Tax Benefits for Parents of Children with Disabilities After the TRAIN Law in the Philippines

Introduction

The Tax Reform for Acceleration and Inclusion (TRAIN) Law, officially Republic Act No. 10963 (RA 10963), was enacted on December 19, 2017, and took effect on January 1, 2018. This landmark legislation aimed to simplify the Philippine tax system, make it more equitable, and generate revenue for infrastructure and social programs. For individual taxpayers, including parents of children with disabilities (often referred to as Persons with Disabilities or PWDs under Philippine law), the TRAIN Law introduced significant changes to income taxation. It shifted from a system of fixed personal and additional exemptions to a higher tax-exempt threshold on annual income, coupled with progressive tax rates.

Prior to TRAIN, parents could claim specific income tax exemptions for dependent children, with special considerations for those with disabilities under the National Internal Revenue Code (NIRC) of 1997, as amended, and the Magna Carta for Disabled Persons (RA 7277, as amended by RA 9442 and RA 10754). However, TRAIN repealed these exemptions, altering the landscape of direct income tax relief. Despite this, certain indirect tax benefits, particularly related to consumption taxes and discounts, remain available under PWD-specific laws.

This article comprehensively examines the tax benefits available to parents of children with disabilities in the post-TRAIN era, focusing on income tax, value-added tax (VAT), and other fiscal incentives. It draws on relevant provisions of the NIRC (RA 8424, as amended), the Magna Carta for PWDs, and implementing regulations from the Bureau of Internal Revenue (BIR). While direct income tax deductions for dependents have been eliminated, parents can still access relief through PWD privileges that reduce effective tax burdens on essential goods and services.

Pre-TRAIN Tax Benefits for Parents of Children with Disabilities

Before the TRAIN Law, the Philippine tax system provided targeted relief for families supporting dependents, including children with disabilities. These benefits were embedded in Section 35 of the NIRC, which allowed for personal and additional exemptions subtracted from gross income to arrive at taxable income.

Key Provisions Under Section 35 of the NIRC (Pre-TRAIN)

Basic Personal Exemption: Every individual taxpayer was entitled to a fixed exemption of PHP 50,000, regardless of status.
Additional Exemption for Dependents: An additional PHP 25,000 exemption was allowed per qualified dependent, up to a maximum of four dependents. A "dependent" was defined under Section 35(D) as a legitimate, illegitimate, or legally adopted child chiefly dependent on and living with the taxpayer, provided the child was:
- Not more than 21 years old, unmarried, and not gainfully employed; or
- Regardless of age, incapable of self-support due to a mental or physical disability.
This definition was crucial for parents of children with disabilities, as it allowed claims for adult children who remained dependent due to their condition, unlike typical dependents limited by age.
Integration with PWD Laws: The Magna Carta for Disabled Persons (RA 7277, amended by RA 9442 in 2007) reinforced this by classifying PWDs as dependents if they met the criteria of being chiefly dependent and not gainfully employed. This ensured parents could claim the PHP 25,000 exemption per PWD child, even beyond the age of 21, as long as the disability rendered them incapable of self-support. The exemption was not capped beyond the general four-dependent limit solely because of disability status, but in practice, families with multiple PWD children could maximize it up to that limit.

Other Pre-TRAIN Benefits

Medical and Related Deductions: While not exclusive to PWDs, self-employed parents or those in business could potentially deduct extraordinary medical expenses as business expenses if related to their trade (under Section 34 of the NIRC), though this was rarely applied to personal family costs.
Consumption Tax Relief: Under RA 9442, PWDs and their families enjoyed a 20% discount on certain purchases (e.g., medicines, medical services, transportation, and recreation), plus exemption from the 12% VAT on those items. Parents could avail of these when purchasing on behalf of minor or dependent PWD children.

These provisions provided substantial relief, potentially reducing taxable income by up to PHP 150,000 (PHP 50,000 personal + PHP 100,000 for four dependents) for a parent with multiple PWD children.

Aspect	Pre-TRAIN Benefit	Applicable Law
Income Tax Exemption per Dependent	PHP 25,000 (up to 4 dependents)	NIRC Section 35(B)
Eligibility for PWD Children	No age limit if incapable of self-support due to disability	NIRC Section 35(D); RA 9442
Consumption Discounts	20% discount + VAT exemption on essentials	RA 9442
Maximum Relief for Family with 4 PWD Dependents	PHP 100,000 additional exemption	NIRC Section 35(B)

Impact of the TRAIN Law on Tax Benefits

The TRAIN Law fundamentally restructured individual income taxation to promote simplicity and progressivity. Section 9 of RA 10963 explicitly repealed Sections 35(A), (B), (C), and (D) of the NIRC, eliminating the basic personal exemption, additional exemptions for dependents, and the definitions thereof. This change was intended to be offset by:

A tax-exempt threshold of PHP 250,000 on annual compensation income.
Progressive tax rates starting at 0% for income up to PHP 250,000, up to 35% for income over PHP 8 million.
Adjustments to the 13th-month pay and other benefits exclusions (increased to PHP 90,000).

