The Tax Reform for Acceleration and Inclusion (TRAIN) Law, Republic Act 10963, set two income tax schedules for individuals. The first applied from 2018 to 2022; the second, lower schedule took effect on January 1, 2023 and is the one used for 2026. It applies to employees (compensation income) and to self-employed individuals and professionals who did not choose the 8% option.
2026 annual income tax table
| Annual taxable income | Income tax |
|---|---|
| ₱250,000 and below | ₱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 |
For monthly payroll, employers use the equivalent monthly table: ₱20,833 and below is exempt; ₱20,833–₱33,332 is taxed at 15% of the excess over ₱20,833; ₱33,333–₱66,666 is ₱1,875 + 20% of the excess over ₱33,333; and so on.
What counts as taxable income?
For employees, taxable compensation is basic pay plus taxable allowances, overtime and bonuses, minus non-taxable items. The main exclusions are mandatory SSS, PhilHealth and Pag-IBIG employee contributions, union dues, de minimis benefits within BIR limits (such as rice subsidy and uniform allowance), and the 13th month pay plus other benefits up to ₱90,000 per year.
Worked example: ₱40,000 monthly salary
- Annual basic pay: ₱40,000 × 12 = ₱480,000.
- Subtract mandatory contributions. Employee share is ₱1,750 SSS (5% of the ₱35,000 maximum monthly salary credit), ₱1,000 PhilHealth (half of 5%) and ₱200 Pag-IBIG — ₱2,950 a month, or ₱35,400 a year. Check exact amounts in the contribution calculator.
- Taxable income: ₱444,600. The 13th month pay of ₱40,000 is fully exempt because it is below ₱90,000.
- Tax: ₱22,500 + 20% × (₱444,600 − ₱400,000) = ₱22,500 + ₱8,920 = ₱31,420 per year, or about ₱2,618 per month.
Run your own figures in the salary tax calculator or see the full take-home amount in the net pay calculator.
Effective tax rate vs bracket rate
Moving into a higher bracket does not tax your whole income at the higher rate — only the portion above the threshold. In the example above, the top bracket is 20%, but the effective rate is about 6.5% of gross pay. This is why a raise always increases take-home pay.
Annual filing
Employees with one employer for the whole year are usually covered by substituted filing: the employer issues BIR Form 2316 and no separate return is needed. Employees with two or more employers in the year, or with business income, must file BIR Form 1700 or 1701 by April 15. Freelancers should read our guide on 8% vs graduated tax.