PH Tax Update: RR No. 29-2025 and What Business Owners Should Do in January 2026

PH Tax Update: RR No. 29-2025 and What Business Owners Should Do in January 2026

As we start January 2026, Philippine business owners should be aware of a tax update that directly affects employee benefits, payroll, and withholding taxes. On December 22, 2025, the Bureau of Internal Revenue issued Revenue Regulations (RR) No. 29-2025, updating the rules on de minimis benefits or employee benefits that can be given tax-free, as long as they stay within prescribed limits. This matters now because many businesses are finalizing payroll structures and benefit policies for the year.

What RR No. 29-2025 Means (In Simpler Terms)

RR No. 29-2025 does not introduce new benefits. It increases and clarifies the maximum amounts that can be treated as non-taxable for certain common employee benefits. When applied correctly:

• These benefits are not subject to income tax
• They are not subject to withholding tax
• They do not increase employer payroll tax exposure

When applied incorrectly:

• Any excess becomes taxable compensation
• Employee tax increases
• Employer audit and compliance risk increases

What Changed: De Minimis Benefits (Before vs After)

De Minimis Benefit	Previous Limit	Updated Limit
Vacation leave conversion (private employees)	Up to 10 days	Up to 12 days
Medical allowance (dependents)	₱250 per month	₱333 per month
Healthcare assistance	₱10,000 per year	₱12,000 per year
Rice subsidy	₱2,000 per month	₱2,500 per month
Laundry allowance	₱300 per month	₱400 per month
Uniform / clothing allowance	₱7,000 per year	₱8,000 per year
Meal allowance (OT / night shift)	25% of daily minimum wage	30% of daily minimum wage
Employee achievement awards	₱10,000 per year	₱12,000 per year
Christmas / anniversary gifts	₱5,000 per year	₱6,000 per year
CBA / productivity incentives (combined)	₱10,000 per year	₱12,000 per year

Amounts within these updated limits remain non-taxable. Any excess is treated as taxable compensation.

Why This Matters for PH Business Owners?

For many businesses, employee benefits quietly make up a material portion of total payroll costs. This update gives employers:

• More flexibility to support employees without increasing taxes
• Clearer boundaries on what is safe vs. taxable
• An opportunity to review and clean up payroll structures early in the year

How Does This Apply in Practice?

The increase in de minimis thresholds does not mean employers should automatically change compensation packages.

1. Reviewing Existing Payroll Structures

Some allowances were previously taxed simply because they exceeded prior limits. Under RR No. 29-2025, a larger portion may now qualify as non-taxable, reducing both employer cost and employee withholding tax, without changing total compensation.

2. Structuring Compensation for New Hires

For new employees, part of the total compensation may be thoughtfully allocated to de minimis benefits instead of basic pay, provided that:

• The total compensation package remains the same
• Updated non-taxable limits are not exceeded
• Changes are documented and agreed upon

This can improve net take-home pay while keeping employer costs under control. That said, this is not a purely tax decision. Some benefits (e.g., 13th-month pay) are tied to basic salary; any adjustments should be deliberate and aligned with company policy.

What Does This Look Like in Numbers?

To illustrate, here’s an example of how RR No. 29-2025 affects a typical monthly allowance structure, based on real payroll scenarios reviewed by our payroll team.

Scenario Overview

An employee receives a total monthly allowance of ₱7,258.44. Below is how the de minimis portion of that allowance can now be structured under the updated rules.

De Minimis	Old	New
Medical Allowance	₱250.00	₱333.00
Rice Subsidy	₱2,000.00	₱2,500.00
Uniform Allowance	₱500.00	₱666.67
Laundry Allowance	₱300.00	₱400.00
Total	₱3,050.00	₱3,899.67

Before RR No. 29-2025

• Only ₱3,050 of the allowance could be treated as non-taxable
• The excess had to be classified as a taxable allowance
• This resulted in higher withholding tax for the employee

After RR No. 29-2025

• The non-taxable portion increases to ₱3,899.67
• A smaller portion of the allowance is now taxable
• This leads to lower withholding tax, with no change in total compensation package

Total compensation remains the same, but the tax treatment improves.

Before vs After: Sample Payroll Impact

Item	Before (Old Limits)	After (RR No. 29-2025)	Variance
Non-taxable de minimis portion	₱3,050.00	₱3,899.67	+₱849.67
Taxable allowance portion	₱5,611.26	₱4,478.57	–₱1,132.69
Monthly withholding tax*	Higher	Lower	– ~₱283
Total employee compensation	Same	Same	No change

*Illustrative average based on anonymized sample payroll data. Actual impact varies by tax bracket and compensation structure.

What This Means for Employers and Employees

For Employers

• Reduce unnecessary payroll tax leakage
• Lower gross-up costs on allowances
• Improve payroll efficiency without increasing total compensation
• Maintain compliance while offering competitive benefits

This is especially relevant for businesses with:

• Allowance-heavy compensation structures
• Growing teams
• Payroll setups that haven’t been revisited in years

For Employees

• Lower withholding tax on the same compensation
• Improved net take-home pay
• Clearer classification of benefits
• Fewer year-end payroll adjustments

When payroll is structured correctly, employees benefit immediately, without the company incurring additional costs. The key point: this is not a benefit increase; it’s a tax-efficiency correction.

What We Recommend Doing This January?

1. Review current benefits and allowances Identify which items qualify as de minimis and whether they now fall within the updated limits.
2. Align HR, Finance, and Payroll Policies, payroll setup, and tax treatment must be consistent.
3. Be deliberate with any restructuring Changes should be documented, agreed upon, and aligned with employee expectations.
4. Confirm payroll tax classification Ensure taxable and non-taxable items are correctly mapped starting January.
5. Keep documentation ready Proper records matter in case of a BIR review.

CloudCFO’s Take

RR No. 29-2025 is a practical update, not just a technical one. It allows businesses to be more intentional in how they reward employees, without creating unnecessary tax exposure. The value lies not in aggressive restructuring, but in applying the rules correctly and intentionally. If you’re unsure whether your current payroll and benefits setup is fully aligned with RR No. 29-2025, we recommend reviewing it early in the year. You may contact our payroll experts via the Contact Us button above for guidance before issues compound.