BIR Income Tax Calculator

Understanding the TRAIN Law: History and Purpose

Republic Act No. 10963, more commonly known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law, took effect on January 1, 2018 as the first package of the Philippine government's Comprehensive Tax Reform Program (CTRP). Before TRAIN, the country used an income tax table that had not been meaningfully updated since 1997, even though wages, the cost of living, and inflation had all moved considerably in the two decades that followed. A minimum-wage earner and a mid-level manager could both find themselves pushed into brackets originally designed for a very different economy, and take-home pay for ordinary workers was quietly eroded year after year by “bracket creep” — the phenomenon where nominal wage increases push taxpayers into higher brackets even though their real purchasing power hasn't actually improved.

TRAIN's central promise on the personal income tax side was simple: put more money in the pockets of low- and middle-income earners, while asking higher earners and certain consumption categories to contribute more. It did this in two main ways. First, it exempted the first ₱250,000 of annual taxable income from tax entirely — before TRAIN, workers earning as little as a few thousand pesos a year could technically owe something. The Department of Finance estimated that this single change removed roughly83% of individual wage earners from the income tax rolls altogether. Second, it restructured the remaining brackets and lowered the marginal rates that applied to income between ₱250,000 and ₱8,000,000, introducing a temporary two-stage schedule: slightly higher rates from 2018 to 2022, followed by a further automatic reduction beginning January 1, 2023.

To help offset the resulting drop in income tax collections, TRAIN simultaneously expanded and increased excise taxes on petroleum products, sugar-sweetened beverages, tobacco, and automobiles, and broadened the base of goods subject to value-added tax by removing a number of VAT exemptions. It also simplified the tax treatment of several items connected to compensation, most notably raising the tax-exempt ceiling for 13th month pay and other benefits from ₱82,000 to ₱90,000.

The rates in effect for 2026 are the rates that became permanent starting the 2023 tax year — the schedule reproduced in full below. Unless Congress passes a new law changing them, these are the brackets employers and the Bureau of Internal Revenue (BIR) use to compute annual income tax liability and per-payroll withholding tax for compensation income earners.

The 2026 BIR Income Tax Table (TRAIN Law)

The table below reproduces the graduated income tax schedule under the TRAIN Law as applied to annual taxable income. Taxable income here means gross compensation minus mandatory SSS, PhilHealth, and Pag-IBIG employee contributions, minus non-taxable allowances and de minimis benefits, and minus the tax-exempt portion of 13th month pay and other bonuses (the first ₱90,000 combined). Each bracket only taxes the portion of income that falls inside it — nothing above a bracket's floor gets retroactively taxed at the higher rate.

To see how the formula behaves in practice, walk through one figure from inside each bracket:

• Bracket 1 (₱0 – ₱250,000, 0%): Any annual taxable income at or below ₱250,000 owes no income tax at all — someone with ₱240,000 in annual taxable income pays ₱0.
• Bracket 2 (₱250,001 – ₱400,000, 15%): At ₱350,000, the excess over ₱250,000 is ₱100,000. Tax due = ₱100,000 × 15% = ₱15,000.
• Bracket 3 (₱400,001 – ₱800,000, 20% + ₱22,500): At ₱500,000, the excess over ₱400,000 is ₱100,000. Tax due = ₱22,500 + (₱100,000 × 20%) = ₱22,500 + ₱20,000 = ₱42,500.
• Bracket 4 (₱800,001 – ₱2,000,000, 25% + ₱102,500): At ₱1,200,000, the excess over ₱800,000 is ₱400,000. Tax due = ₱102,500 + (₱400,000 × 25%) = ₱102,500 + ₱100,000 = ₱202,500.
• Bracket 5 (₱2,000,001 – ₱8,000,000, 30% + ₱402,500): At ₱3,000,000, the excess over ₱2,000,000 is ₱1,000,000. Tax due = ₱402,500 + (₱1,000,000 × 30%) = ₱402,500 + ₱300,000 = ₱702,500.
• Bracket 6 (Over ₱8,000,000, 35% + ₱2,202,500): At ₱10,000,000, the excess over ₱8,000,000 is ₱2,000,000. Tax due = ₱2,202,500 + (₱2,000,000 × 35%) = ₱2,202,500 + ₱700,000 = ₱2,902,500.

Marginal Rate vs. Effective Rate: What's the Difference?

One of the most common points of confusion around Philippine income tax is the difference between the marginal tax rate and the effective tax rate — and understanding it matters, because many people wrongly assume that moving into a higher bracket means their entire income suddenly gets taxed at the new, higher rate. It doesn't.

The marginal rate is the rate that applies only to the last peso of taxable income — the rate attached to whichever bracket your income falls into. The effective rate is your total tax bill divided by your total taxable income; it tells you, on average, what percentage of every peso you earned actually went to tax.

