Philippine legal overview, with practical guidance for workers and HR.

I. Why “type of taxpayer” matters

Your type of taxpayer with the Bureau of Internal Revenue (BIR) determines:

which income tax rules apply to you,
whether you need to file an annual income tax return (ITR) or you’re covered by substituted filing,
what withholding should appear on your payroll,
which forms you and your employer must use, and
your documentary requirements when you change jobs, take side gigs, or work abroad.

For individuals, the BIR broadly distinguishes between employees (compensation income earners) and self-employed/professionals. Some workers fall into both—called mixed-income earners. Your residency status (resident citizen, non-resident citizen, resident alien, non-resident alien) also affects taxability.

II. Core classifications relevant to employees

1) Purely Compensation Income Earner (Employee)

You receive salaries/wages and employer-provided taxable benefits from an employer. You do not run a business or practice a profession on the side.

Key consequences

Withholding at source under the BIR’s compensation tax tables; your employer remits monthly/quarterly and annually.
Substituted filing may apply (see Section V): if you had only one employer for the entire calendar year and the correct tax was withheld, you don’t file an ITR; your employer’s BIR Form 2316 substitutes for your annual return.
If you had two or more employers in the same year (concurrent or successive), or tax was not correctly withheld, you must file BIR Form 1700.

2) Minimum Wage Earner (MWE)

You are paid statutory minimum wage as fixed by your Regional Tripartite Wages and Productivity Board.

Key consequences

Your basic MW pay is exempt from income tax and withholding.
Holiday pay, overtime pay, night shift differential, and hazard pay of an MWE are likewise exempt.
Other allowances/benefits may still be taxable unless they qualify as de minimis or fall under other exemptions (see Section VI).

If your pay rises above statutory minimum, you cease to be an MWE and regular compensation tax rules (withholding) apply to the entire taxable compensation.

3) Mixed-Income Earner (Employee + Business/Professional)

You earn compensation and income from a side business or professional practice (e.g., weekend online selling, freelance design, consulting).

Key consequences

Compensation remains subject to withholding by your employer.
Business/professional income is reported in BIR Form 1701 (Annual ITR for Individuals) with either:
- Graduated rates on net income, or
- the optional 8% income tax on gross sales/receipts (see note below).
If you choose the 8% option, the ₱250,000 reduction under the 8% regime is not available to mixed-income earners (it is available only to purely self-employed individuals). In mixed-income cases, 8% applies to gross from business/profession (no 250k reduction), while your compensation is taxed via the regular compensation schedule.

4) Self-Employed/Professional (for context)

If you resign and go fully freelance/business, you become self-employed/professional. You register differently and use 1701/1701A returns. (Included here only to contrast with employee classifications.)

III. Residency and nationality overlay (affects all individual types)

Separate from employment vs. business, the BIR classifies who you are for sourcing and scope of tax:

Resident Citizen (RC): Filipino residing in the Philippines—taxable on worldwide income.
Non-Resident Citizen (NRC): Filipino who has established residence abroad and is physically present abroad most of the year (e.g., OFWs)—taxable only on Philippine-sourced income.
Resident Alien (RA): Foreign national residing in the Philippines—taxable on Philippine-sourced income.
Non-Resident Alien Engaged in Trade or Business (NRA-ETB) vs. Not Engaged (NRA-NETB): Foreign nationals not residing but earning in the Philippines; subject to special rates/withholding primarily on Philippine-sourced compensation and other income.

Compensation is sourced where services are performed. Work physically done in the Philippines generally creates Philippine-sourced compensation income.

IV. Which income tax schedule applies to compensation?

Under the TRAIN law’s Schedule I (2023 onward) for compensation:

₱0–₱250,000 annual taxable compensation: 0%
Over ₱250,000–₱400,000: 15% of the excess over ₱250,000
Over ₱400,000–₱800,000: ₱22,500 + 20% of the excess over ₱400,000
Over ₱800,000–₱2,000,000: ₱102,500 + 25% of the excess over ₱800,000
Over ₱2,000,000–₱8,000,000: ₱402,500 + 30% of the excess over ₱2,000,000
Over ₱8,000,000: ₱2,202,500 + 35% of the excess over ₱8,000,000

Employers apply withholding tax tables so your monthly payroll reflects the expected annual tax.

V. Substituted filing vs. mandatory ITR filing

You qualify for substituted filing (no separate ITR) if all of the following are true:

You earned purely compensation income;
You had one employer for the entire calendar year;
The employer correctly withheld your income tax; and
You did not earn other non-final taxable income (passive income subject to final tax and de minimis benefits do not disqualify you).

If any condition is not met (e.g., multiple employers in the year, side business, under-withholding), you must file an ITR:

BIR Form 1700 – for purely compensation income earners not qualified for substituted filing.
BIR Form 1701 – for mixed-income earners (and self-employed/professionals).

Key employer forms & deadlines

BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld) – issue to employees not later than Jan 31 of the following year; also used for substituted filing where applicable.
BIR Form 1604-C (Annual Information Return of Income Taxes Withheld on Compensation) with alphalist – filed by employer, typically by Jan 31 following the close of the year.

