What Income Is Subject to Philippine Income Tax?

Before you can compute any Philippine income tax, you have to know whether a particular peso you received is even within the tax’s reach. That depends on three tests: whether the amount is income at all, whether your taxpayer class makes the source of that income matter, and whether the National Internal Revenue Code (NIRC) excludes it or taxes it under a separate final-tax rule. This guide works through those tests in order.

Quick answer

Philippine income tax reaches “all income derived from whatever source” under Section 32(A) of the NIRC: salaries, business and professional receipts, gains, interest, rents, royalties, dividends, prizes and pensions, unless the Code excludes them. Resident citizens are taxed on worldwide income; nonresident citizens, OFWs and aliens only on Philippine-source income.

What counts as “income” under the Tax Code?

The starting rule is broad. Section 32(A) of the NIRC (RA 8424) says that, except when the Code provides otherwise, gross income means “all income derived from whatever source, including (but not limited to)” eleven listed items:

• Compensation for services in whatever form paid, including fees, salaries, wages and commissions
• Gross income from the conduct of trade or business or the exercise of a profession
• Gains derived from dealings in property
• Interests, rents, royalties and dividends
• Annuities, prizes and winnings, and pensions
• A partner’s distributive share from the net income of a general professional partnership

The words “including (but not limited to)” matter. The list is illustrative, so an item that is not named, such as a referral fee, a sign-up incentive or income earned through an online platform, is still gross income if it is a gain to you and no provision excludes it. The question is not whether the Code names your kind of income, but whether some provision takes it out.

What the tax reaches is income, not capital. In Madrigal v. Rafferty, G.R. No. L-12287 (August 7, 1918), the Supreme Court explained that “capital is a fund; income is a flow,” and that “a tax on income is not a tax on property.” The case was decided under the American-era income tax law and concerned whether spouses could split conjugal income, but its income-versus-capital distinction is still the clearest way to frame the question. Getting back money you lent, or receiving the principal of a matured deposit, is a return of capital. The interest on it is income.

Does your taxpayer class change which income is taxed?

Yes. Section 23 of the NIRC sets out the general principles, and the answer depends on citizenship and residence, not on how much you earn. The table summarizes the rule for individuals.

A seaman who is a Filipino citizen and is paid for services abroad as a crew member of a vessel engaged exclusively in international trade is treated as an overseas contract worker under Section 23(C). Section 22(E) defines a nonresident citizen, including a citizen whose employment abroad requires physical presence abroad most of the taxable year, and requires the taxpayer to submit proof of the intention to reside abroad or to return.

When is income treated as coming from the Philippines?

For everyone except resident citizens, the source of each item decides whether it is taxed at all. Section 42(A) of the NIRC treats these items of gross income as coming from sources within the Philippines:

• Services: compensation for labor or personal services performed in the Philippines. The place where the work is done controls, not where the payer is.
• Interest: interest derived from sources within the Philippines, and interest on bonds, notes or other interest-bearing obligations of residents.
• Dividends: dividends from a domestic corporation, and part of the dividends from a foreign corporation that earned at least half its gross income in the Philippines over the prior three-year period.
• Rentals and royalties: from property located in the Philippines, or for the use in the Philippines of intellectual property, equipment or know-how.
• Sale of real property: gains from the sale of real property located in the Philippines.
• Sale of personal property: gains as determined under Section 42(E).

Section 42(C) treats the mirror-image items as income from sources outside the Philippines, for example compensation for services performed outside the Philippines and rentals or royalties from property located abroad. So a nonresident citizen who works in Dubai is not taxed in the Philippines on the Dubai salary, but is taxed on rent from a condominium unit in Makati.

Is all taxable income taxed the same way?

No. Income can be subject to Philippine income tax in one of two ways, and this decides whether you report it at all. Most income goes into taxable income under Section 31 and is taxed at the graduated rates in Section 24(A), as amended by RA 10963 (TRAIN). Certain passive income and capital gains are instead subject to a final tax that is withheld or paid separately, and Section 24(A)(1) expressly excludes them from the graduated-rate base.

The final-tax rates below are those in Section 24(B) as amended by RA 12214 (Capital Markets Efficiency Promotion Act), approved May 29, 2025. Its Section 28 keeps the earlier exemption or preferential rate for financial instruments issued or transacted before July 1, 2025, for their remaining maturity. The rates in the table therefore apply to income from instruments issued or transacted on or after July 1, 2025, and to prizes, winnings and dividends received from that date.

Income subjected to a final tax is still “subject to income tax”. It is simply settled at source rather than in your annual return. Shares sold through a stock exchange are excluded from the 15% rule because they are covered by the stock transaction tax under Section 127, which is a separate tax.

What income is left out of the income tax?

