Is the minimum wage taxable?

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Persida Acosta

Persida Acosta

Dear PAO,
What is the proper minimum wage for employees in the private sector in Metro Manila? Are minimum wage earners required to pay income tax?
Gene

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Dear Gene,
Pursuant to Republic Act (R.A.) 6727 or the Wage Rationalization Act, the Regional Tripartite Wages and Productivity Board shall issue wage orders which indicate the minimum wage applicable to the different kinds of workers in every region or industry. However, the amount of minimum wage that an employee receives may differ depending on the kind of sector or industry where he is working. The new minimum wage rates in the National Capital Region, effective January 01, 2014, are provided in Wage Order NCR-18, to wit:

Sector/Industry    Minimum Wage Rate
Non-Agriculture
Agriculture (Plantation and Non-Plantation)
Private hospitals with bed capacity of 100 or less
Retail/Service Establishments employing 15 workers or less
Manufacturing Establishments regularly employing 15 workers or less    P 466.00
P 429.00
P 429.00
P 429.00
P 429.00

However, there are certain establishments which may be exempted from complying with the above wage order as may be determined by the board upon their application therewith. These are the following: 1) distressed establishments; 2) retail/service establishments which are regularly employing not more than ten workers; 3) establishments whose total assets including those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, are not more than P3 million; and 4) establishments adversely affected by natural calamities (Section 8, Wage Order NCR-18).

As regards your second question, minimum wage earners shall be exempted from payment of income tax on their taxable income. The holiday pay, overtime pay, night shift differential pay and hazard pay received by minimum wage earners shall likewise be exempted from income tax (Section 2, R.A. 9504). For purposes of tax exemption, a minimum wage earner shall refer to a worker in the private sector paid the statutory minimum wage or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned (Section 1, R.A. 9504).

We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts that you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net

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