Take someone with ₱450,000 in annual taxable income. That amount falls into the ₱400,001–₱800,000 bracket, so their marginal rate is 20%. But their tax due is not ₱450,000 × 20% = ₱90,000. Instead, using the graduated formula, tax due = ₱22,500 + (₱450,000 − ₱400,000) × 20% = ₱22,500 + ₱10,000 = ₱32,500. Divide that by ₱450,000 and the effective rate comes out to about 7.2% — far below the 20% marginal rate.

This gap exists because the Philippine system, like most graduated income tax systems, only taxes the portion of income that falls inside each bracket. The first ₱250,000 is taxed at 0%, the next slice (up to ₱400,000) at 15%, and only the remaining ₱50,000 in this example is taxed at 20%. The effective rate is always lower than or equal to the marginal rate, and the gap between the two tends to widen the higher someone's income climbs, because more and more of their earnings sit in the cheaper, lower brackets even as only the top slice is taxed at a steeper rate.

This is also why earning a raise that pushes you into a new bracket never results in lower take-home pay — only the new, incremental income is taxed at the higher rate, while everything below the new bracket threshold keeps being taxed exactly as it was before.

Three Worked Examples

Example 1: ₱300,000 Annual Taxable Income

An entry-level employee with ₱300,000 in annual taxable income (roughly ₱25,000 a month after mandatory contributions) falls into the second bracket, ₱250,001–₱400,000, taxed at 15%.

• Excess over ₱250,000: ₱300,000 − ₱250,000 = ₱50,000
• Tax due: ₱50,000 × 15% = ₱7,500
• Effective tax rate: ₱7,500 ÷ ₱300,000 = 2.5%
• Take-home after income tax: ₱292,500 per year, or about ₱24,375 a month

This example shows how gentle the TRAIN Law schedule is at lower income levels — even though the marginal rate is 15%, only a small slice of this taxpayer's income (the ₱50,000 above the ₱250,000 exemption) is actually taxed, so the effective burden stays under 3%.

Example 2: ₱600,000 Annual Taxable Income

A mid-level employee earning ₱600,000 in annual taxable income (about ₱50,000 a month) falls into the third bracket, ₱400,001–₱800,000, taxed at 20% with a fixed base of ₱22,500.

• Excess over ₱400,000: ₱600,000 − ₱400,000 = ₱200,000
• Tax due: ₱22,500 + (₱200,000 × 20%) = ₱22,500 + ₱40,000 = ₱62,500
• Effective tax rate: ₱62,500 ÷ ₱600,000 ≈ 10.42%
• Take-home after income tax: ₱537,500 per year, or roughly ₱44,792 a month

Notice that the effective rate (10.42%) is already about half the marginal rate (20%) — a pattern that continues as income rises, since a larger and larger share of a graduated schedule is “used up” by the cheaper, lower brackets before the top rate ever applies.

Example 3: ₱1,500,000 Annual Taxable Income

A senior manager or well-compensated professional with ₱1,500,000 in annual taxable income sits in the fourth bracket, ₱800,001–₱2,000,000, taxed at 25% with a fixed base of ₱102,500.

• Excess over ₱800,000: ₱1,500,000 − ₱800,000 = ₱700,000
• Tax due: ₱102,500 + (₱700,000 × 25%) = ₱102,500 + ₱175,000 = ₱277,500
• Effective tax rate: ₱277,500 ÷ ₱1,500,000 = 18.5%
• Take-home after income tax: ₱1,222,500 per year, or about ₱101,875 a month

Even at this income level — five times higher than Example 1 — the effective rate (18.5%) still sits well below the top marginal rate for this bracket (25%), let alone the maximum 35% rate reserved for income above ₱8,000,000. This is the core mechanical feature of a graduated tax system: rates rise for the top slice of income, but the average burden across the whole income rises far more gradually.

Compensation Earners vs. Mixed-Income and Self-Employed Individuals

The BIR income tax table above is a single schedule, but exactly how it gets applied depends heavily on what kind of taxpayer you are.

Pure compensation income earners are employees who earn salary, wages, and related pay exclusively from one or more employers, with no separate business or professional practice on the side. For this group, the employer is legally required to withhold income tax from every payroll run, using an annualized or projected version of the employee's compensation for the year, applying the TRAIN Law brackets, and then reconciling the running total against actual pay in a year-end adjustment (usually processed in December or January). If an employee worked for only one employer during the year and had no other taxable income, the employer's final BIR Form 2316 effectively substitutes for filing a personal annual income tax return — this is called “substituted filing,” and it's why most rank-and-file employees in the Philippines never personally file a BIR return.

