Overview of the Philippine Tax System
Taxation may not be the most exciting topic, but it’s something every worker in the Philippines has to deal with. Understanding the Philippines individual income tax rates can save you from unnecessary penalties—and possibly even save you money.
Who Needs to Pay Income Tax?
If you’re earning money in the Philippines, chances are you’re required to pay income tax. That includes:
- Resident citizens
- Non-resident citizens earning within the Philippines
- Resident and non-resident aliens with Philippine-sourced income
Why You Should Care About Tax Brackets
Tax brackets determine how much of your income gets taxed. The more you earn, the higher the rate. But not all your income is taxed at the same rate—this is where progressive taxation comes in.
Updates to the Tax Rates in 2024
Tax Reform Background (TRAIN Law & CREATE Act)
The Tax Reform for Acceleration and Inclusion (TRAIN) law, implemented in 2018, aimed to reduce taxes for most Filipinos. The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act also adjusted tax benefits for businesses.
Key Changes in 2024
Starting January 1, 2024, income tax rates for individuals earning ₱8 million and below decreased further under the TRAIN law’s schedule. The maximum rate dropped from 32% to 30%.
Current Individual Income Tax Rates for 2024
Income Tax Table (Resident Citizens)
| Annual Taxable Income (PHP) | Tax Rate |
|---|---|
| ₱250,000 and below | 0% |
| ₱250,001 – ₱400,000 | 15% of excess over ₱250,000 |
| ₱400,001 – ₱800,000 | ₱22,500 + 20% of excess over ₱400,000 |
| ₱800,001 – ₱2,000,000 | ₱102,500 + 25% of excess over ₱800,000 |
| ₱2,000,001 – ₱8,000,000 | ₱402,500 + 30% of excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of excess over ₱8,000,000 |
Income Tax Table (Non-resident Citizens and Aliens)
Generally, they are taxed at 25% flat rate on gross income sourced within the Philippines.
How Income is Classified for Taxation
Compensation Income
This is what employees earn—basic salary, bonuses, holiday pay, etc.
Business or Professional Income
If you’re self-employed, a freelancer, or own a small business, your income falls here.
Passive Income (Dividends, Interests, etc.)
Passive income has separate tax rates, often final withholding taxes:
- Interest: 20%
- Dividends: 10%
- Prizes exceeding ₱10,000: 20%
Sample Computation for Salary Earners
Example 1: Earning ₱250,000 Annually
Taxable income = ₱0
Tax Due: ₱0
Example 2: Earning ₱750,000 Annually
- Tax for ₱250,000 – ₱400,000 = 15% of ₱150,000 = ₱22,500
- Tax for ₱400,000 – ₱750,000 = 20% of ₱350,000 = ₱70,000
Total Tax: ₱92,500
Example 3: Earning ₱2,500,000 Annually
- Base tax = ₱402,500
- Excess: ₱500,000 × 30% = ₱150,000
Total Tax: ₱552,500
Tax Deductions and Exemptions
Optional Standard Deduction (OSD)
Self-employed individuals can deduct 40% of gross sales instead of itemizing.
Itemized Deductions
These include business expenses, rent, utilities, and depreciation.
Personal and Additional Exemptions
While removed under TRAIN for most taxpayers, certain senior citizens and PWDs may still qualify for other tax reliefs.
Filing Your Taxes in 2024
When and Where to File
- Annual Income Tax Return: File by April 15, 2025
- File at the BIR office or through eFPS/eBIRForms
Required Documents
- BIR Form 1700/1701/1701A
- Certificate of Compensation Payment (BIR Form 2316)
- Proof of income and deductions
Electronic Filing and Payment System (eFPS)
A convenient online system to file and pay taxes. Employers and professionals are encouraged (and sometimes required) to use it.
Penalties for Late or Incorrect Filing
Surcharge and Interest
- 25% surcharge for failure to file
- 12% interest per year on unpaid tax
Common Mistakes to Avoid
- Wrong tax form
- Incorrect computation
- Not declaring all income sources
Tax Tips for Employees and Freelancers
Keeping Accurate Records
Receipts, invoices, and contracts—keep everything organized.
Working with a Tax Consultant
Not a math whiz? Hire someone who is. It could save you more than it costs.
Special Cases in Taxation
OFWs and Income Tax
Overseas Filipino Workers are exempt from paying income tax on earnings abroad.
Self-employed Individuals
Can choose between the 8% flat tax or graduated rates, depending on income and expenses.
Mixed Income Earners
You’ll need to combine compensation and self-employed income when computing taxes.
Tax Relief Programs and Incentives
Small Business Relief
Micro-entrepreneurs earning below ₱3 million may opt for a flat 8% tax.
Tax Amnesty Programs
Occasionally offered by the government to clear unpaid taxes—keep an eye out for announcements.
Government Agencies Involved
Bureau of Internal Revenue (BIR)
The main tax collection agency. Their website: www.bir.gov.ph
Department of Finance (DOF)
Handles broader fiscal policy and reforms.
Understanding the Philippines individual income tax rates isn’t just for accountants—it’s for everyone who earns a living. By staying informed about the latest Philippines individual income tax rates and knowing where you stand on the tax table, along with what exemptions or deductions apply to you, you’re taking control of your financial life. Don’t wait for April 15 to catch you off guard—start planning now and make sure you’re paying what you owe and nothing more.
5 Unique FAQs
1. What is the minimum income required to pay tax in the Philippines for 2024?
If your taxable income is ₱250,000 or less, you’re not required to pay income tax.
2. Can freelancers choose between the 8% tax and graduated rates?
Yes, self-employed individuals and freelancers earning below ₱3M annually can opt for the 8% flat tax.
3. Are bonuses and 13th-month pay taxed in 2024?
Bonuses are tax-exempt up to ₱90,000; anything beyond that is taxable.
4. Do I still need to file if I have no income?
If you didn’t earn any income during the year, you’re not required to file. But some still do to update records.
5. How do I register for eFPS or eBIRForms?
Visit bir.gov.ph and follow the step-by-step registration guide under their eServices section.
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