How Philippine Income Tax Works for Individuals

Philippine income tax for individuals runs on one sequence: work out what kind of taxpayer you are, add up the income the law reaches, subtract what the law lets you subtract, apply the rate for your taxable year, then file and pay through the BIR. This guide walks through that sequence step by step, with the legal basis for each step and a worked example.

Quick answer

Philippine income tax for individuals works as one sequence: your residence and citizenship decide which income is taxed; gross income minus allowed deductions gives taxable income; the TRAIN schedule (0% to 35%, 2023 onward) or, for qualified self-employed people, the 8% option sets the tax; and you settle it through withholding and an annual return due April 15.

Who is an individual taxpayer, and what income is reached?

The first question is not how much you earn but who you are for tax purposes. Section 23 of the NIRC (RA 8424) sets the reach of the tax. A citizen residing in the Philippines is taxed on income from sources within and outside the Philippines. A nonresident citizen, an overseas contract worker (including a Filipino seaman on a vessel engaged exclusively in international trade) and any alien individual, resident or not, is taxed only on income from Philippine sources.

The second question is what kind of income you have, because the Code treats each kind differently. For individuals there are three working buckets:

Compensation income — salary, wages and similar pay from an employer. No business deductions are allowed against it (Section 34, as amended by TRAIN).
Business or professional income — sales or fees from your own trade, freelancing or practice of a profession. Deductions are allowed, or you may qualify for the 8% option.
Passive income subject to final tax — for example, interest from a Philippine bank deposit, which carries a 20% final tax withheld by the bank under Section 24(B)(1). Income already subjected to final tax is not reported again in the annual return.

If you earn both compensation and business or professional income in the same year, you are a mixed income earner, and the Code applies a separate rule to each part (see below). Which specific items count as income, and which are excluded, is a topic of its own: the short version is that Section 32(A) includes “all income derived from whatever source” unless the Code excludes it.

How is taxable income computed from gross income?

Section 31 of the NIRC defines taxable income as the pertinent items of gross income, less the deductions and exemptions the Code or a special law allows for that type of income. In practice:

Start with gross income (Section 32(A)): compensation, business or professional receipts, gains, interest, rents, royalties, dividends, prizes and other listed items.
Remove exclusions (Section 32(B)): for example, life insurance proceeds paid to beneficiaries, gifts and inheritances, and, as amended by TRAIN, 13th-month pay and other benefits up to a combined ceiling of ₱90,000.
Subtract allowed deductions (Section 34), but only against business or professional income. A self-employed individual chooses between itemized deductions and the optional standard deduction (OSD) of up to 40% of gross sales or gross receipts (Section 34(L), as amended). The choice is made in the return and is irrevocable for that year.
Apply the rate for the taxable year to what remains.

TRAIN also removed the old personal and additional exemptions for individuals and replaced them with a ₱250,000 zero-rated band in the rate schedule, which is why the first ₱250,000 of taxable income is taxed at 0%.

What rates apply to individual taxable income?

Section 24(A)(2)(a) of the NIRC, as amended by RA 10963 (TRAIN), sets two schedules. The first applied from January 1, 2018 to December 31, 2022. The second applies to taxable income for January 1, 2023 onwards, and is the one used for current years:

Annual taxable income	Tax due (2023 onward)
Not over ₱250,000	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

Source: Section 24(A)(2)(a), NIRC, as amended by Section 5 of RA 10963. If you are dealing with a return for 2018 to 2022, use the earlier schedule in the same section, not this one. Married individuals compute their tax separately on their own taxable income; income that cannot be attributed to either spouse is divided equally.

Two important carve-outs sit in the same section. Minimum wage earners, as defined in Section 22(HH), are exempt from income tax on their taxable income, and the proviso extends the exemption to their holiday pay and related pay. And the rate table applies only to income not already taxed under the passive income, capital gains and other special subsections of Section 24.

How does the 8% option fit in?

Section 24(A)(2)(b), as amended by TRAIN, lets a purely self-employed individual or professional whose gross sales or receipts and other non-operating income do not exceed the VAT threshold choose an 8% tax on gross sales or receipts and other non-operating income in excess of ₱250,000. The 8% is in lieu of both the graduated rates and the percentage tax under Section 116. The VAT threshold referred to is ₱3,000,000 under Section 109(BB), as amended by TRAIN.

