What are the current income tax brackets under the TRAIN Law?

For 2023 onwards: P0-P250,000 is tax-exempt; P250,001-P400,000 at 15%; P400,001-P800,000 at P22,500 + 20% of excess over P400K; P800,001-P2M at P102,500 + 25% of excess over P800K; P2M-P8M at P402,500 + 30% of excess over P2M; over P8M at P2,202,500 + 35% of excess over P8M.

How do I compute monthly withholding tax for a semi-monthly paid employee?

Use the semi-monthly withholding tax table from BIR. For each pay period, compute taxable income (gross pay minus SSS, PhilHealth, Pag-IBIG employee shares, and non-taxable allowances), then apply the semi-monthly tax bracket. The tax is withheld each pay period and reconciled at year-end through annualization.

Is 13th month pay taxable? What about bonuses?

The first P90,000 of combined 13th month pay and other benefits (Christmas bonus, productivity incentives, etc.) is tax-exempt under the TRAIN Law. Any amount exceeding P90,000 is added to taxable income. This threshold is an annual aggregate, not per-benefit.

What is year-end annualization and when do I need to do it?

Year-end annualization is the process of computing the employee's actual annual tax liability and comparing it to total taxes withheld during the year. If too much was withheld, the employee gets a refund; if too little, additional tax is collected. Employers must perform this by December for all employees (or upon separation for those who leave mid-year).

When must I issue BIR Form 2316 to employees?

BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld) must be issued to all employees on or before January 31 of the following year. For separated employees, it must be issued upon separation. The 2316 can serve as a substitute for the employee's annual income tax return (substituted filing) if they have only one employer.

Withholding Tax on Compensation in the Philippines: TRAIN Law Guide for 2026

Withholding tax on compensation is the most complex recurring payroll computation for Philippine employers. Every pay period, you must calculate the correct tax to withhold based on the employee's taxable income — and reconcile everything at year-end through annualization.

This guide covers the TRAIN Law brackets, step-by-step computation, and BIR compliance requirements.

TRAIN Law Tax Brackets (2023 Onwards)

The Tax Reform for Acceleration and Inclusion (TRAIN) Law (RA 10963) established the current income tax brackets, effective January 1, 2023:

Annual Taxable Income	Fixed Tax	Rate on Excess
Up to P250,000	P0	0% (exempt)
P250,001 - P400,000	P0	15%
P400,001 - P800,000	P22,500	20%
P800,001 - P2,000,000	P102,500	25%
P2,000,001 - P8,000,000	P402,500	30%
Over P8,000,000	P2,202,500	35%

Key Changes Under TRAIN

P250,000 annual exemption — Employees earning P250,000 or less per year pay zero income tax
Removal of personal exemptions — The old personal and additional exemptions were eliminated
Simplified brackets — Six brackets instead of the previous seven

Computing Taxable Income

Before applying the tax brackets, you must first determine the employee's taxable compensation income:

Taxable Income = Gross Compensation - Mandatory Contributions - Non-Taxable Benefits

What Is Deducted

Deduction	Details
SSS employee share	4.5% of Monthly Salary Credit
PhilHealth employee share	2.5% of salary (P10,000-P100,000 range)
Pag-IBIG employee share	1-2% of salary (capped at P10,000 base)
Non-taxable allowances	De minimis benefits within BIR limits

What Is Taxable

Basic salary
Overtime pay, holiday premium, NSD
Commissions and performance bonuses
Taxable allowances (above de minimis limits)
13th month pay exceeding P90,000 (combined with other benefits)

Step-by-Step Monthly Computation

Example: Semi-Monthly Payroll

Employee: P35,000 monthly salary, paid semi-monthly (P17,500 per pay period). No allowances.

Step 1: Compute mandatory contributions (monthly)

Contribution	Employee Share
SSS	~P1,575.00
PhilHealth	P875.00 (P35,000 x 5% / 2)
Pag-IBIG	P200.00 (P10,000 x 2%)
Total	~P2,650.00

Step 2: Compute semi-monthly taxable income

Semi-monthly gross: P17,500
Semi-monthly contributions: P2,650 / 2 = P1,325
Semi-monthly taxable income: P17,500 - P1,325 = P16,175

Step 3: Apply semi-monthly tax table

Using BIR's semi-monthly withholding tax table, look up P16,175 in the applicable bracket and compute the tax. The semi-monthly table is derived from the annual brackets divided by 24 pay periods.

