Is a Per Diem or Field Allowance Taxable? BIR Rules on Liquidated vs Fixed Allowances

A per diem or field allowance is not taxable when it is a liquidated reimbursement — the employee accounts for actual expenses with receipts and returns any unspent excess — but it is fully taxable compensation when it is a fixed amount paid regardless of actual spending. This accounting test, not the employee’s job title, decides the outcome. A common mix-up: assuming that because an employee is classified as “field personnel” under the Labor Code — a worker whose field hours can’t be checked with reasonable certainty — their per diem must automatically be tax-free. It isn’t. Labor-law field personnel status and BIR taxability are two separate questions answered by two separate rules.

What is a per diem or field allowance? #

A per diem or field allowance is a daily payment an employer gives an employee who works away from the principal office — commonly a sales representative, service technician, auditor, or field engineer — meant to cover meals, local transport, and small incidental costs incurred while out in the field. It is distinct from a one-time travel advance for a specific trip, though the same liquidated-vs-fixed test applies to both; this post focuses on the recurring, field-role version of the allowance.

Why “field personnel” status doesn’t decide the tax question #

“Field personnel” is a Labor Code term, not a BIR category — it excludes certain workers from overtime pay and related working-conditions provisions, and has nothing to do with how their allowances are taxed. Article 82 of the Labor Code of the Philippines defines the term this way:

“‘Field personnel’ shall refer to non-agricultural employees who regularly perform their duties away from the principal place of business or branch office of the employer and whose actual hours of work in the field cannot be determined with reasonable certainty.”

That definition exists to decide a labor-standards question — whether an employee’s hours can be verified closely enough to compute overtime pay — and the Supreme Court has applied it narrowly (for example, finding company drivers directed to deliver at fixed times and places were not field personnel, since their hours could in fact be verified). It says nothing about income tax. A field engineer who qualifies as “field personnel” under Article 82 and a desk-based accountant are evaluated by the exact same BIR test when it comes to a per diem or allowance: is it liquidated, or is it fixed?

The BIR test: liquidated vs fixed #

The BIR does not ask what an allowance is called or who receives it — it asks whether the employee had to account for and liquidate the amount, returning any unspent excess, or simply kept a fixed sum regardless of actual spending. Revenue Regulations (RR) No. 2-98, as amended, treats a properly substantiated and liquidated advance or reimbursement for travelling, representation, and similar ordinary and necessary business expenses as excluded from compensation subject to withholding tax — the same general principle under the National Internal Revenue Code (NIRC) that a true reimbursement of a business expense already incurred is not income to the employee, since nothing of economic value passes to them beyond making the company whole for its own cost. A fixed, non-accountable per diem fails that test entirely: the employee receives it no matter what was actually spent, which makes it additional pay rather than a reimbursement.

This site’s companion post, Are Per Diems and Travel Allowances Taxable?, walks through the liquidation mechanics and a one-off business-trip example in more detail; this post focuses on the recurring field-allowance case and the field-personnel misconception specifically.

A 2023 BIR ruling on field engineers’ per diems #

A company that sent field engineers to client sites, locally and abroad, and paid them a per diem for meals and incidental expenses asked the BIR whether that per diem was subject to withholding tax on compensation or Fringe Benefits Tax. Trade press coverage of a 2023 BIR ruling on that request (the exact ruling number is reported inconsistently across secondary sources, so it is not cited here) describes the BIR finding that the per diem, while arising from the employer-employee relationship, was incurred in the performance of the engineers’ duties and functioned as the employer’s own ordinary and necessary business expense — so it was not subject to withholding tax on compensation or Fringe Benefits Tax. The outcome still turned on the same substance-over-form question this post is built around: the amount was reasonable, tied to actual field duty, and documented — not exempt simply because the recipients were field-based employees.

Worked example: fixed field allowance vs liquidated travel advance #

Two employees of the same company each incur field expenses in the same week. The figures are fictional, for illustration only.