For mixed income earners, Section 24(A)(2)(c) taxes all compensation income at the graduated rates. The business or professional part may be taxed at the graduated rates or, if within the VAT threshold, at 8% of gross sales or receipts and other non-operating income. Note that the statutory text for mixed income earners does not carry the “in excess of ₱250,000” reduction: that zero band is already used up against the compensation income. If business receipts exceed the VAT threshold, only the graduated rates apply.

How is the tax collected: withholding, returns and payment?

Most individual income tax is collected before you ever file anything:

Employees have tax withheld by their employer from each payroll under Section 79, with a year-end adjustment so that the total withheld matches the tax due for the year.
Self-employed individuals and professionals may have creditable withholding tax deducted by clients who are required to withhold, and they file quarterly returns. Section 74, as amended by TRAIN, sets the first declaration on or before May 15, with later installments on August 15 and November 15.
Everyone who must file files an annual income tax return on or before April 15 of the following year (Section 51(C)(1)), and pays the tax due when the return is filed (Section 56(A)(1)).

If the tax due on the annual return is more than ₱2,000, an individual may pay in two equal installments: the first when the return is filed, the second on or before October 15 of the same year (Section 56(A)(2), as amended by TRAIN). Missing the second installment makes the whole unpaid balance due with penalties.

RA 11976 (Ease of Paying Taxes Act) modernized where and how returns are filed and paid. It defines “filing of return” and “payment of tax” as acts done electronically or manually, and amended Section 51(B) so that individual returns may be filed with any authorized agent bank, any Revenue District Office through its Revenue Collection Officer, or an authorized tax software provider, unless the Commissioner provides otherwise. Section 56(A)(1) now provides that tax may be paid electronically or manually.

Who does not have to file an annual return?

Section 51(A)(2), as amended by TRAIN and RA 11976, removes the filing duty for several groups, including:

An individual whose taxable income does not exceed ₱250,000, except a citizen or alien engaged in business or the practice of a profession, who must file regardless of the amount of gross income.
An employee earning purely compensation income from only one employer for the calendar year whose tax was correctly withheld (tax due equals tax withheld). The employer’s certificate of withholding filed with the BIR serves as the employee’s return. This is called substituted filing (Section 51-A).
A Filipino working and deriving income solely from abroad as an overseas contract worker or overseas Filipino worker (Section 51(A)(2)(e), as amended by RA 11976).
An individual whose sole income has been subjected to final withholding tax.

Employees with two or more employers in the same year, or who also earn business or professional income, generally fall outside substituted filing and must file their own return.

Worked example: two individuals under the 2023-onward rules

Hypothetical example for illustration only. Figures are not advice for any real taxpayer.

Example A: a regular employee

Input: annual taxable compensation (after excluded benefits and the employee share of mandatory contributions) of ₱600,000. One employer, no other income.
Rate band: over ₱400,000 but not over ₱800,000.
Step 1: excess over ₱400,000 = ₱600,000 − ₱400,000 = ₱200,000.
Step 2: 20% × ₱200,000 = ₱40,000.
Step 3: ₱22,500 + ₱40,000 = ₱62,500 annual income tax.
Result: withheld by the employer across the year. If the year-end adjustment makes tax withheld equal tax due, the employee qualifies for substituted filing.

Example B: a purely self-employed freelancer

Input: gross receipts of ₱1,200,000 for the year, no compensation income, no other non-operating income, below the ₱3,000,000 VAT threshold.
Option 1, 8%: (₱1,200,000 − ₱250,000) × 8% = ₱950,000 × 8% = ₱76,000. No separate percentage tax.
Option 2, graduated rates with 40% OSD: taxable income = ₱1,200,000 − ₱480,000 = ₱720,000. Tax = ₱22,500 + 20% × (₱720,000 − ₱400,000) = ₱22,500 + ₱64,000 = ₱86,500, plus percentage tax under Section 116 if the freelancer is not VAT-registered.
Rounding: all amounts here are whole pesos, so no rounding step is needed.
Result: on these facts the 8% option produces the lower income tax. With large actual expenses and itemized deductions, the comparison can reverse.

