In the Philippines, 13th month pay tax works on a simple threshold: the benefit is tax-free up to 90,000 PHP when combined with your other year-end bonuses, and only the amount above that ceiling is taxed. The excess is not taxed separately. It’s folded into your annual taxable income and taxed at the same graduated rates as your salary, from 15% up to 35% depending on the bracket you land in.
The 90,000 PHP Tax-Free Ceiling
Republic Act No. 10963, the TRAIN Law, exempts up to 90,000 PHP in combined 13th-month pay and “other benefits of a similar nature” for each tax year. Christmas bonuses, productivity incentives, and loyalty awards all share that same basket. If everything added together stays at or below 90,000 PHP, your employer withholds nothing on the benefit and you take home the full gross amount.
For most rank-and-file workers, that’s the end of the story. An employee earning 30,000 PHP a month has a 13th-month pay of 30,000 PHP, and even with a modest Christmas bonus the combined benefits stay well inside the ceiling. Zero tax on the benefit.
De minimis benefits, small employer-provided perks like rice subsidies, uniform allowances, and medical cash allowances, have their own individual caps. Any portion of a de minimis perk that goes over its specific cap stops being de minimis and drops into the same 90,000 PHP basket alongside your 13th-month pay and bonuses.
How the Taxable Excess Is Worked Out
Once your combined benefits cross 90,000 PHP, only the amount above the ceiling is taxable. Say you receive 75,000 PHP as 13th-month pay plus a 40,000 PHP performance bonus. That’s 115,000 PHP in combined benefits. Subtract the 90,000 PHP exemption and you’re left with 25,000 PHP of taxable excess.
That 25,000 PHP is added to your regular annual compensation and taxed with everything else. There’s no separate bonus tax rate.
The Graduated Rates That Apply
The taxable portion merges with your salary and is taxed under the standard TRAIN Law schedule for annual taxable income:
- 250,000 PHP or less: no income tax
- Over 250,000 to 400,000 PHP: 15% of the amount over 250,000 PHP
- Over 400,000 to 800,000 PHP: 22,500 PHP plus 20% of the amount over 400,000 PHP
- Over 800,000 to 2,000,000 PHP: 102,500 PHP plus 25% of the amount over 800,000 PHP
- Over 2,000,000 to 8,000,000 PHP: 402,500 PHP plus 30% of the amount over 2,000,000 PHP
- Over 8,000,000 PHP: 2,202,500 PHP plus 35% of the amount over 8,000,000 PHP
The rate that hits your taxable excess is your marginal rate, meaning the rate of the bracket your total annual taxable income lands in after you add the excess to your salary. Income below each threshold keeps being taxed at the lower rates. You don’t retroactively lose the lower brackets just because your total pushes into a higher one.
A Worked Example
An employee earns a monthly basic salary of 40,000 PHP. Total basic salary for the year is 480,000 PHP, so 13th-month pay is 40,000 PHP. The employer adds a 60,000 PHP year-end performance bonus. Combined benefits: 100,000 PHP, which is 10,000 PHP over the exemption.
That 10,000 PHP is added to the 480,000 PHP salary, giving 490,000 PHP in total annual taxable income. Under the schedule:
- First 250,000 PHP: no tax
- Next 150,000 PHP (up to 400,000): 15%, which is 22,500 PHP
- Remaining 90,000 PHP (up to 490,000): 20%, which is 18,000 PHP
Total tax for the year: 40,500 PHP. Without the 10,000 PHP of taxable excess, the tax would have been 38,500 PHP. The practical tax cost of the excess bonus is 2,000 PHP, taxed at the 20% marginal rate.
What Your Employer Handles, and What to Check
Your employer runs the math. The Bureau of Internal Revenue requires employers to calculate and withhold the correct tax before releasing pay, including 13th-month pay. If your combined benefits stay under 90,000 PHP, no withholding applies. If they don’t, the employer adds the excess to your compensation for that pay period and withholds based on the bracket.
The tax obligation is yours whether or not your employer withholds correctly. If a large bonus late in the year makes you suspect under-withholding, review your BIR Form 2316, the year-end certificate of compensation and tax withheld, before the annual filing deadline. That’s where any shortfall or refund shows up.
Who Gets 13th-Month Pay in the First Place
Presidential Decree No. 851 requires employers to pay 13th-month pay to all rank-and-file employees who worked at least one month during the calendar year, regardless of salary level.1Department of Labor and Employment Bureau of Working Conditions. FAQs on 13th Month Pay2Lawphil. Presidential Decree No. 851 – Requiring All Employers to Pay Their Employees a 13th-Month Pay Managerial employees, meaning those who set and execute company policies, are excluded. Government employees are covered by separate compensation laws. Household helpers and workers paid purely on commission or boundary arrangements may fall outside coverage depending on the setup.
If you resigned or were separated before December, you’re still entitled to a prorated 13th-month pay based on the months you actually worked that year. You don’t need to be on the payroll on December 24 to collect it, and the same 90,000 PHP tax rule applies to what you receive.