“Bakit may tax na kinaltas sa sahod ko, eh maliit lang naman ‘to?” If you’ve ever squinted at your payslip and asked that, this guide is for you. Under the TRAIN law, a lot of Filipino workers actually owe zero income tax. The catch is knowing whether you’re one of them, and what counts toward the limit.
Here’s a plain-language look at the ₱250,000 income tax exemption, who qualifies, what’s excluded from taxable income, and when you still need to file your own return.
The ₱250,000 rule in one sentence
Since 2018, Republic Act 10963, better known as the TRAIN law, made the first ₱250,000 of an individual’s annual taxable income taxed at 0%. Starting January 1, 2023, the rates above that line went down further. The Department of Finance confirms that individuals with annual taxable income of ₱250,000 and below remain exempt under the 2023 schedule.
Notice the word taxable. That’s not the same as your gross salary. Several things are subtracted first, which is why many people earning more than ₱250,000 a year in gross pay still end up paying little or no income tax.
The 2023-onwards income tax table
This is the graduated rate table for individuals from January 1, 2023, based on the TRAIN law summary published by the National Tax Research Center:
| Annual taxable income | Income tax due |
|---|---|
| ₱250,000 and below | 0% |
| Over ₱250,000 up to ₱400,000 | 15% of the excess over ₱250,000 |
| Over ₱400,000 up to ₱800,000 | ₱22,500 + 20% of the excess over ₱400,000 |
| Over ₱800,000 up to ₱2,000,000 | ₱102,500 + 25% of the excess over ₱800,000 |
| Over ₱2,000,000 up 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 |
Divide ₱250,000 by 12 and you get roughly ₱20,833 a month. So, as a rough guide, if your monthly taxable compensation stays at about that level or below all year, your income tax should be zero.
What gets subtracted before tax
For employees, your taxable compensation is your gross pay minus items the law excludes. The common ones are:
- Your share of mandatory contributions. The employee share of SSS, PhilHealth and Pag-IBIG contributions is not taxed. If you want to see how big those deductions are, check our guides on SSS contributions, PhilHealth contributions and Pag-IBIG contributions.
- 13th month pay and other benefits up to ₱90,000. The TRAIN law raised this ceiling to ₱90,000 a year. That covers your 13th month pay, Christmas bonus and similar benefits combined. Anything above ₱90,000 becomes taxable. Our 13th month pay guide explains how that bonus is computed.
- De minimis benefits. Small employee perks within the limits set by BIR regulations, such as certain rice, uniform or medical allowances, are not counted as taxable compensation.
- Union dues, if you’re a union member.
Because of these exclusions, the gross salary at which you start paying tax is higher than ₱250,000. The exact point depends on your contributions and benefits, so look at the “taxable compensation” line on your payslip or your BIR Form 2316 rather than guessing.
Minimum wage earners pay no income tax
If you earn the statutory minimum wage in your region, your minimum wage is exempt from income tax. So are your holiday pay, overtime pay, night shift differential and hazard pay, as long as you remain a minimum wage earner. If you want to check whether your OT and holiday pay are computed correctly, see our guide on holiday, overtime and night pay.
Sample computations
These examples use annual taxable income, meaning the amount left after the exclusions above:
- Taxable income of ₱240,000: It’s below ₱250,000, so the income tax is ₱0.
- Taxable income of ₱300,000: The excess over ₱250,000 is ₱50,000. Multiply by 15% and the tax is ₱7,500 for the year, or about ₱625 a month.
- Taxable income of ₱500,000: The tax is ₱22,500 plus 20% of ₱100,000 (the excess over ₱400,000), so ₱42,500 for the year.
A quick reminder: only the portion above each bracket line gets the higher rate. Earning ₱1 over ₱250,000 doesn’t make your whole salary taxable at 15%.
Do you still need to file an income tax return?
Many employees never file their own ITR because of substituted filing. Your employer’s year-end filing, together with the BIR Form 2316 they give you, stands in for your own return. As summarized in this PwC Philippines tax alert on BIR rules, individuals generally not required to file include:
- employees earning purely compensation income whose taxable income doesn’t exceed ₱250,000,
- employees with only one employer for the year whose tax was correctly withheld,
- minimum wage earners,
- individuals whose only income was already subjected to final withholding tax, and
- Filipino citizens working abroad on income earned abroad, such as OFWs.
You will likely need to file your own return, usually by April 15 of the following year, if you:
- had two or more employers in the same year, including when you changed jobs,
- have side income from freelancing, a business, an online shop or commissions on top of your salary, or
- are self-employed or a professional.
Changed jobs this year? Ask both employers for your Form 2316. Each employer only applied the ₱250,000 zero bracket to what they paid you, so combining the two incomes can mean you owe a bit more at year-end.
Freelancers and small business owners
If you’re self-employed or a professional, the same graduated table applies to your net taxable income. Alternatively, if your gross sales or receipts are within the VAT threshold, you can choose the 8% income tax option, which for purely self-employed individuals is computed on gross sales or receipts in excess of ₱250,000. If you also have a salary (mixed income), the ₱250,000 reduction is already used up by your compensation side, so it isn’t deducted again from your business income under the 8% option. Read our guide to the 8% tax option for freelancers before you register, and see our freelancing starter guide if you’re just getting started.
Practical tips
- Keep your BIR Form 2316 every year. Employers are expected to release it by January 31. Banks, embassies and lenders often ask for it as proof of income.
- Check your payslip. If your taxable pay is clearly below about ₱20,833 a month all year and tax is still being withheld, ask HR or payroll to explain. Over-withheld tax is normally refunded or adjusted by the employer at year-end.
- Watch the ₱90,000 ceiling. If you get a big year-end bonus, the part above ₱90,000 can be taxed, so don’t plan to spend the whole gross amount.
- Don’t hide side income. Registering with the BIR keeps you out of penalties and makes it easier to get loans or visas later.
- Use official tools. The BIR website at bir.gov.ph has the current forms, deadlines and a tax calculator. Ignore “tax refund” messages asking for your bank or GCash details; the BIR doesn’t ask for those by text. See our guide on how to spot money scams.
Bottom line
If your annual taxable income is ₱250,000 or less, or you’re a minimum wage earner, you shouldn’t owe income tax under the current TRAIN law schedule. Your SSS, PhilHealth and Pag-IBIG contributions plus up to ₱90,000 in 13th month pay and bonuses are taken out before tax, so more of your gross pay is protected than you might think. Know your taxable income, keep your Form 2316, and file your own return if you had more than one employer or any side income.
This article is general information only and not financial advice. Rates, rules and fees change, so please verify with the provider or the official agency before deciding.