The Executive Exempts Some Employee Benefits From Income Tax. Published on Cronista.com
The National Government has exempted some employee payments from Income Tax as part of a series of benefits established in non-binding legal opinions. This is in response to a widespread claim during wage negotiations and collective bargaining, and in particular by CGT (Workers’ General Confederation) led by Héctor Daer.
Some time ago, the National Tax Bureau [Dirección Nacional de Impuestos], at the Undersecretariat of Public Revenue [Subsecretaría de Ingresos Públicos], analyzed Income Tax treatment of certain items, such as productivity bonuses, cash indemnity allowances, per diem expenses and overtime, received by employees. The Undersecretariat of Public Revenue ratified that opinion, specifying the scope of each exemption. It is now also established that the exemption is only applicable as from January 1, 2023, with the AFIP being notified for its information and enforcement.
The Income Tax exemption applies to:
Productivity-based bonuses, cash indemnity allowances or similar. They are exempt up to an amount equivalent to forty percent (40%) of the nontaxable income under subsection a) of Section 30 of the Act (40% x ARS451,683.19 = ARS180,673.28 -exempt maximum amount) per tax year and for employees whose average gross monthly pay does not exceed $808,124.73 that will be updated annually by the Average Taxable Compensation of Permanent Workers (RIPTE, for its acronym in Spanish). It is emphasized that productivity bonuses should be awarded based on objective benchmarks, not just labor power. The benefit must be interpreted separately for each item.
Mobility, Travel and other similar expenses. This exemption is established based on the general criterion that the deduction may not exceed the amount equivalent to forty percent (40%) of the nontaxable income under subsection a) of Section 30 of the Act ($451,683.19 x 40% = 180,673.28, effective for 2023, and adjusted by the RIPTE annually). The benefit applies to the amounts set forth in the applicable Collective Bargaining Agreement under employees’ pay stubs.
Overtime, additional payments for rotating shifts and similar. They are exempt from Income Tax for the difference between the ordinary hourly rate and the value of overtime or extra hours under the applicable collective bargaining agreement. This exemption applies to overtime or extra hours for work done on public holidays and weekends, including non-working days and weekly rest.
Seniority bonuses or awards for productivity or efficiency, rewards and additional pay. They are exempt from Income Tax, like productivity-based bonuses, so long as their collection is linked to objective benchmarks. The same caps are used and updated annually according to RIPTE.
Hardship allowances or similar. They are subject to deduction when they are intended to compensate for working in places with poor access to public services, poor access to housing, and high cost of living. This allowance ceases to be paid when employees stop providing services at that place. When employees stay at a place different from their usual workplace temporarily, they are reimbursed for travel and per diem expenses. These payments may also derive from «…work performed outside the headquarters where tasks are usually provided…». The same caps apply and are updated according to RIPTE.
Hierarchical Assignment due to increased responsibilities, specialization or similar, on call or stand-by duty. These items are deemed to be overtime and the payment of each of them is based on the tasks assigned or employees’ availability while on call or on stand-by. There is no cap on average monthly pay or a percentage of non-taxable income. The Income Tax exemption is applicable to the difference between the ordinary hourly rate and the value of overtime, whichever is the name given to that additional pay under these guidelines for work done on public holidays and weekends, including non-working days and weekly rest (whatever the schedule).
Termination bonus: Severance pay or rewards paid as a result of employees’ termination are not subject to Income Tax. There is no cap because they are not subject to Income Tax when paid to employees who do not work in managerial and executive positions in public and private companies.
Internet connection expenses for teleworkers and employees working from home. They have not been mentioned in the legal opinions. Internet access costs do not pay social security taxes or Income Tax and there is no cap by application of special Act No. 27555 and its regulations.
In a scenario offering multiple interpretations, getting legal opinions and instructions from the enforcement authority is a positive sign and a necessary step to do business. The payments set forth in collective bargaining agreements are usually dealt with in the legal opinions issued by the same agencies confirming Income Tax exemptions. In this way companies that act as withholding agents may find a reasonable framework that ensures legal certainty.