Taxability or Non-Taxability of the Salary Differential Under Expanded Maternity Leave Law
R.A. 11210 expanded the benefit by generally increasing it to 105 days subject to additional days under certain situations. Recently, the Implementing Rules and Regulations has been issued by the Department of Labor and Employment.
Under Section 2 of the IRR, the following benefits are granted under the 105-day Expanded Maternity Law (EMLL) in the private sector:
- One hundred five (105) days for the live childbirth, regardless of the mode of delivery, and additional fifteen (15) days paid leave if the female worker qualifies as a solo parent under Republic Act No. 8972, or the “Solo Parents’ Welfare Act of 2000,” or
- Sixty (60) days paid leave for miscarriage and emergency termination of pregnancy.
Employed female workers shall receive full pay which consists of:
- SSS maternity benefit computed based on their average daily salary credit and
- Salary differential to be paid by the employer, if any.
Considering that the employee is entitled to salary differential, is it taxable?
As used in our income tax law, “income” refers to the flow of wealth. (See page 11, Tax Solutions on Employee Compensation and Benefits 2nd Edition 2019 by Atty. Villanueva citing Commissioner of Internal Revenue vs. British Airways Corpora- tion citing Madrigal and Paternol vs. Rafferty and Concepcion, 38 Phil. 414 (1918), G.R. No. L-65773-74 April 30, 1987.)
Income means all the wealth which flows into the taxpayer other than a mere return on capital. (See page 11, Tax Solutions on Employee Compensation and 
Benefits 2nd Edition 2019 by Atty. Villanueva citing Chamber of Real Estate Builders’ Association, Inc. vs. The Hon. Secretary Alberto Romulo, G.R. No. 160756, March 9, 2010 citing Madrigal and Paterno vs. Rafferty and Concepcion, 38 Phil. 414, 418-419 (1918).)
Further, income may be defined as an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its equivalent. Income can also be thought of as flow of the fruits of one’s labor. (Conwi vs. CA, G.R. No. 48532, August 31, 1992 citing Fisher vs. Trinidad, 43 Phil. 973 and Madrigal vs. Rafferty, 38 Phil. 414)
Thus, is the salary differential income? Yes it is. But is it taxable?
Under Section 16 of R.A. 11199, all benefit payments made by the SSS shall be exempt from all kinds of taxes, fees or charges and shall not be liable to attachments, garnishments, levy or seizure by or under any legal or equitable process whatsoever, either before or after receipt by the person or persons entitled thereto, except to pay any debt of the member of the SSS.
Section 5, (a), (2) of the EMLL provides that the full payment shall be advanced by the employer. While in Section 3, it states that all covered female employees shall be granted 105 days maternity leave with full pay.
Hence, it seems that the 105 days maternity leave benefit is a benefit payment by the SSS which should be exempt from tax. However, in Section 5, Rule VI of the IRR, it is provided that employers from the private sector shall pay for the difference between the full salary and actual cash benefits received from the SSS.
Considering that the IRR states that the employer “shall pay” for the salary differential it appears that this amount is not anymore a benefit “paid” by the SSS. Nonetheless, it is best if the BIR comes up with a revenue regulation pertaining to this matter.
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