How to Compute Fringe Benefits Tax: The 35% Grossed-Up Monetary Value Formula

Fringe benefits tax is a 35% final tax the employer — not the employee — pays on the grossed-up monetary value of a non-cash perk given to a managerial or supervisory employee. Under NIRC Section 33, the tax isn’t computed on the benefit’s face value directly; the monetary value is first “grossed up” by dividing it by 65%, and the 35% rate is applied to that larger, grossed-up figure.

For how this interacts with de minimis benefits and rank-and-file compensation, see De Minimis Benefits vs. Fringe Benefits Tax: How to Tell Which One Applies and Why Fringe Benefits Tax Applies to Managers, Not Rank-and-File Employees.

What does NIRC Section 33 actually require? #

Section 33 imposes the final tax directly on the employer, not as a withholding obligation on the employee’s compensation, and it is computed on a grossed-up — not face — value of the benefit. As commonly cited from Section 33 of the Tax Code, as amended:

“A final tax of thirty-five percent (35%) effective January 1, 2018 and thereafter, is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer, whether an individual or a corporation.”

The rate moved from 32% to 35% effective January 1, 2018 under the TRAIN Law (RA No. 10963), with RR No. 11-2018 implementing the change and the corresponding shift in the gross-up divisor from 68% to 65%. The 35% rate and 65% divisor are the figures currently in effect.

The grossed-up monetary value formula #

The formula has two steps: gross up the monetary value of the benefit, then apply the 35% final tax to that grossed-up figure.

1. Monetary value (MV) — the actual cash value of the benefit, or, for a benefit like a company car or housing, the amount the employer actually spent or the fair rental value attributable to the employee’s personal use.
2. Grossed-up monetary value (GUMV) — MV ÷ 65%.
3. Fringe benefits tax (FBT) — GUMV × 35%.

Because GUMV is derived by dividing by 65% rather than multiplying by 35%, the tax and the net benefit always add up to the full grossed-up amount: FBT is exactly 35% of GUMV, and MV is the remaining 65%.

Worked example: a company condo unit for personal use #

A corporation lets its branch manager use a company-owned condo unit for personal residence. The portion of the unit’s monthly rental value attributable to the manager’s personal use (as distinct from any portion used for company business) is determined to be ₱65,000 for the month.

The company remits ₱35,000 in fringe benefits tax for that month on this benefit alone, on top of whatever other compensation and withholding obligations apply to the manager’s regular salary. The manager receives the full ₱65,000 value of housing without any portion of this ₱35,000 deducted from their own pay — the tax is entirely the employer’s final liability, separate from the employee’s own income tax.

When fringe benefits tax doesn’t apply #

The benefit has to clear two tests before the 35% tax applies at all: the recipient has to be managerial or supervisory, and the benefit itself has to fall outside the excluded categories.

• Rank-and-file employees — the same benefit given to a rank-and-file employee is ordinary taxable compensation subject to withholding tax on compensation, not fringe benefits tax.
• De minimis benefits — benefits within the regulatory ceilings set by RR No. 11-2018 (certain allowances, uniforms, medical benefits, and similar items up to specified limits) are excluded regardless of rank.
• Convenience-of-the-employer benefits — a benefit furnished primarily for the employer’s business necessity, such as housing required at a remote job site, is generally excluded.
• Statutory and retirement contributions — employer contributions to SSS, GSIS, PhilHealth, Pag-IBIG, and BIR-qualified retirement plans are excluded from fringe benefits tax.

Frequently asked questions #

Who actually pays fringe benefits tax — the employer or the employee? #

The employer pays it, and it’s a final tax, not a credit the employee claims. NIRC Section 33 makes the employer liable for the fringe benefits tax on the grossed-up monetary value of the benefit, which is why it’s remitted through BIR Form 1603Q rather than through the employee’s own income tax return.

Why is the tax computed on a grossed-up value instead of the benefit’s actual cost? #

Because the benefit is paid net of tax to the employee — the employee receives the full value of the perk without any tax deducted from it. Grossing up the monetary value to 100% before applying the 35% rate ensures the final tax reflects what the benefit would have cost on a before-tax basis, consistent with how a final tax is meant to fully settle the liability.

Does fringe benefits tax apply to all employees? #

No. Under NIRC Section 33 and RR No. 11-2018, fringe benefits tax applies only to benefits given to managerial or supervisory employees. The same benefit given to a rank-and-file employee is treated as ordinary taxable compensation subject to withholding tax on compensation instead, not fringe benefits tax.

Are all benefits given to a manager subject to fringe benefits tax? #

No. De minimis benefits within regulatory limits, benefits required by the nature of the business or for the employer’s convenience, and contributions to SSS, GSIS, PhilHealth, Pag-IBIG, and similar statutory or retirement plans are excluded from fringe benefits tax regardless of rank.

What’s the grossed-up divisor, and does it ever change? #

For a citizen, resident alien, or non-resident alien engaged in trade or business, the monetary value is divided by 65% (100% minus the 35% final tax rate) to get the grossed-up monetary value. A different divisor applies to fringe benefits given to certain non-resident aliens not engaged in trade or business and to employees of specific regimes, so the applicable rate should be confirmed for those categories before computing.

Summary #

Fringe benefits tax under NIRC Section 33 is a 35% final tax the employer pays on the grossed-up — not face — monetary value of a non-cash perk given to a managerial or supervisory employee, computed as MV ÷ 65% × 35%. It’s a final, employer-borne tax separate from the employee’s own income tax, and it doesn’t apply to rank-and-file compensation, de minimis benefits, or employer-convenience arrangements. For the related compensation-side rules, see De Minimis Benefits vs. Fringe Benefits Tax: How to Tell Which One Applies and Car Allowance vs. Company Car: Why One Is Taxable Compensation and the Other Is Fringe Benefits Tax.