For compensation earned in 2026, an ordinary employee generally starts paying Philippine income tax when annual taxable compensation exceeds ₱250,000. For monthly payroll, the Bureau of Internal Revenue (BIR) withholding table places taxable compensation of ₱20,833 or less per month in the zero-withholding bracket. The important word is taxable: your gross salary, take-home pay, and taxable salary are not necessarily the same amount. Mandatory employee contributions, qualified benefits, and other tax-exempt payments must first be removed before the threshold is applied.
What Salary Is Taxable in the Philippines in 2026?
The legal threshold is based on your total taxable income for the calendar year, not simply the basic salary written in your employment contract.
Under Section 24(A)(2)(a) of the National Internal Revenue Code, as amended by Republic Act No. 10963 or the TRAIN Law, the first ₱250,000 of annual taxable income is subject to a zero-percent rate. The tax rates effective January 1, 2023 “and onwards” continue to apply to compensation earned in 2026.
For payroll withholding, the equivalent zero-tax bands are:
| Payroll period | Taxable compensation with zero withholding |
|---|---|
| Daily | ₱685 and below |
| Weekly | ₱4,808 and below |
| Semi-monthly | ₱10,417 and below |
| Monthly | ₱20,833 and below |
| Annual | ₱250,000 and below |
These figures refer to compensation remaining after excluding non-taxable benefits and mandatory employee contributions. They should not automatically be compared with gross salary. The official figures appear in the BIR Annex E withholding tax table.
Tax is imposed only on the excess over ₱250,000
Crossing the threshold does not make your entire salary taxable at 15%.
For example, if your annual taxable compensation is ₱300,000:
- First ₱250,000: taxed at 0%
- Remaining ₱50,000: taxed at 15%
- Annual income tax: ₱7,500
This graduated system prevents an employee from suddenly losing a large amount merely because taxable income exceeded ₱250,000 by a small amount.
Philippine Income Tax Rates for Employees in 2026
The following graduated rates apply to citizens, resident aliens, and other individuals covered by the regular individual income tax schedule:
| Annual taxable income | Income tax due |
|---|---|
| ₱250,000 and below | 0 |
| Over ₱250,000 to ₱400,000 | 15% of the excess over ₱250,000 |
| Over ₱400,000 to ₱800,000 | ₱22,500 + 20% of the excess over ₱400,000 |
| Over ₱800,000 to ₱2,000,000 | ₱102,500 + 25% of the excess over ₱800,000 |
| Over ₱2,000,000 to ₱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 |
These are marginal rates. Each rate applies only to the portion of income falling within that bracket, not to the employee’s entire income.
Monthly Withholding Tax Table for 2026
Employers normally calculate withholding tax each payroll period using the BIR table. For employees paid monthly, the table is:
| Monthly taxable compensation | Monthly tax withheld |
|---|---|
| ₱20,833 and below | 0 |
| Over ₱20,833 to ₱33,332 | 15% of the excess over ₱20,833 |
| ₱33,333 to ₱66,666 | ₱1,875 + 20% of the excess over ₱33,333 |
| ₱66,667 to ₱166,666 | ₱8,541.80 + 25% of the excess over ₱66,667 |
| ₱166,667 to ₱666,666 | ₱33,541.80 + 30% of the excess over ₱166,667 |
| ₱666,667 and above | ₱183,541.80 + 35% of the excess over ₱666,667 |
Suppose your taxable monthly compensation is ₱30,000. Your estimated withholding is:
15% × (₱30,000 − ₱20,833) = approximately ₱1,375
Payroll rounding and annual adjustments may cause a small difference. The BIR’s official withholding tax calculator can also be used to check a payroll computation. (Bureau of Internal Revenue)
How to Determine Your Taxable Salary
The practical computation is:
Gross compensation − non-taxable compensation − mandatory employee contributions = taxable compensation
Compensation usually included in taxable income
Unless a specific exemption applies, taxable compensation can include:
- Basic salary
- Cost-of-living allowance
- Fixed transportation, representation, housing, or communication allowances
- Commissions
- Profit sharing
- Director’s fees received as an employee
- Taxable bonuses
- Overtime and holiday pay of employees who are not minimum wage earners
- The taxable portion of 13th-month pay and other benefits
- Cash or non-cash rewards not covered by an exemption
- Supplemental compensation paid in addition to regular salary
The fact that an employer calls a payment an “allowance,” “incentive,” or “reimbursement” does not automatically make it tax-free. Its actual nature and the applicable BIR rules control.