Which rule applies to you?

Use this table to find your starting rule, then read the matching section above.

Your situation	Rate that applies	Annual return?
Employee, one employer, tax correctly withheld	Graduated rates on taxable compensation	No, substituted filing applies
Employee with two or more employers in the year	Graduated rates on combined taxable compensation	Yes, file by April 15
Minimum wage earner	Exempt under Section 24(A) proviso	Not on the exempt pay alone
Purely self-employed, receipts not over ₱3,000,000	Graduated rates, or 8% over ₱250,000 if elected	Yes, regardless of amount
Self-employed, receipts over ₱3,000,000	Graduated rates only	Yes, regardless of amount
Mixed income earner	Graduated on pay; graduated or 8% on business part	Yes, regardless of amount
OFW earning solely from abroad	Taxed only on Philippine-source income	No, for the foreign earnings

Your exact obligations can change with facts this table does not capture, such as a change of employer mid-year, VAT registration or income from abroad.

Your options and what to do next

If you are an employee

Check your BIR Form 2316 (certificate of compensation payment and tax withheld) from each employer for the year.
If you had only one employer and the tax withheld equals the tax due, you need not file; keep the certificate.
If you had two or more employers, or other income, file your annual return through eBIRForms or eFPS by April 15 and pay any balance through an authorized agent bank or online payment channel.
For how 13th-month pay works under labor law, see the LaborCode.ph guide to 13th-month pay; payroll teams can use the year-end payroll compliance checklist.

If you are self-employed or a professional

Confirm with your Revenue District Office (RDO) that you are registered and which tax type is on your registration record.
Decide between the graduated rates (with itemized deductions or OSD) and the 8% option, if you qualify. Compare both on your real numbers before the first quarterly return of the year.
File quarterly returns on or before May 15, August 15 and November 15, and the annual return on or before April 15 of the following year.
Keep invoices, client withholding certificates (BIR Form 2307) and records of expenses if you itemize.

Where to file and pay

For calendar year 2025 returns (filed in 2026), RMC No. 20-2026 (issued March 16, 2026) directs filing through eFPS (for taxpayers mandated or enrolled), the Offline eBIRForms Package v7.9.5 (for everyone else, including “no payment” returns) or a BIR-certified tax software provider. Manual filing is allowed only when the BIR has issued an advisory that the platforms are down, when the Commissioner finds a justifiable reason, or when the return is not yet available on the platforms. Tax due is paid through eFPS, the BIR’s ePay gateways (LANDBANK Link.BizPortal, UnionBank, DBP PayTax Online, MyEG or Maya), or over the counter at an authorized agent bank in the cases the circular lists, such as a return filed through eBIRForms. The previous season’s circular, RMC No. 34-2025, governed calendar year 2024 returns and also allowed micro and small individual taxpayers to file BIR Form 1701-MS manually. The circular for each filing season sets the exact platforms and form versions, so check the BIR’s current circular before you file. The return forms named in that circular include BIR Form 1701A (for individuals earning purely from business or profession who use OSD or the 8% rate) and BIR Form 1701 (which the BIR’s instructions describe for individuals with business or professional income who also receive compensation).

First action: gather every BIR Form 2316 and 2307 you received for the year, then use them to decide which row of the table above describes you.

Key takeaways

Residence and citizenship decide whether foreign-source income is taxed (Section 23).
Taxable income is gross income minus exclusions and allowed deductions; employees get no business deductions (Sections 31, 32 and 34).
From 2023 onward, the graduated schedule runs from 0% on the first ₱250,000 to 35% over ₱8,000,000.
Purely self-employed individuals within the ₱3,000,000 VAT threshold may elect 8% on receipts over ₱250,000.
The annual return is due April 15; tax over ₱2,000 can be split, with the second half due October 15.
Single-employer employees with correct withholding use substituted filing.

For more guides as they are published, see the Income Tax Basics & Rates hub or start from the TaxCode.ph home page.

Related: need a TIN first? See how to register on BIR ORUS and get your TIN online.

Related: every rate in one place, including final taxes and nonresident rates, in Philippine individual income tax rates explained.

Frequently asked questions

How does income tax work in the Philippines for individuals?

