Is there any legal ground for a company to have its employees shoulder the responsibility of paying taxes for company-paid HMO premiums?

Hello:
Atty. Jofre here. Presuming this concerns Philippine tax treatment even if the employer is a US bank operating here or employing Philippine based staff, your concern is legally valid and deserves a clear, no nonsense explanation.

Firstly, let us be very precise about the law. Under the National Internal Revenue Code as amended by the TRAIN Law, certain benefits are classified as non taxable benefits subject to a ceiling. The 13th month pay and other benefits are non taxable only up to PHP 90,000.00 per year. Anything beyond that threshold becomes taxable compensation income.

However, and this is the critical point, not all employer provided benefits are automatically included in computing that PHP 90,000.00 cap.

Secondly, on HMO premiums paid by the employer. As a general rule under BIR regulations and long standing tax practice, employer paid HMO premiums are considered fringe benefits or de minimis benefits depending on structure, and are not supposed to be treated as part of the employee’s taxable compensation if the benefit is primarily for the health and welfare of the employee and is paid directly by the employer to the HMO provider.

In many Philippine companies, HMO premiums are not included in the employee’s payslip at all, precisely to avoid distorting taxable income and 13th month computations. They are treated as employer expenses, not employee income.

Thirdly, on what your company is doing and why it is problematic. What the bank appears to be doing is booking the HMO premium as if it were first credited to you as income, then immediately debited as a deduction. While this may “net to zero” on paper for monthly take home pay, it artificially inflates your gross compensation.

This inflated gross compensation then pushes your total benefits beyond the PHP 90,000.00 non taxable ceiling, which results in additional tax, and that tax is effectively being shouldered by you. That is why your 13th month pay is being eaten up.

Legally speaking, this is highly questionable.

There is no clear legal basis to pass on the tax effect of employer paid HMO premiums to employees if the HMO is a company benefit and not a cash allowance given to the employee. Tax laws look at substance over form. You are not receiving cash, you cannot convert it to cash, and you have no control over it. Treating it as taxable income through accounting mechanics is inconsistent with that principle.

Fourthly, on whether this is allowed. My candid legal view is this. a.) If the HMO premium is mandatory, company chosen, and paid directly to the provider, it should not be treated as part of your taxable compensation. b.) If the HMO is treated as taxable income to you, the employer should be the one shouldering any corresponding fringe benefit tax or tax consequence, not shifting the burden to the employee indirectly. c.) Using accounting offsets to inflate gross pay that later reduces statutory benefits can be challenged as improper tax treatment.

Fifthly, on possible remedies and actions you can take. You are allowed to a.) formally question the payroll and tax treatment through HR and finance and demand the legal basis and BIR ruling they are relying on, b.) request recomputation of your taxable income and 13th month pay excluding employer paid HMO premiums, and c.) if unresolved, elevate the issue to the BIR for clarification or file a complaint with the Department of Labor and Employment if this resulted in unlawful withholding or diminution of benefits.

If you are already former employees, you may still seek correction of your BIR Form 2316 and refund of excess taxes withheld, subject to prescriptive periods.

Let me be direct with you. What you described is not standard practice in the Philippines, even among large multinational companies. Thes. This setup conveniently protects the employer’s accounting while shifting the tax pain to employees, and that is exactly the kind of arrangement labor and tax laws are meant to prevent.

I am the owner and Managing Partner of Recososa Law Firm, based in the Philippines, with offices in Luzon, Visayas, and Mindanao. We handle labor and employment disputes, payroll tax issues, and BIR related matters. We can review your payslips, contracts, and tax forms and give you a definitive legal position, including whether you can claim refunds or pursue administrative remedies. We can do this via Google Meet or Zoom, or through a physical consultation.

Sincerely,
ATTY. JOFRE B. RECOSOSA
Owner and Managing Partner
Recososa Law Firm