You’ve just received your first paycheck, and like many other new employees, you’re expecting the full amount. After all, that’s what your job offer says, right? But then you notice several deductions—SSS, PhilHealth, Pag-IBIG, and withholding tax. Suddenly, you get a little disappointed and confused because your take-home pay is much less than you expected. So, you start to ask around until someone tells you, “That’s income tax.”
Sound familiar? Whether you’re a first-time employee, a freelancer, a sole proprietor, or even a seasoned worker, understanding personal income tax is not just about curiosity. It is also about knowing how it really works, how it’s computed, and how it affects your income.
In this blog, we’ll break down personal income taxation in the Philippines based on the latest income tax table and explore other tax rate options available for the self-employed, professionals, and mixed-income earners.
Personal Income Tax
In the Philippines, a Personal Income Tax (PIT) is a form of tax on an individual’s income derived from employment, practice of profession, and engagement in trade or business. It is collected by the Bureau of Internal Revenue (BIR) and is governed by laws such as the National Internal Revenue Code (NIRC) and the TRAIN Law.
As an income earner, you fall into a specific category based on the source and nature of your income—and this determines your taxpayer type and how you are taxed:
Compensation Income Earners
If you’re earning income solely from employment (e.g., as an office employee, factory worker, minimum-wage earner, etc.), then you’re considered a compensation income earner. Your employer automatically withholds your income tax from your salary and does the tax filing and payment on your behalf.
Self-Employed Individuals and Professionals
If you’re running a business (e.g., as a sole proprietor), practicing your profession independently (e.g., as a dentist or consultant), or pursuing art as a means of personal income (e.g., as a freelance graphic designer), and you’re not employed by any company, then you’re classified as self-employed. You’re responsible for computing and paying your own taxes.
Mixed-Income Earners
Now, if you have both a regular employment and another source of income (e.g., a business or practice of a profession), you fall under the mixed-income earner category. With your multiple income sources, you need to pay tax on both your salary and your additional earnings.
Tax Reform for Acceleration and Inclusion (TRAIN) Law: Key Provisions on Personal Income Taxation
In the Philippines, the Tax Reform for Acceleration and Inclusion (TRAIN) Law (R.A. 10963), which forms part of the Comprehensive Tax Reform Program (CTRP) and took effect in 2018, has introduced significant amendments to several provisions of the National Internal Revenue Code of 1997 (NIRC) on personal income taxation, passive income for both individuals and corporations, estate tax, documentary stamp tax (DST), and tax administration, among others. Generally, it aims to make the tax system simpler, fairer, and more efficient to promote investments, create jobs, and reduce poverty.
Now, here are some key provisions of the new law on personal income taxation in the Philippines (National Tax Research Center, Department of Finance). The TRAIN Law:
- restructures the personal income tax (PIT) schedule, with separate schedules for (1) compensation income earners, (2) purely self-employed individuals and/or professionals (SEPs) whose gross sales or gross receipts and other non-operating income do not exceed the value-added tax threshold of PHP 3,000,000, and (3) mixed-income earners;
- reduces the number of tax brackets from seven (7) to six (6);
- sets the highest amount of taxable income at more than P8 million and subjects it to a higher marginal rate of 35%;
- repeals the provision on basic personal and additional exemptions and premiums paid on health and/or hospitalization insurance, which are deemed integrated into the PHP 250,000 exempt threshold;
- retains the income tax exemption of minimum wage earners;
- retains the exemption from tax of de minimis benefits as well as the non-taxability of mandatory contributions such as those made to the GSIS, SSS, PhilHealth, Pag-IBIG Fund, and union dues;
- increases the amount of tax-exempt benefits ceiling (13th month pay and other benefits) from PHP 82,000 to PHP 90,000;
- increases the fringe benefits tax (FBT) rate from 32% to 35%; and
- inserts a provision that the Optional Standard Deduction (OSD) by a general professional partnership (GPP) may only be availed once, either by the GPP or the partners comprising such partnership.
In a nutshell, if you are a lower-income earner, the new income tax rates may lead to lower taxes or even tax exemptions, which may boost your take-home pay and increase your purchasing power. However, if you’re a higher-income earner, you may face the opposite—higher tax rates and reduced disposable income.
Pre-TRAIN Law (Old) Personal Income Tax Table (for Compensation Income Earners, Self-Employed, and Professionals)
Prior to the implementation of the TRAIN Law on January 1, 2018, the income tax rates for compensation earners, self-employed individuals, and professionals were as follows:
Net Taxable Income (Annual) | Income Tax Rate | |
Over | But Not Over | |
PHP 10,000 | 5% | |
PHP 10,000 | PHP 30,000 | PHP 500 + 10% of excess over PHP 10,000 |
PHP 30,000 | PHP 70,000 | PHP 2,500 + 15% of excess over PHP 30,000 |
PHP 70,000 | PHP 140,000 | PHP 8,500 + 20% of excess over PHP 70,000 |
PHP 140,000 | PHP 250,000 | PHP 22,500 + 25% of excess over PHP 140,000 |
PHP 250,000 | PHP 500,000 | PHP 50,000 + 30% of excess over PHP 250,000 |
PHP 500,000 | PHP 125,000 + 32% of excess over PHP 500,000 | |
Previous Personal Income Tax Table (January 01, 2018 – December 31, 2022, TRAIN Law PIT Schedule 1)
In 2018, a new income tax table (Tax Schedule 1) was introduced, serving as the basis for personal income tax brackets, income tax rates, and computations from January 2018 through December 2022.