Your citizenship and residence decide which income is taxed, gross income minus exclusions and allowed deductions gives taxable income, and the TRAIN rate schedule or the 8% option sets the tax. You settle it through withholding and, if required, an annual return due April 15.

What is the income tax rate for individuals in the Philippines from 2023?

For taxable income from January 1, 2023 onward, the first ₱250,000 is taxed at 0%, and the rate rises in bands to 35% on taxable income over ₱8,000,000, under Section 24(A)(2)(a) of the NIRC as amended by RA 10963.

Is income below ₱250,000 tax-free in the Philippines?

Taxable income up to ₱250,000 is taxed at 0% under the graduated schedule. But a self-employed individual or professional must still file a return regardless of the amount of gross income.

Do employees need to file an annual income tax return?

Not if they earned purely compensation income from only one employer for the year and the tax was correctly withheld. The employer’s certificate of withholding filed with the BIR serves as their return under substituted filing.

Who can use the 8% income tax option?

A purely self-employed individual or professional whose gross sales or receipts and other non-operating income do not exceed the ₱3,000,000 VAT threshold. Mixed income earners may use it only for the business part.

When is the annual income tax return due?

On or before April 15 of the year after the taxable year, under Section 51(C)(1) of the NIRC. The tax is paid when the return is filed, but tax over ₱2,000 may be paid in two installments, the second by October 15.

Are OFWs taxed on their foreign salary?

No. A Filipino working and deriving income from abroad as an overseas contract worker is taxed only on income from Philippine sources, and one earning solely from abroad is not required to file an income tax return.

Paano kinukwenta ang income tax ng empleyado sa Pilipinas?

Kunin ang taxable compensation, hanapin ang tamang bracket sa 2023-onward na tax table, at i-apply ang rate. Halimbawa, sa ₱600,000 na taxable compensation, ang tax ay ₱22,500 dagdag ang 20% ng ₱200,000, o ₱62,500.

Kailangan ko bang mag-file ng ITR kung freelancer ako pero maliit lang ang kita?

Oo. Ang self-employed o professional ay kailangang mag-file ng income tax return kahit gaano kaliit ang gross income, kahit 0% ang tax sa unang ₱250,000 ng taxable income.

Exempt ba sa income tax ang minimum wage earner?

Oo. Ayon sa Section 24(A) ng NIRC na inamyendahan ng TRAIN Law, exempt sa income tax ang minimum wage earner, pati ang kanyang holiday pay. Itanong sa employer o sa RDO kung paano tinatrato ang iba pang bayad na hindi minimum wage.

Sources

National Internal Revenue Code of 1997, NIRC (RA 8424): Sections 23, 31, 32, 51(C) and 56(A)(1).
RA 10963 (TRAIN): amended Sections 24(A), 24(B)(1), 32(B)(7)(e), 34(L), 51(A)(2), 56(A)(2), 74 and 109(BB); repealed Section 35; inserted Section 51-A.
RA 11976 (Ease of Paying Taxes Act): amended Sections 22, 51(A)(2)(e), 51(B) and 56(A)(1).
BIR RMC No. 20-2026, guidelines for filing calendar year 2025 annual income tax returns and paying the tax due (issued March 16, 2026).
BIR RMC No. 34-2025, guidelines for filing calendar year 2024 annual income tax returns (issued April 8, 2025).
BIR Form No. 1701A (January 2018) and BIR Form 1701 guidelines (Form 1701A; Form 1701 instructions).

This guide is general information about Philippine tax law, not tax or legal advice for your situation. For your specific facts, consult a CPA, a tax lawyer or your BIR Revenue District Office.

By the TaxCode.ph Editorial Team. Sources checked as of: November 5, 2026.

Last correction: November 5, 2026 — “Where to file and pay” updated to the calendar year 2025 filing rules in RMC No. 20-2026 (the earlier text described only the calendar year 2024 rules in RMC No. 34-2025); structured-data URLs corrected to this page’s address. Rates, the 8% option, the ₱90,000 exclusion, the 40% OSD, the ₱3,000,000 VAT threshold, the installment rule and the filing exemptions were rechecked against RA 10963 and RA 11976, and the worked examples were recomputed.

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