Self-employed individuals and professionals — freelancers, sole proprietors, consultants, and licensed professionals in private practice — are taxed differently because nothing is automatically withheld the way it is from payroll. They generally have two options for their business or practice income: (1) the same graduated rates shown above, after deducting either itemized business expenses or the 40% Optional Standard Deduction (OSD) from gross sales or receipts, or (2) a flat 8% taxon gross sales/receipts and other non-operating income in excess of ₱250,000, taken in lieu of both the graduated income tax and the percentage tax, provided gross sales/receipts don't exceed the ₱3,000,000 VAT threshold. The 8% option is popular with freelancers and small practitioners because of its simplicity — there's no need to track and substantiate expenses — but it isn't always the cheaper option, especially for businesses with substantial documented costs.

Mixed-income earners are people who receive both compensation from an employer and income from a business or profession — for example, a full-time employee who also freelances on weekends, or a nurse who also runs a small online shop. For this group, compensation income is always taxed under the graduated schedule (the employer still withholds on it normally), while the business or professional income portion can separately use either the graduated rates or the 8% flat option described above. Because the rules for combining the two income streams, allocating deductions, and computing any remaining balance due at year-end filing can get technical quickly, mixed-income earners and self-employed professionals are generally well served by consulting a BIR-accredited accountant or tax professional rather than relying solely on a payroll-style calculator like this one, which is built primarily around pure compensation scenarios.

Frequently Asked Questions

Do I need to file my own annual income tax return if I only have one employer?

In most cases, no. If you're a pure compensation earner with a single employer for the entire calendar year, and that employer has correctly withheld tax from every payroll, your employer's BIR Form 2316 serves as your substituted return. You'll still receive a copy of Form 2316 (usually by end of January or upon separation) — keep it, since it's often required for loan applications, visa processing, or if you switch employers mid-year and need to report prior income to your new employer.

What exactly counts as “taxable income” for this calculator?

Taxable income is your gross compensation minus mandatory government contributions (SSS, PhilHealth, Pag-IBIG employee share), minus non-taxable de minimis benefits and allowances within BIR limits, and minus the tax-exempt portion of 13th month pay and other bonuses (the first ₱90,000 combined). If you're not sure what your own taxable income looks like, the Gross-to-Net Pay Calculator on this site walks through the full computation starting from your gross monthly salary.

Is the ₱250,000 exemption a deduction I need to claim, or is it automatic?

It's automatic. It's simply the floor of the first tax bracket — any taxable income at or below ₱250,000 a year is taxed at 0%, with no forms or claims required. Everyone benefits from this threshold regardless of income level; it isn't phased out for higher earners the way some deductions are in other countries.

Does my 13th month pay push me into a higher tax bracket?

Only partially, and only above a threshold. The first ₱90,000 combined of 13th month pay and other benefits/bonuses each year is tax-exempt and never enters your taxable income at all. Only the amount above ₱90,000 gets added to your taxable compensation and taxed at your normal graduated rate — so a large 13th month pay rarely, by itself, jumps you into an entirely new bracket unless your regular salary was already very close to the next threshold.

I earn minimum wage — do these brackets even apply to me?

No. Under Republic Act No. 9504, Minimum Wage Earners (MWEs) are exempt from income tax entirely on their statutory minimum wage, as well as on holiday pay, overtime pay, night shift differential, and hazard pay earned in that capacity. This exemption is separate from — and more generous than — the ₱250,000 threshold in the regular TRAIN Law table. If your pay ever exceeds the minimum wage rate (say, through a raise or promotion), you'd move out of MWE status and into the regular graduated tax table shown on this page.

Will these tax brackets change again soon?

The TRAIN Law originally set a temporary schedule for 2018–2022 and a lower, permanent schedule that took effect on January 1, 2023. The brackets and rates shown here reflect that permanent 2023-onward schedule, and there's no automatic adjustment scheduled for 2026 or beyond — any change would require a new law passed by Congress. It's still worth checking BIR issuances periodically, since related items like de minimis benefit ceilings (rice subsidy, uniform allowance, laundry allowance, and similar small non-taxable perks) are occasionally revised by revenue regulations — most recently in late 2025 — even when the core tax brackets stay the same. The ₱90,000 13th month pay exemption ceiling is different: it's written directly into the tax code itself, so — like the brackets above it — it can only be raised by a new law from Congress, not by a revenue regulation alone.

What's the difference between the withholding tax my employer deducts and the “annual income tax due” this calculator shows?

Withholding tax is the amount your employer deducts from each individual payroll run, based on a projection of your annual compensation using BIR withholding tables. This calculator shows your actual annual income tax liability once your full-year taxable income is known — the number your employer's year-end adjustment is designed to match. In a normal year, if your pay didn't change dramatically and you have no other income, the two figures should end up very close to each other, with any small gap settled in your December or January payslip.