Amounts normally excluded before computing tax
Common exclusions include:
- The employee’s compulsory SSS or GSIS contributions
- The employee’s compulsory PhilHealth contributions
- The employee’s compulsory Pag-IBIG contributions
- Union dues
- Qualified de minimis benefits
- 13th-month pay and other benefits within the ₱90,000 aggregate ceiling
- The statutory minimum wage and specified premium pay of qualified minimum wage earners
- Certain qualified retirement, separation, disability, or death benefits
Only the employee’s compulsory contribution is deductible from compensation for this purpose. Voluntary savings, loan payments, salary deductions, insurance premiums, cash advances, and personal debts do not generally reduce taxable compensation merely because they appear as payslip deductions.
Is 13th-Month Pay Taxable in 2026?
The first ₱90,000 of 13th-month pay and other similar benefits combined is excluded from taxable income.
The ₱90,000 limit is not a separate exemption for every bonus. It is one combined annual ceiling that can cover amounts such as:
- Mandatory 13th-month pay
- Christmas bonus
- Productivity incentive
- Loyalty award
- Other benefits of a similar nature
Only the portion above the combined ₱90,000 ceiling becomes taxable.
For example:
| Benefits received | Amount |
|---|---|
| 13th-month pay | ₱70,000 |
| Christmas bonus | ₱30,000 |
| Total benefits | ₱100,000 |
| Exempt portion | ₱90,000 |
| Taxable portion | ₱10,000 |
The ₱10,000 taxable portion is added to the employee’s other taxable compensation and subjected to the graduated rates.
De Minimis Benefits That Are Tax-Free in 2026
De minimis benefits are relatively small employee benefits that the BIR excludes from income tax when the applicable conditions and ceilings are met.
Revenue Regulations No. 29-2025 increased several ceilings applicable to 2026 payroll:
| De minimis benefit | Non-taxable ceiling |
|---|---|
| Monetized unused vacation leave of private employees | Up to 12 days per year |
| Monetized vacation and sick leave of government employees | Qualified monetized value |
| Medical cash allowance for dependents | ₱2,000 per semester or ₱333 per month |
| Rice subsidy | ₱2,500 per month or one 50-kilogram sack worth no more than ₱2,500 |
| Uniform and clothing allowance | ₱8,000 per year |
| Actual medical assistance | ₱12,000 per year |
| Laundry allowance | ₱400 per month |
| Qualified achievement awards | ₱12,000 per year |
| Christmas and major anniversary gifts | ₱6,000 per year |
| Meal allowance for overtime or graveyard work | Up to 30% of the regional basic minimum wage per day |
| CBA and productivity incentives combined | ₱12,000 per year |
Achievement awards must be granted under an established written plan that does not favor highly paid employees. The overtime or night-shift meal allowance is also tied to the applicable regional minimum wage, so its peso ceiling can differ by location. The complete updated list appears in BIR Revenue Regulations No. 29-2025.
