Tax Alert No. 70 [Revenue Memorandum Circular (RMC) No. 105-2019 dated 3 September 2019]

Clarifying the proper tax treatment of maternity leave benefits under Republic Act (RA) No. 11210, otherwise known as the “105-Day Expanded Maternity Leave Law”

The Commissioner of Internal Revenue has issued RMC No. 105-2019 dated 3 September 2019 clarifying the proper tax treatment of salary differential to be paid in favor of female workers in the private sector pursuant to RA No. 11210, otherwise known as the “105-Day Expanded Maternity Leave Law”.

Based on the provisions of the above new law, its implementing rules and regulations (IRR) and the respective issuances of Social Security System (SSS) and Department of Labor and Employment (DOLE), the maternity benefit of the female worker has been expanded from the previous one hundred percent (100%) of the average daily salary credit to a full pay which consists of (i) SSS maternity benefit computed based on their average daily salary credit and (ii) salary differential to be paid by the employer, if any.

Section 2.78.1(B)(1)(e) of the Revenue Regulations No. 2-98, as amended prescribes that payment of benefits made under the Social Security System Act of 1954, as amended, are exempt from withholding tax. Since this provision does not provide any qualification in granting tax exemption on payments of benefits under the SSS law, the salary differential is also exempt from withholding taxes.

You may access the full version of this RMC through the BIR website.