Specific Effects on Parents of PWD Children

Loss of Direct Exemptions: Parents can no longer deduct PHP 25,000 per PWD dependent from their gross income. This repeal disproportionately affects families with higher medical and care costs, as the flat PHP 250,000 exemption does not scale with the number of dependents or their special needs.
No Restoration in Subsequent Laws: As of the TRAIN implementation, no specific carve-out was made for PWD dependents. Later amendments, such as those under the Tax Reform for Attracting Better and High-Quality Opportunities (CREATE) Law (RA 11534, 2021), focused on corporate taxes and did not reinstate individual exemptions.
Shift to Gross Income Taxation: For pure compensation earners, tax is now computed on gross income minus the PHP 250,000 threshold, without further deductions. Self-employed parents or professionals can opt for an 8% flat tax on gross sales/receipts (above PHP 250,000) or itemized deductions, but no PWD-specific items are allowed.

Despite these changes, the TRAIN Law did not affect non-income tax benefits under the Magna Carta for PWDs, preserving indirect tax relief.

Aspect	Pre-TRAIN	Post-TRAIN
Personal Exemption	PHP 50,000	Repealed; replaced by PHP 250,000 tax-exempt threshold
Additional Exemption per Dependent	PHP 25,000 (up to 4)	Repealed
PWD-Specific Income Tax Relief	Exemption for dependents incapable due to disability	None (direct); indirect via higher threshold
Tax Computation Basis	Net taxable income after exemptions	Gross income after PHP 250,000 threshold

Remaining Tax Benefits Post-TRAIN

While direct income tax benefits have been curtailed, parents of children with disabilities retain access to several fiscal incentives, primarily through consumption tax exemptions and discounts. These are enshrined in RA 10754 (2016), which expanded PWD benefits, and BIR Revenue Regulations (e.g., RR 1-2009 and RR 5-2017).

VAT Exemption and Discounts Under the Magna Carta for PWDs

20% Discount on Essentials: Parents can claim a 20% discount on purchases of medicines, medical and dental services, diagnostic and laboratory fees, domestic air/sea travel, public transportation, hotels/restaurants, and recreation centers, when made for the exclusive use or enjoyment of the PWD child. This applies if the child has a valid PWD ID card issued by the local government or National Council on Disability Affairs (NCDA).
VAT Exemption: These discounted purchases are also exempt from the 12% VAT, effectively reducing costs by 32% (20% discount + 12% VAT savings). For parents, this is claimable when accompanying the child or if the child is a minor/dependent unable to transact independently.
Scope and Conditions: The benefits extend to professional fees for doctors, special education, and assistive devices (e.g., wheelchairs, hearing aids). BIR regulations allow family members (including parents) to avail of the discount if the PWD is present or if the purchase is verifiably for the PWD.

Other Indirect Tax-Related Benefits

Health Insurance Premium Deduction: Under the remaining Section 35 of the NIRC (post-TRAIN), individuals can deduct up to PHP 2,400 annually for health/hospitalization insurance premiums if family gross income does not exceed PHP 250,000. This can cover policies including PWD children, providing minor relief.
De Minimis Benefits for Employees: If the parent is employed, employer-provided assistance for the PWD child's medical or educational needs may qualify as de minimis benefits (excluded from gross income up to certain limits under Section 32(B)(7) of the NIRC), such as medical allowances up to PHP 10,000 annually.
Charitable Deductions: Self-employed parents can deduct donations to accredited institutions supporting PWDs (e.g., special schools) as itemized deductions under Section 34(H), up to 10% of taxable income.
Estate and Donor's Tax Exemptions: In estate planning, transfers to PWD heirs may qualify for higher deductions if donated to government programs for disability support (Section 87 and 100 of the NIRC), though not exclusive to parents.

To avail of these, parents must ensure the child is registered as a PWD with the NCDA or local Persons with Disability Affairs Office (PDAO), obtaining the necessary ID.

Enforcement and Implementation

The Department of Finance (DOF) and BIR have issued guidelines, such as Revenue Memorandum Circular No. 79-2018, clarifying that PWD discounts and VAT exemptions remain intact post-TRAIN. Violations by establishments (e.g., denying discounts) can result in penalties under RA 10754, including fines up to PHP 300,000 or imprisonment.

Challenges and Considerations

Post-TRAIN, advocacy groups like the NCDA have highlighted the increased financial strain on families with PWD children due to the loss of income tax exemptions. While the PHP 250,000 threshold benefits low-income households, middle-income parents with high care costs may face higher effective taxes. Parents are advised to consult BIR rulings or tax professionals for personalized advice, as interpretations can vary.

Conclusion

The TRAIN Law streamlined taxation but eliminated direct income tax benefits for parents of children with disabilities by repealing dependent exemptions. However, robust protections under the Magna Carta for PWDs ensure continued relief through consumption tax exemptions and discounts, which serve as critical tax benefits in practice. These provisions underscore the Philippines' commitment to supporting families with PWD members, aligning with constitutional mandates for social justice (Article XIII, Section 11 of the 1987 Constitution). For the most current application, parents should refer to updated BIR issuances or seek legal counsel, as tax laws evolve to address emerging needs.