VI. What is—and isn’t—taxable in compensation

Exemptions commonly relevant to employees

13th month pay and other benefits: Exempt up to ₱90,000 per year (excess is taxable compensation).
De minimis benefits (up to BIR-set ceilings): e.g., uniform/clothing allowance, laundry allowance, rice subsidy, medical cash allowance to dependents, employee achievement awards, small company parties, etc.—exempt if within ceilings; excess becomes taxable compensation.
MWE items: For MWEs only—basic MW pay plus holiday, overtime, NSD, and hazard pay are exempt.

Fringe Benefits Tax (FBT)

Fringe benefits to managerial/supervisory employees are generally subject to FBT (currently 35% grossed-up) and are not part of the employee’s taxable compensation; the employer pays the FBT.
Rank-and-file benefits are not subject to FBT but may be part of taxable compensation unless exempt as de minimis.

VII. Registration, TIN, and the right BIR forms

Getting or updating your TIN

Only one TIN per taxpayer, for life.
First job: employer typically assists via BIR Form 1902 (Application for Registration of New Employees).
Updates (e.g., change of employer, address): BIR Form 1905.
Certificate for payroll: keep your BIR Form 2316 from your previous employer—provide to your new employer if you transfer mid-year so they can annualize correctly.

Starting a side hustle (mixed-income)

Register your business/profession (BIR 1901), secure books of accounts, receipts/invoices, and update your registration from purely compensation to mixed-income.
Choose between graduated rates on net income vs. 8% on gross (if non-VAT and not exceeding the ₱3,000,000 VAT threshold). Election is usually made in the first quarter via quarterly return/registration.

VIII. Decision guide: “What type am I?”

Do you only receive a salary from one employer for the whole year?
- Yes → Purely Compensation; if correctly withheld, you likely qualify for substituted filing.
- No → Go to (2).
Did you have more than one employer in the year?
- Yes (concurrent or successive) → Purely Compensation, but file 1700 (no substituted filing).
- No → Go to (3).
Do you have any business or professional income (side gigs, online selling, consulting)?
- Yes → Mixed-Income; file 1701 (and register the business/profession).
- No → Still Purely Compensation.
Are you paid at or below the statutory minimum wage?
- Yes → MWE; basic MW pay (plus qualifying OT/NSD/hazard) exempt.
- No → Regular Purely Compensation rules.
Where do you live and perform services?
- Abroad most of the year and services performed abroad (e.g., OFW) → likely Non-Resident Citizen; foreign wages not taxable in the Philippines.
- Foreign national working in PH → Resident/Non-Resident Alien rules; compensation for services in PH is generally taxable in PH.

IX. Frequent edge cases

Transferred mid-year to a new employer: You’re still purely compensation, but substituted filing won’t apply; file 1700 unless the employers properly coordinated and one becomes the substituting employer for the entire year (uncommon). Always hand your earlier 2316 to your new employer for annualization.
Bonus/benefits exceeding ₱90,000 cap: Excess over the cap is taxable compensation and subject to withholding.
Stock options/RSUs: Tax timing can vary (grant/vest/exercise). If taxed as compensation, employer should withhold upon the taxable event. Cross-border plans may raise treaty and sourcing issues.
Remote work for a foreign company while in the Philippines: Even if paid offshore, if services are performed in PH, the compensation is Philippine-sourced and taxable.
Government employees: Still compensation income earners; special rules can apply to certain allowances but the general framework remains.

X. Documents you should keep

BIR Form 2316 – every year from every employer you had that year.
Payslips and year-end annualization summary.
Contracts/COEs showing dates of employment (helpful when you change jobs).
If mixed-income: BIR Certificate of Registration (COR), invoices/ORs, books of accounts, quarterly/annual returns, and withholding certificates (2307) from clients.

XI. Quick compliance checklist (employees)

✅ Have a TIN (only one).
✅ Confirm your classification (Purely Compensation, MWE, or Mixed-Income).
✅ Check withholding each payday and year-end annualization.
✅ Get BIR Form 2316 by January 31 of the following year.
✅ File an ITR if you’re not qualified for substituted filing (e.g., multiple employers, side income).
✅ If starting side gigs, update registration and keep proper books/receipts.
✅ Consider treaty relief if you’re a foreign national or working cross-border.

XII. Penalties to avoid

Failure to file when required (e.g., disqualified from substituted filing).
Non-registration of business/profession for mixed-income earners.
Under-withholding/under-remittance (employer risk, but employees should watch their year-end 2316).
Multiple TINs (prohibited).
Failure to keep records supporting exemptions, de minimis benefits, or treaty relief.

XIII. Summary

If you are an employee with no side business, you’re a Purely Compensation Income Earner; with a single employer and correct withholding, substituted filing means no ITR.
If you’re paid the statutory minimum wage, you’re an MWE and your MW pay plus certain premium pays are exempt.
If you have a side business/profession, you’re Mixed-Income and must register and file 1701 for the business portion; you may consider the 8% option (without the ₱250k reduction for mixed-income).
Your residency status determines whether foreign wages are taxed here; compensation is sourced where the services are performed.

This article provides a general legal overview in the Philippine context. For specific cases—multiple employers, equity compensation, cross-border work, or treaty questions—consult a tax professional with your 2316s, contracts, and payroll records.