Step 4: Withhold and remit

The computed tax is withheld from the employee's pay and remitted to BIR via Form 1601-C by the 10th of the following month.

Non-Taxable Benefits (P90,000 Threshold)

Under the TRAIN Law, the following are tax-exempt up to a combined total of P90,000 per year:

Benefit	Treatment
13th month pay	Tax-exempt up to P90,000 combined
Christmas bonus	Combined with above
Productivity incentives	Combined with above
Other benefits	Combined with above
Total threshold	P90,000

Any amount exceeding P90,000 is added to taxable income and subjected to withholding tax.

Example: P120,000 Total Benefits

13th month pay: P50,000
Christmas bonus: P40,000
Performance bonus: P30,000
Total: P120,000
Tax-exempt: P90,000
Taxable excess: P30,000

The P30,000 excess is added to the employee's taxable income for the month it was received.

Year-End Tax Annualization

At year-end, the employer must compute each employee's actual annual tax liability and compare it to the total taxes withheld during the year.

Annualization Formula

Annual Taxable Income = Total Gross Pay - Total SSS (EE) - Total PhilHealth (EE) - Total Pag-IBIG (EE) - Non-Taxable Allowances - Tax-Exempt 13th Month (up to P90K)

Annual Tax Due = Apply TRAIN brackets to Annual Taxable Income

Adjustment = Annual Tax Due - Total Tax Already Withheld

Adjustment Outcomes

Result	Meaning	Action
Positive adjustment	Employee owes more tax (under-withheld)	Collect from December pay
Negative adjustment	Employee paid too much tax (over-withheld)	Refund in December pay
Zero	Exact withholding throughout the year	No adjustment

Common Reasons for Adjustments

Salary changes mid-year — Promotions or merit increases change the effective bracket
Irregular bonuses — Large one-time bonuses push income into a higher bracket
P90,000 threshold crossing — Benefits exceeding the exempt amount trigger additional tax

BIR Compliance Requirements

Requirement	Form	Deadline
Monthly tax remittance	BIR Form 1601-C	10th of the following month
Annual tax return (employer)	BIR Form 1604-C	January 31
Employee tax certificate	BIR Form 2316	January 31 (or upon separation)
Quarterly alpha list	BIR Alphalist	Quarterly deadlines per BIR

BIR Form 2316

This certificate shows the employee's total compensation, mandatory contributions, taxable income, and tax withheld for the year. It must be:

Issued to all employees by January 31 of the following year
Issued to separated employees upon separation
Filed with BIR as part of the annual reconciliation

Substituted Filing

If an employee has only one employer during the year and the employer files BIR Form 2316, the employee is not required to file a separate annual income tax return. The 2316 serves as a substitute filing.

Common Withholding Tax Mistakes

Not deducting mandatory contributions before applying tax — SSS, PhilHealth, and Pag-IBIG employee shares reduce taxable income. Forgetting to deduct them results in over-withholding.
Applying annual brackets to monthly income — Use the correct frequency-specific table (monthly, semi-monthly, weekly, or daily) from BIR. Don't manually convert annual brackets.
Ignoring the P90,000 combined threshold — Some employers treat each benefit separately (P90K for 13th month, P90K for bonus). The threshold is a combined annual total for all benefits.
Skipping year-end annualization — Not performing annualization means employees may be over- or under-taxed for the entire year, leading to BIR compliance issues and employee complaints.
Late 2316 issuance — Employees need their 2316 for annual tax filing (if applicable) or loan applications. Late issuance causes problems for both parties.

How TalinoHR Handles Withholding Tax

TalinoHR's payroll engine automates the full withholding tax lifecycle:

Database-driven tax tables — Monthly, semi-monthly, weekly, and daily withholding tables are stored in the database and applied automatically per pay frequency
Automatic taxable income computation — Gross pay minus SSS, PhilHealth, and Pag-IBIG employee shares minus non-taxable allowances
TRAIN Law brackets — The six-bracket annual tax table is built into the annualization module
P90,000 threshold — 13th month pay and other benefits are tracked cumulatively, with the taxable excess computed automatically
Year-end annualization — One-click annualization computes the adjustment (refund or collection) for every employee, generates a payroll run of type ANNUALIZATION
BIR 2316 generation — Annual tax certificates generated from payroll data with all required fields

No manual tax table lookups. No bracket math errors. Book a demo to see TalinoHR's tax computation engine.