Philippines Personal Income Tax Guide 2026

Overview — Bureau of Internal Revenue (BIR)

The Bureau of Internal Revenue (BIR) administers all national internal revenue taxes in the Philippines, including personal income tax. The tax year is the calendar year (1 January to 31 December). Philippine tax residents are taxed on worldwide income, while non-residents are taxed only on Philippine-source income. Tax residency is determined by physical presence (183+ days) or having the centre of vital interests in the Philippines. Compensation income is subject to withholding tax (BIR Form 2316), while self-employed individuals file quarterly and annual returns (BIR Form 1701/1701A).

The TRAIN Law (Republic Act No. 10963) effective 2018 simplified the tax system by abolishing the personal exemption and restructuring brackets. The CREATE Act (Republic Act No. 11534) effective 2021 further rationalised fiscal incentives and maintained the TRAIN bracket structure.

IIT Tax Brackets Under TRAIN/CREATE (2026)

For the 2026 tax year, the Philippine personal income tax rates for pure compensation income earners (and self-employed individuals not using the 8% optional tax) are as follows:

• PHP 0 – PHP 250,000: 0% (tax-exempt)
• PHP 250,001 – PHP 400,000: 15% of the excess over PHP 250,000
• PHP 400,001 – PHP 800,000: PHP 22,500 + 20% of the excess over PHP 400,000
• PHP 800,001 – PHP 2,000,000: PHP 102,500 + 25% of the excess over PHP 800,000
• PHP 2,000,001 – 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

These six (6) brackets under CREATE represent a simplified structure compared to the pre-TRAIN system. The top marginal rate of 35% applies to taxable income exceeding PHP 8 million.

Personal Exemption — Abolished (2018)

The personal exemption was abolished effective 1 January 2018 under the TRAIN Law. Previously, individuals could claim a personal exemption of PHP 50,000 plus additional exemptions for dependents (PHP 25,000 per dependent, up to 4). Under the current system, the first PHP 250,000 of taxable income is tax-exempt (0% bracket), which serves as a de facto standard deduction. The Optional Standard Deduction (OSD) for self-employed individuals is 40% of gross income, as an alternative to itemised deductions.

Standard deduction: PHP 0. There is no explicit standard deduction for employees; the PHP 250,000 zero-rate bracket functions as built-in relief.

13th Month Pay and Other Bonuses — Exempt Up to PHP 90,000

The 13th month pay and other bonuses (mid-year bonus, Christmas bonus, productivity incentives, and similar benefits) are tax-exempt up to PHP 90,000 per year. The exemption applies to the total amount of 13th month pay and other bonuses received during the calendar year. Any amount exceeding PHP 90,000 is subject to tax as regular compensation income. This exemption was increased from PHP 82,000 (pre-TRAIN) to PHP 90,000 under the TRAIN Law.

Optional Standard Deduction (OSD) — 40%

Self-employed individuals (SEPs) and professionals may elect, at their option, to claim the Optional Standard Deduction (OSD) in lieu of itemised deductions. The OSD is equal to 40% of gross income (gross receipts less cost of sales or services). Once elected, the OSD is irrevocable for the taxable year. No receipts or documentation are required to substantiate the OSD, but the taxpayer must indicate the election on the quarterly and annual income tax returns. The OSD is available to mixed-income earners on their business income portion.

8% Optional Income Tax for Self-Employed (Gross Receipts ≤ PHP 3M)

Self-employed individuals and professionals with gross receipts not exceeding PHP 3 million per year may elect an 8% flat tax on gross receipts in lieu of the graduated rates and the percentage tax. This option simplifies compliance:

• 8% tax on gross receipts (sales/revenues) in excess of PHP 250,000
• Replaces both the graduated IIT rates and the 3% percentage tax (business tax)
• The PHP 250,000 exemption still applies (so 8% on gross receipts over PHP 250,000)
• Available only to individuals whose gross receipts do not exceed PHP 3 million per year
• Not available to those subject to VAT or other percentage taxes

Filing Requirements

Philippine income tax returns are filed using the following BIR forms:

• BIR Form 1700: Annual Income Tax Return for pure compensation income earners (filed by 15 April)
• BIR Form 1701: Annual Income Tax Return for self-employed individuals, professionals, and mixed-income earners (filed by 15 April)
• BIR Form 1701A: Annual Income Tax Return for self-employed individuals under the 8% optional tax (filed by 15 April)
• BIR Form 1701Q: Quarterly Income Tax Return for self-employed (filed within 60 days after each quarter)
• BIR Form 2316: Certificate of Compensation Payment withheld by employers

Filing is done electronically through the BIR eBIRForms platform or manually at Authorised Agent Banks (AABs) or Revenue District Offices (RDOs). Late filing penalties include a surcharge of 25% (or 50% in case of fraud) plus interest of 12% per annum (subject to change by the BIR).

FAQs

Why was the personal exemption abolished?

The TRAIN Law (2018) abolished the personal exemption and instead raised the zero-rate bracket to PHP 250,000. Previously, the personal exemption was PHP 50,000 plus PHP 25,000 per dependent (max 4). The new system provides greater relief to lower-income earners while simplifying the tax code.

Can I claim the OSD as an employee?

No. The Optional Standard Deduction (OSD) of 40% is available only to self-employed individuals and professionals. Employees are not eligible for the OSD and cannot claim deductions against their compensation income.

What happens if I earn over PHP 3M as a self-employed individual?

If your gross receipts exceed PHP 3 million, you must use the graduated income tax rates (0-35%) and cannot elect the 8% optional tax. You will also be required to register for VAT if your gross receipts exceed PHP 3 million.

Is the 8% optional tax inclusive of percentage tax?

Yes. The 8% optional tax substitutes both the graduated income tax and the 3% percentage tax. Taxpayers under the 8% rate do not pay the 3% percentage tax on their gross receipts.

Disclaimer

This guide provides general information about Philippine personal income tax (IIT) for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Philippine tax professional or the BIR directly for advice specific to your situation. InvestmentKit does not provide tax advice.