When a benefit exceeds its de minimis ceiling, the excess is generally placed in the “other benefits” category and tested against the combined ₱90,000 annual exemption. Any remaining excess becomes taxable compensation. (Bir-cdn)
Sample Salary Computations
Example 1: Gross salary above ₱250,000 but only a small tax due
Assume an employee receives:
- Basic salary: ₱24,000 per month
- Annual basic salary: ₱288,000
- Mandatory employee contributions shown on Form 2316: ₱24,000
- 13th-month pay: ₱24,000
- No taxable allowances or additional bonuses
Computation:
| Item | Amount |
|---|---|
| Annual basic salary | ₱288,000 |
| Less mandatory contributions | (₱24,000) |
| Taxable compensation | ₱264,000 |
| 13th-month pay | Fully exempt within ₱90,000 ceiling |
| Excess over ₱250,000 | ₱14,000 |
| Tax at 15% | ₱2,100 |
Although gross compensation received was ₱312,000 including the 13th-month pay, only ₱264,000 was taxable.
Example 2: A bonus causes tax at year-end
Assume an employee has regular taxable compensation of ₱20,000 per month:
- Regular annual taxable compensation: ₱240,000
- 13th-month pay and other benefits: ₱120,000
- Exempt benefits ceiling: ₱90,000
- Taxable excess benefits: ₱30,000
Total taxable compensation becomes:
₱240,000 + ₱30,000 = ₱270,000
Tax due:
15% × (₱270,000 − ₱250,000) = ₱3,000
The employee may have had no withholding during ordinary months but may see a tax deduction when the bonus is paid or when the employer conducts the December annualization.
Example 3: Salary plus taxable allowances
Assume:
- Annual basic salary and taxable allowances: ₱720,000
- Mandatory employee contributions: ₱48,000
- 13th-month pay and similar benefits: ₱100,000
- Taxable excess over the ₱90,000 benefit ceiling: ₱10,000
Taxable income:
₱720,000 − ₱48,000 + ₱10,000 = ₱682,000
Tax:
₱22,500 + 20% × (₱682,000 − ₱400,000) = ₱22,500 + ₱56,400 = ₱78,900
Are Minimum Wage Earners Exempt From Income Tax?
A qualified minimum wage earner or MWE is exempt from income tax on:
- Statutory minimum wage
- Holiday pay
- Overtime pay
- Night-shift differential
- Qualified hazard pay
Minimum wages are set regionally by the Regional Tripartite Wages and Productivity Boards. An employee must therefore compare the salary with the wage order applicable to the location and sector where the employee is assigned. Current wage orders are available through the National Wages and Productivity Commission.
The exemption does not necessarily cover every payment received by an MWE. Commissions, honoraria, taxable allowances, service charges, benefits above statutory ceilings, and income from another employer or business may still be taxable.
An employee whose basic pay is higher than the applicable statutory minimum wage is no longer treated as an MWE merely because annual salary remains below ₱250,000. For that employee, overtime, holiday pay, night differential, and hazard pay are generally included in taxable compensation, although total taxable income may still fall within the zero-percent ₱250,000 bracket. (Bir-cdn)
How Payroll Withholding and Year-End Adjustment Work
Withholding tax is an advance payment of the employee’s annual income tax. It is not always the final amount.
The employer normally follows these steps:
- Compute taxable compensation for each payroll period. Non-taxable benefits and compulsory employee contributions are excluded.
- Apply the daily, weekly, semi-monthly, or monthly withholding table.
- Add taxable supplemental compensation, such as commissions and taxable bonuses.
- Annualize compensation in December or upon termination.
- Compare the annual tax due with the amount already withheld.
- Withhold any deficiency or refund any excess.
If the employee had another employer during the year, the present employer should include the previous employer’s taxable compensation and withholding when performing annualization. This is why employees who change jobs should promptly submit their previous BIR Form 2316 to the new payroll department. Missing or delayed Form 2316 records commonly cause a large December deduction or an incorrect refund.
Excess withholding must generally be credited or refunded by the employer no later than January 25 of the following year.