Section 32(B) lists items that “shall not be included in gross income and shall be exempt from taxation.” Among them: life insurance proceeds paid to heirs or beneficiaries; return of premiums; gifts, bequests, devises and inheritances (though income later earned from that property is taxable); compensation for personal injuries or sickness; income exempt under a treaty; qualifying retirement benefits; GSIS, SSS, Medicare (PhilHealth) and Pag-IBIG contributions and union dues; and, as amended by RA 10963, 13th-month pay and other benefits such as productivity incentives and Christmas bonuses up to a combined ₱90,000 under Section 32(B)(7)(e). The excess over ₱90,000 is taxable compensation.

Separately, the proviso to Section 24(A)(2), as amended by TRAIN, exempts minimum wage earners from income tax on their taxable income, together with their holiday pay. The exclusions and exemptions each have conditions, so treat this paragraph as a map, not a checklist.

Worked example: sorting one person’s income for a year

Hypothetical example for illustration only, using the TRAIN schedule effective January 1, 2023 onward. Maria is a citizen residing in the Philippines, employed by one company. In the calendar year she receives:

• Basic salary: ₱540,000
• 13th-month pay: ₱45,000, and a Christmas bonus: ₱50,000 (benefits total ₱95,000)
• Employee share of SSS, PhilHealth and Pag-IBIG contributions deducted from pay: ₱30,000 (assumed figure)
• Interest on a peso savings account opened in 2026: ₱8,000
• A PCSO prize of ₱5,000

Step 1, gross compensation: ₱540,000 + ₱95,000 = ₱635,000.

Step 2, exclusions: ₱90,000 of the ₱95,000 benefits is excluded under Section 32(B)(7)(e); the remaining ₱5,000 stays taxable. The ₱30,000 mandatory contributions are excluded under Section 32(B)(7)(f). Total exclusions: ₱120,000.

Step 3, taxable compensation: ₱635,000 − ₱120,000 = ₱515,000.

Step 4, graduated tax: ₱515,000 falls in the bracket over ₱400,000 but not over ₱800,000, so the tax is ₱22,500 + 20% × (₱515,000 − ₱400,000) = ₱22,500 + ₱23,000 = ₱45,500. No rounding is needed.

Step 5, items outside the graduated base: the ₱8,000 interest bears a 20% final tax of ₱1,600, withheld by the bank, and is not added to Step 3. The ₱5,000 PCSO prize is exempt because it is ₱10,000 or less.

Result: all of Maria’s income is “subject to” Philippine income tax in the sense that the law reaches it, but it lands in three different places: ₱515,000 at graduated rates, ₱8,000 under final tax, and ₱125,000 (exclusions plus the exempt prize) outside the tax entirely.

Is this item subject to Philippine income tax?

Use this table to sort a single item of income. Read the row that matches the item, then check your taxpayer class in the earlier section.

If an item does not fit any row, apply the default rule: it is gross income unless a specific provision excludes or exempts it.

Your options and what to do next

If you are an employee with one employer

• List every payment from your employer for the year, including bonuses and allowances, and check that benefits above ₱90,000 were treated as taxable.
• Ask HR or payroll for your annual certificate of compensation paid and tax withheld, and compare it with your payslips.
• If you also earned freelance, rental or business income, you have income outside your employer’s withholding and must file your own annual return. See how Philippine income tax works for individuals for who must file.
• For how 13th-month pay is computed under labor law, see LaborCode.ph’s 13th-month pay guide.

If you are self-employed, a freelancer or a professional

• Treat every receipt from clients, local and foreign, as gross income if you are a resident citizen; source does not reduce it.
• Register with the BIR before you start earning. Registering on ORUS and getting your TIN walks through the online route.
• Keep invoices, bank deposit records and platform payout reports so that each receipt can be traced to a client and a period.

If you have investment or passive income

• Keep the certificates or statements showing final tax withheld by your bank, broker or the company paying dividends.
• Do not add income already subjected to final tax to your annual return’s taxable income.
• For a sale of shares not traded on an exchange, or of real property held as a capital asset, ask your RDO about the separate return and payment before the deed is registered.

Where to file and when

Under Section 51(C)(1) of the NIRC, the annual income tax return of an individual is filed on or before April 15 of each year, covering income for the preceding taxable year. Section 56(A)(1), as amended by RA 11976 (Ease of Paying Taxes Act), requires the tax to be paid, electronically or manually, at the time the return is filed. As amended by the same law, Section 51(B) allows the return to be filed with any authorized agent bank, a Revenue District Office through its Revenue Collection Officer, or an authorized tax software provider, unless the Commissioner permits otherwise. OFWs earning solely from abroad are not required to file a return under Section 51(A)(2)(e).

