constitutes taxable
compensation income of the employee
Statement 3: COLA of minimum wage earners is exempt from income tax
a. all statements are correct
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 b. All statements are incorrect
c. Only statement 3 is correct
d. only statement 3 is incorrect
Answer: A
The COLA forms a part of the new wages rates of or statutory minimum wage. Hence, it is covered by the
income tax exemption of MWEs under RA 9504, as implemented by Revenue Regulations No. 10-08, which
covers the statutory minimum wage (inclusive of COLA under NCR wage Order No. NCR-16), including holiday
pay, overtime pay, night shift differential pay and hazard pay.

45. Juana, widow received the following during 2018:

• Received $400 (1$=P44) monthly interest income from the pension plan of his deceased husband who
served in the US Army for 20years
• Won a beauty contest “Miss Byuda 2018”. She received the following cash Prizes:

 Cash prize P50,000

 Free-trip abroad worth P50,000
 College scholarship with international College of Business and Economics worth P100,000
 Goods worth P20,000
• P100,000 from her debtor in payment of a loan and interest in the sum of P15,000.
• Inherited from her grandmother a lot and apartment valued at P2,500,000 from which she is receiving
monthly rental of P15,000

The income subject to tax is -

a. P415,000 c. P250,000
b. P679,000 d. P515,000
Answer: B
Solution:
Monthly interest on pension ($500 x P44 x 12) P264,000
Total prizes received from a beauty contest 220,000
Interest from a debtor 15,000
Rental income in inherited apartment (P15,000 x 12) 180,000
Total income subject to tax P679,000
The question was income subject to tax. Therefore, it shall include all types of income subject to
income tax (regardless of the type of income tax; Basic, FWT, CGT)

46. Statement 1: The stipends received by resident physicians during their intensive training in the residency
program of a hospital are subject to creditable withholding tax on compensation income.
Statement 2: Reasonable amounts of the reimbursements/advances for traveling and entertainment expenses
which are pre-computed on a daily basis and are paid to an employee which
a. All statements are correct
b. All statements are incorrect
c. only statement 3 is correct
d. only statement 3 is incorrect
Answer: A
Statement 1: Pursuant to Section 2.57.2 (A)(1) of RR 2-98. Under Section 2.57.2(A)(1) of RR 2-
98.

47. Statement 1: Tips or gratuities paid deirectly to an employee by a customer of the employer that are not
accounted fotr by the employee to the employer are considered as taxable income subject to basic tax
Statement 2; The tips described in statement 1 shall not be subject to withholding tax for the reason
that the tips are not accounted by the employee to the employer.
a. both statements are correct
b. both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct
Answer: A Basis: RR 2-98

48. As a means of promoting the health, goodwill, contentment and efficiency of his employees, employer pa-
fall gave rank and file employee na-fall the following fringe benefit in 2014:
a. Monetized unused vacation leave of 15 days 45,000
b. Rice subsidy 36,000
c. Uniform and clothing allowance 15,000

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d. Achievement award for length of service in the form of
tangible personal property 20,000
e. Gifts given during Christmas and
anniversary celebrations 20,000
f. Medical benefits 20,000
g. 13th month pay 60,000
h. Laundry allowance 5,000
i. Mid year bonus 60,000
j. Productivity bonus 80,000
k. basic pay before deductions 250,000
l. SSS,Pag-ibig,philhealth contributions 20,000

Determine the taxable benefits of na-fall before personal exemption.

Determine the taxable benefits before exemption if the employee is a government employee

49. Paasa a minimum wage earner received the following from UMASA corporation in the year 2017

Basic Pay-Minimum wage 60,000

Holiday Pay 5,000
Hazard Pay 10,000
Night shift differential 8,000
13th month pay 5,000
Productivity incentive 2,000
Uniform allowance 6,000
Rice subsidy 23,000
Mid year bonus 5,000
Overtime pay 7,500
Commission from sales 4,000
Paid used leave credits(not included in the basic pay) 2,000
Paid Unused vacation leave-12 days 4,200
Net income from a sari-sari store 50,000

1. Determine the taxable income of PAASA before personal exemption

2. If the abovementioned income were received in the year 2016, how much is the taxable income?

50. The following are the employees of Cecile’s Convenience Store owned by Cecile Acosta as May 1, 2018:
Name of Employee Position Monthly Salary
Campos, Mark, Daniel Manager 42,000
David, Kathrina Senior Cashier 25,200
Maghinang, Russel Cashier 23,500
Mercado, Jean Michael Driver 20,900
Tadeo, Mary Antonette Clerk 18,000

Assume that income taxes are withheld on a semi-monthly basis and the statutory deductions are subtracted
from the gross pay on the payroll date nearest to the end of the month. Compute the net pay of each employee

Regular Income Tax Table

Range of Taxable Income Income Tax Due = B + (R * E)

Bracket Additional Rate Excess Over

Over Not Over Basic Amount (B)
(R) (E)
1 - P250,000 - - -

2 P250,000 P400,000 - 20% 250,000

3 P400,000 P800,000 30,000 25% 400,000

4 P800,000 P2,000,000 130,000 30% 800,000

5 P2,000,000 P8,000,000 490,000 32% 2,000,000

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 6 P8,000,000 - 2,410,000 35% 8,000,000

Revised Withholding Tax Table

Daily 1 2 3 4 5 6

Compensation Level 685 and 685 1,096 2,192 5,479 21,918

(CL) below

Prescribed Minimum 0.00 0.00+20% 82.19+25% over 356.16+30% over 1,342.47+32% 6,602.74+35% over
Withholding Tax over CL CL CL over CL CL

Weekly 1 2 3 4 5 6

Compensation Level 4,808 and 4,808 7,692 15,385 38,462 153,846

(CL) below

Prescribed Minimum 0.00 0.00+20% 576.92+25% over 2,500.00+30% 9,423.08+32% 46,346.15+35%

Withholding Tax over CL CL over CL over CL over CL

Semi-Monthly 1 2 3 4 5 6

Compensation Level 10,417 and 10,417 16,667 33,333 83,333 333,333

(CL) below

Prescribed Minimum 0.00 0.00+20% 1,250.00+25% 5,416.67+30% 20,416.67+32% 100,416.67+35%

Withholding Tax over CL over CL over CL over CL over CL

Monthly 1 2 3 4 5 6

Compensation Level 20,833 and 20,833 33,333 66,667 166,667 666,667

(CL) below

Prescribed Minimum 0.00 0.00+20% 2,500.00+25% 10,833.33+30% 40,833.33+32% 200,833.33+35%

Withholding Tax over CL over CL over CL over CL over CL

PHIC TABLE

Monthly Salary * 2.75% Monthly Premium Personal Share Employer’s Share

P10,000 and below P275.00 P137.50 P137.50

P10,000.01 up to P39,999.99 P275.00 up to P1,099.99 P137.50 up to P549.99 P137.50 up to P549.99

P40,000 and above P1,100.00 P550.00 P550.00

HDMF TABLE

Percentage of Monthly Compensation

Monthly Compensation
Employee Share Employer Share
P1,500 and below 1% 2%

Over P1,500 2% 2%

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 SSS TABLE

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