• Employee A — fixed field allowance: Receives a flat ₱2,000 daily field allowance for every day spent visiting clients, with no requirement to submit receipts or return any unused portion. The full ₱2,000 per day is added to taxable compensation for that payroll period and run through ordinary withholding tax on compensation, regardless of what Employee A actually spent.
• Employee B — liquidated travel advance: Receives a ₱2,000 cash advance for a single field day, then submits ₱1,800 in actual receipts (transport, meals, parking) and returns the unused ₱200 to the company’s cashier. The ₱1,800 properly liquidated amount is excluded from compensation entirely — no withholding tax applies to any part of it — and the returned ₱200 was never income to Employee B in the first place.

Same purpose, same rough amount, same employer — but only Employee B’s allowance escapes withholding, because only Employee B’s was accounted for and liquidated.

Where this fits with payroll and other allowances #

A fixed field allowance that becomes taxable compensation is simply added to the rest of that period’s pay and run through the BIR withholding tax table, the same as regular salary. It’s also worth distinguishing a per diem from a de minimis benefit: items like the rice subsidy or laundry allowance have their own small tax-exempt ceilings under BIR rules, covered in De Minimis Benefits: BIR Limits, but a travel or field per diem is not on that list at all — it’s either fully excluded as a liquidated reimbursement or fully taxable, with no partial ceiling to fall back on. And if a fixed, non-accountable allowance is instead given to a managerial or supervisory employee, it shifts from ordinary withholding into Fringe Benefits Tax territory — see Fringe Benefits Tax: Rank-and-File vs Managerial for that distinction.

Frequently asked questions #

Is a per diem taxable in the Philippines? #

It depends on how it’s paid, not on what it’s called. A per diem or field allowance that the employee liquidates with receipts for actual, ordinary and necessary business expenses — returning any unspent excess — is not taxable compensation. A fixed per diem paid regardless of actual expense, with nothing to liquidate or return, is taxable compensation subject to withholding.

Does being classified as “field personnel” under the Labor Code make an allowance tax-exempt? #

No. “Field personnel” is a Labor Code coverage exclusion under Article 82 that removes certain workers from overtime pay and similar working-conditions provisions because their field hours can’t be verified with reasonable certainty. It has no bearing on how the BIR taxes a per diem or field allowance that employee receives — that question is decided separately, by whether the payment is a liquidated reimbursement or a fixed allowance.

What’s the legal basis for treating a liquidated reimbursement as non-taxable? #

Revenue Regulations No. 2-98, as amended, treats a properly substantiated and liquidated advance or reimbursement for travelling, representation, and other bona fide ordinary and necessary business expenses as excluded from compensation subject to withholding tax, consistent with the general income tax principle that a true reimbursement of a business expense is not income to the employee receiving it.

Is a per diem paid to field engineers or sales representatives automatically non-taxable? #

No, not automatically. A 2023 BIR ruling on a company’s field engineers found their per diems for meals and incidental field expenses were not subject to withholding tax on compensation because they were tied to actual duties and treated as the employer’s ordinary and necessary business expense — but that outcome still rested on the per diem being reasonable, duty-connected, and properly documented, not on the employees’ field-personnel job description alone.

What happens if an employee doesn’t liquidate or return unused per diem? #

An amount that isn’t liquidated, or that the employee keeps without returning the unspent portion, loses its character as a reimbursement and is treated as taxable compensation — subject to withholding tax on compensation for a rank-and-file employee, or Fringe Benefits Tax if given to a managerial or supervisory employee.

Summary #

A per diem or field allowance is taxed on how it’s paid, not on the employee’s role: a liquidated reimbursement, receipted and with any excess returned, is excluded from compensation under RR No. 2-98; a fixed, non-accountable per diem is taxable compensation (or a fringe benefit for managerial staff) regardless of how legitimate the underlying field work was. “Field personnel” status under Labor Code Article 82 answers a completely different question — overtime coverage, not tax treatment — and should never be used as a shortcut to call an allowance tax-exempt. For the deeper mechanics of liquidation and a one-off travel-advance example, see Are Per Diems and Travel Allowances Taxable?.