Documents Employees Should Check
| Document | Why it matters |
|---|---|
| Payslip | Shows gross pay, taxable pay, contributions, benefits, and withholding |
| Employment contract or compensation schedule | Identifies basic salary and fixed allowances |
| BIR Form 2316 from present employer | Summarizes annual taxable and non-taxable compensation |
| BIR Form 2316 from previous employer | Needed for annualization after changing jobs |
| TIN and registered personal details | Prevents payroll and BIR record mismatches |
| Benefit policies or CBA | Helps establish whether a benefit qualifies as de minimis or exempt |
The employer must issue BIR Form 2316 on or before January 31 of the following year, or on the date of the last compensation payment if employment ends earlier. Form 2316 must also be issued to minimum wage earners and employees from whom no tax was withheld.
Ordinary payroll documents do not require notarization or apostille. Those formalities can become relevant when a foreign employee invokes a tax treaty using documents issued abroad.
When an Employee Must File BIR Form 1700
An employee can usually use substituted filing, meaning the employer-filed Form 2316 serves as the employee’s income tax return, when the employee:
- Earned purely compensation income
- Had only one employer in the Philippines during the calendar year
- Had the correct amount of tax withheld
- Otherwise satisfies the BIR requirements for substituted filing
An employee who worked for two or more employers, whether simultaneously or one after another, generally does not qualify for substituted filing and must file BIR Form 1700. The usual deadline is April 15 following the taxable year. Thus, compensation earned in 2026 is normally reported, when filing is required, by April 15, 2027. (Bir-cdn)
A person earning salary plus freelance, professional, or business income is a mixed-income earner and normally uses the return applicable to self-employed or mixed-income individuals rather than Form 1700.
Rules for Foreign Employees Working in the Philippines
Foreign citizenship does not automatically exempt Philippine salary from tax.
As a general framework:
- A resident alien is taxed under the regular graduated rates on taxable income from Philippine sources.
- A non-resident alien engaged in trade or business in the Philippines is generally subject to the regular individual rates on Philippine-source taxable income.
- A non-resident alien not engaged in trade or business is generally subject to a 25% tax on gross Philippine-source income, including salaries and compensation, unless a tax treaty provides more favorable treatment.
Compensation for services physically performed in the Philippines is commonly treated as Philippine-source income even when the employer is foreign or the salary is deposited abroad.
A tax treaty may provide an exemption for short-term employment, but the often-mentioned “183-day rule” is not a stand-alone exemption. The particular treaty may also require that the employer be non-resident, that the remuneration not be borne by a Philippine permanent establishment, and that other conditions be satisfied.
Treaty claims commonly require a foreign Tax Residency Certificate and compliance with the BIR’s request-for-confirmation or tax-treaty-relief procedures through the International Tax Affairs Division. Documents executed abroad may have to be apostilled or authenticated by a Philippine embassy, depending on the country of origin. (Bir-cdn)
Common Salary Tax Mistakes
Treating ₱250,000 as a gross-salary limit
The threshold applies to annual taxable income, not necessarily gross salary. An employee can receive more than ₱250,000 in total cash and benefits yet remain below the taxable threshold after lawful exclusions.
Assuming a ₱20,000 monthly salary can never be taxed
Regular taxable compensation of ₱20,000 per month is below the monthly withholding threshold, but taxable bonuses, excess benefits, income from a previous employer, or other compensation can push annual taxable income above ₱250,000.
Believing all overtime is tax-free
Overtime pay is specifically exempt for qualified minimum wage earners. For an employee paid above the statutory minimum wage, overtime is ordinarily taxable compensation.
Treating every allowance as de minimis
Only benefits expressly covered by BIR rules and within their ceilings qualify. A fixed cash transportation, housing, internet, or meal allowance may be taxable unless another exclusion legitimately applies.
Applying the ₱90,000 ceiling separately to each bonus
The ceiling applies to 13th-month pay and other similar benefits in aggregate for the entire year.
Expecting tax deductions for dependents or marital status
TRAIN removed the former personal and additional exemptions. Married employees generally compute tax separately, and having children does not create an additional deduction from compensation income under the current individual tax schedule. (Bir-cdn)
Failing to consolidate income from two employers
Each employer may initially withhold based only on salary it paid. When the incomes are combined, the employee may move into a higher annual bracket and owe additional tax through Form 1700.