First action: write down every amount you received last year, mark each as compensation, business, passive or gift, and check it against the decision table above.

Key takeaways

• Gross income is “all income derived from whatever source” unless the Code excludes it (NIRC Section 32(A)).
• Resident citizens are taxed on worldwide income; nonresident citizens, OFWs and aliens only on Philippine-source income (Section 23).
• Where the work is done decides the source of compensation (Section 42(A)(3)).
• Interest, dividends, certain prizes and some capital gains are subject to final tax and are not reported again in the annual return.
• Exclusions such as inheritances, gifts, mandatory contributions and up to ₱90,000 of 13th-month pay and other benefits are not taxed.

Related: who is required to pay income tax in the Philippines.

Related: gross income vs taxable income in the Philippines, and what gets removed between the two.

Related: how to identify taxable and non-taxable income for BIR purposes, a four-test method for sorting each item you receive.

Frequently asked questions

What income is subject to income tax in the Philippines?

All income from whatever source, including salaries, business and professional income, gains, interest, rents, royalties, dividends, prizes and pensions, unless the NIRC excludes or exempts it. Resident citizens are taxed on worldwide income; others only on Philippine-source income.

Is foreign income taxable in the Philippines?

It depends on your taxpayer class. A citizen residing in the Philippines is taxed on income from sources outside the Philippines. A nonresident citizen, an overseas contract worker and an alien are taxed only on income from Philippine sources.

Is a 13th-month pay taxable in the Philippines?

13th-month pay and other benefits such as productivity incentives and Christmas bonuses are excluded from gross income up to a combined ₱90,000 a year. Any amount above ₱90,000 is taxable compensation.

Is bank interest subject to income tax?

Yes. Interest on a bank deposit, deposit substitute or trust fund is subject to a 20% final tax, which the bank withholds. Because the final tax settles it, the interest is not added to your annual return.

Are gifts and inheritances subject to income tax?

No. The value of property acquired by gift, bequest, devise or descent is excluded from gross income under Section 32(B)(3). Income later earned from that property is taxable, and estate or donor’s tax may apply to the transfer itself.

Are prizes and winnings taxable?

Prizes over ₱10,000 and other winnings are subject to a 20% final tax. Prizes of ₱10,000 or less are taxed at graduated rates, and PCSO and Lotto winnings of ₱10,000 or less are exempt.

Is income from online platforms or foreign clients taxable for a resident Filipino?

Yes. A citizen residing in the Philippines is taxed on income from all sources, so fees from foreign clients or online platforms are gross income from business or the exercise of a profession.

May buwis ba ang sahod ng OFW sa abroad?

Wala, kung OFW ka at ang kita mo ay galing sa trabaho sa labas ng Pilipinas. Ayon sa Section 23(C) ng NIRC, ang overseas contract worker ay binubuwisan lang sa kita mula sa Pilipinas, gaya ng renta ng property dito.

Kasama ba sa taxable income ang SSS, PhilHealth at Pag-IBIG contributions?

Hindi. Ang GSIS, SSS, PhilHealth (Medicare) at Pag-IBIG contributions at union dues ng empleyado ay hindi kasama sa gross income ayon sa Section 32(B)(7)(f) ng NIRC.

Kailangan bang i-report sa ITR ang interest sa savings account?

Hindi na. Ang interest sa bank deposit ay may 20% final tax na kinakaltas na ng bangko, kaya hindi na ito isinasama sa taxable income sa annual income tax return.

Sources

• National Internal Revenue Code of 1997 (RA 8424): Sections 22(E)–(G), 23, 24(A)(1), 24(D), 31, 32(A), 32(B), 42(A), 42(C), 51(C)(1).
• RA 10963 (TRAIN Law): amended Sections 24(A), including the January 1, 2023 onward rate schedule and the minimum wage earner proviso, and 32(B)(7)(e) (₱90,000 ceiling).
• RA 12214 (Capital Markets Efficiency Promotion Act): amended Section 24(B) passive income rates; Section 28 transitory provision.
• RA 11976 (Ease of Paying Taxes Act): amended Sections 51(A)(2)(e), 51(B) and 56(A)(1).
• Supreme Court, Madrigal v. Rafferty, G.R. No. L-12287, August 7, 1918.

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.

Last correction: November 9, 2026 — added the period the RA 12214 final-tax rates apply to (on or after July 1, 2025). Rechecked against the official texts: RA 12214 Sections 24(B)(1), (2), (3), (5) and 28; RA 11976 amendments to Sections 51(A)(2)(e), 51(B) and 56(A)(1); RA 10963 Section 24(A) schedule; the worked example was recomputed (₱45,500 tax; ₱1,600 final tax on interest).

By the TaxCode.ph Editorial Team. Sources checked as of: November 9, 2026.