Академический Документы
Профессиональный Документы
Культура Документы
The reasonableness or unreasonableness of the amount given as a bonus does not affect its
taxability. The excess will, as a rule, be always taxable. But the deductibility of the expense on
the part of the employer will be affected if the amount is not reasonable. An unreasonable
amount is not considered an ordinary and necessary expense and, therefore, not deductible in
computing the employers taxable income.
Actually, there is no fixed test in determining the reasonableness of a bonus as additional
compensation. The following are the conditions that may be taken into consideration: payment
must be made in good faith; the character of the taxpayers business; the volume and amount of
its net earnings; its locality; the type and extent of the services rendered; the salary and policy of
the corporation; the size of the particular business; the employees qualification and
contributions to the business venture; and the general economic conditions (C.M. Hoskins & Co.
Inc. v. CIR).
Employers, especially those in the private sector, are at liberty to determine the amount of the
bonus they provide to their officers and employees, but there may be tax consequences. Huge
amounts of bonuses would necessarily exceed the ceiling allowed as non-taxable. It follows that
the excess will be taxable on the part of the officer or employee. In so far as the employer is
concerned, he or she must be able to justify the reasonableness of the amount. Otherwise, the
same may not be treated as ordinary and necessary and, therefore, not deductible in computing
the employers income subject to income tax.
****
The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a
member-firm of World Tax Services (WTS) Alliance.
The article is for general information only and is neither intended nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article to
any actual or particular tax or legal issue should be supported by professional study or advice.
For comments or questions concerning the article, e-mail the author at
nicolas.pataueg@bdblaw.com.ph or call 403-2001, local 350.