Net Amount of Taxable Income (Annual) | Income Tax Rate |
PHP 250,000 and below | 0% (Tax Exempt) |
Over PHP 250,000 – PHP 400,000 | 20% of excess over PHP 250,000 |
Over PHP 400,000 – PHP 800,000 | PHP 30,000 + 25% of excess over PHP 400,000 |
Over PHP 800,000 – PHP 2,000,000 | PHP 130,000 + 30% of excess over PHP 800,000 |
Over PHP 2,000,000 – PHP 8,000,000 | PHP 490,000 + 32% of excess over PHP 2,000,000 |
Over PHP 8,000,000 | PHP 2,410,000 + 35% of excess over PHP 8,000,000 |
Latest Personal Income Tax Table (January 01, 2023 and Onwards, TRAIN Law PIT Schedule 2)
Starting January 1, 2023, a new income tax table (Tax Schedule 2) has been applied for personal income tax rates and computations. As shown below, the income tax rates have been reduced compared to the previous schedule (Tax Schedule 1).
Net Amount of Taxable Income (Annual) | Income Tax Rate |
PHP 250,000 and below | 0% (Tax Exempt) |
Over PHP 250,000 – PHP 400,000 | 15% of the excess over PHP 250,000 |
Over PHP 400,000 – PHP 800,000 | PHP 22,500 + 20% of the excess over PHP 400,000 |
Over PHP 800,000 – PHP 2,000,000 | PHP 102,500 + 25% of the excess over PHP 800,000 |
Over PHP 2,000,000 – PHP 8,000,000 | PHP 402,500 + 30% of the excess over PHP 2,000,000 |
Over PHP 8,000,000 | PHP 2,202,500 + 35% of the excess over PHP 8,000,000 |
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Personal Income Tax Exemptions in the Philippines
Certain individuals are exempt from paying personal income tax based on income level, employment status, or special qualifications. Now, if you fall under any of the categories listed below, you may be exempt from paying income taxes:
1. Minimum-Wage Earners
If you’re earning a salary that does not exceed the mandated minimum wage (e.g., PHP 645 per day in Metro Manila) set by the Regional Tripartite Wages and Productivity Boards (RTWPBs), you are fully exempt from income tax on your basic salary, overtime pay, holiday pay, and other mandated benefits.
2. Individuals Earning PHP 250,000 or Less Annually
If you’re earning above the minimum wage, but your annual income still does not exceed PHP 250,000, you are still exempt from paying income tax. This exemption applies regardless of your employment status—whether you’re employed, self-employed, or a professional.
3. Barangay Micro Business Enterprises (BMBEs)
If you’re registered as a Barangay Micro Business Enterprise (BMBE), then you are also exempt from income tax on income derived from your business operations, provided you meet the criteria set under Republic Act No. 9178.
4. Senior Citizens and Persons with Disability (PWDs)
If you’re a senior citizen or a person with a disability (PWD), you may be exempt from paying income tax if your income comes solely from minimum wage or if you meet certain qualifying conditions. You may also be entitled to additional tax privileges under special laws.
5. 13th-Month Pay and De Minimis Benefits
As an employee, your benefits—such as the 13th month pay and other bonuses—are tax-exempt up to a total of PHP 90,000. Additionally, de minimis benefits like rice subsidies, uniform allowances, and similar perks are also exempt from income tax.
6. Certain Government Employees and Officials
If you belong to special groups of government workers, such as being a member of diplomatic missions or international organizations, you may also be entitled to tax exemption under treaties or special laws.
Other Income Tax Rate Options for the Self-Employed, Professionals, and Mixed-Income Earners
In reality, income tax computation in the Philippines can be complex and challenging. If you are a self-employed business owner, professional, or mixed-income earner, however, you may have some alternative tax options available, depending on your business size, income level, and expenses.
1. Eight Percent (8%) Income Tax Rate
If you are a BIR-registered self-employed individual, either a sole proprietor or professional, whose gross sales or gross receipts and other non-operating income for the year do not exceed PHP 3,000,000, you may opt for a simplified tax rate of eight percent (8%) instead of the graduated income tax rates.
New Income Tax Table for SELF-EMPLOYED AND PROFESSIONALS (effective January 01, 2018) | |
Gross Sales/Receipts (Annual) | Income Tax Rate |
Not Exceeding PHP 3,000,000 | Option 1: Regular Personal Income Tax (PIT) Rates Option 2: 8% of Gross Sales/Receipts in excess of PHP 250,000 |
Above PHP 3,000,000 | Regular Personal Income Tax (PIT) Rates |
New Income Tax Table for MIXED-INCOME EARNERS (effective January 01, 2018) | |
Type of Income | Income Tax Rate |
Compensation Income | Regular Personal Income Tax (PIT) Rates |
Income from Business or Practice of Profession | Option 1: Regular Personal Income Tax (PIT) Rates Option 2: 8% of Gross Sales/Receipts in excess of PHP 250,000 |
| |
| Regular Personal Income Tax (PIT) Rates |
2. Optional Standard Deduction (OSD)
In terms of reporting your individual or itemized deductions, you may also elect a standard deduction of forty percent (40%) in the computation of your net taxable income. While this is an option for both corporate and individual taxpayers, there is a difference in the basis of the percentage — the 40% is computed on the gross income for corporate taxpayers, while for individuals, it is based on the gross sales or receipts.
3. Itemized Deductions
You may, however, choose to itemize deductions rather than using the flat 40% Optional Standard Deduction (OSD). Itemizing deductions in income tax computation means listing and deducting specific allowable expenses from the gross income to lower the taxable income. While it can be beneficial if the actual expenses are higher, it requires complete and accurate documentation.
4. Barangay Micro Business Enterprise (BMBE) (for Sole Proprietors Only)
If you are registered as a sole proprietor, you may want to explore tax exemption opportunities, such as qualifying as a Barangay Micro Business Enterprise (BMBE). To qualify, your total assets, including loans but excluding land, must not exceed PHP 3,000,000.
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