What to Do if Your Salary Tax Looks Wrong
- Ask payroll for the taxable-compensation breakdown. Request the figures for gross compensation, exempt benefits, mandatory contributions, and taxable supplemental compensation.
- Check whether the correct payroll frequency was used. Semi-monthly payroll should use the semi-monthly table, not half of an independently computed monthly tax.
- Review the ₱90,000 benefit ceiling. Confirm which bonuses were grouped into the annual limit.
- Check the updated de minimis ceilings. Payroll systems using older thresholds may overstate taxable benefits.
- Submit any missing previous-employer Form 2316. This allows proper annualization.
- Compare year-end figures with Form 2316. Gross compensation, non-taxable compensation, taxable compensation, tax due, and tax withheld should reconcile.
- Request correction or refund through payroll. Employers are responsible for correcting withholding and performing the required year-end adjustment.
- File the appropriate return when necessary. Employees with multiple employers should consolidate all Forms 2316 and file Form 1700 by the applicable deadline.
Frequently Asked Questions
Is a ₱20,000 monthly salary taxable in the Philippines?
A monthly taxable salary of ₱20,000 is within the zero-withholding bracket. Tax may still arise if bonuses, taxable allowances, or income from another employer bring annual taxable compensation above ₱250,000.
Is a ₱25,000 monthly salary subject to income tax?
It may be. First subtract compulsory employee contributions and any qualified non-taxable benefits. If the remaining monthly taxable compensation exceeds ₱20,833, payroll withholding will normally apply.
Is the first ₱250,000 always tax-free?
For individuals subject to the regular graduated rates, the first ₱250,000 of annual taxable income falls in the zero-percent bracket. Special rules can apply to certain non-resident aliens, final-tax income, and mixed-income earners.
Is 13th-month pay added when checking the ₱250,000 threshold?
Only the taxable portion is added. Thirteenth-month pay and similar benefits are excluded up to the combined ₱90,000 annual ceiling.
Are SSS, PhilHealth, and Pag-IBIG deducted before income tax?
The employee’s compulsory shares are excluded in determining taxable compensation. Voluntary contributions and loan repayments are not automatically deductible for income tax purposes.
Are commissions and incentives taxable?
Commissions and incentives are generally taxable unless a specific exemption applies. Qualified productivity incentives or other de minimis benefits may be excluded within their prescribed ceilings.
Why was no tax deducted for several months but a large amount was taken in December?
The employer performs a year-end annualization that includes regular pay, bonuses, taxable benefits, and previous-employer compensation. If earlier withholding was insufficient, the deficiency is normally collected from the final payrolls.
Do I need to file an income tax return if my employer issued Form 2316?
Employees who qualify for substituted filing generally do not need to file a separate Form 1700. Employees with two or more employers during the year usually must file, even if every employer issued Form 2316.
Are foreigners taxed using the same salary threshold?
Resident aliens and non-resident aliens engaged in trade or business are generally covered by the regular graduated schedule for Philippine-source income. A non-resident alien not engaged in trade or business may instead face a 25% gross-income tax, subject to any applicable tax treaty.
Key Takeaways
- Annual taxable compensation of ₱250,000 or less is subject to a zero-percent income tax rate.
- The monthly zero-withholding threshold is ₱20,833 of taxable compensation, not necessarily gross salary.
- Only income above ₱250,000 moves into the 15% bracket.
- Compulsory employee contributions and qualified non-taxable benefits are removed before tax is computed.
- The exemption for 13th-month pay and similar benefits is ₱90,000 combined per year.
- Revenue Regulations No. 29-2025 increased several de minimis benefit ceilings for 2026.
- Minimum wage earners receive special exemptions for statutory minimum wage and specified premium pay.
- Employees with multiple employers generally must consolidate their Forms 2316 and file BIR Form 1700.