Complete Guide to Philippine Income Tax (2025 Updated)
1. What’s New in 2025: Tax Brackets & Key Rules
💡 2025 Personal Income Tax Rates (Annual Taxable Income)
| Taxable Income (PHP) | Tax Rate / How Tax Is Computed |
|---|---|
| Up to ₱250,000 | 0% — no tax due iCalculator™ PH+1 |
| ₱250,001 – ₱400,000 | 15% of the amount over ₱250,000 jalagaoaccountingfirm.com+1 |
| ₱400,001 – ₱800,000 | ₱22,500 + 20% of the excess over ₱400,000 SunFish DataOn Philippines Inc.+1 |
| ₱800,001 – ₱2,000,000 | ₱102,500 + 25% of the excess over ₱800,000 GreatDay HR+1 |
| ₱2,000,001 – ₱8,000,000 | ₱402,500 + 30% of the excess over ₱2,000,000 iCalculator™ PH+1 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of the excess over ₱8,000,000 SunFish DataOn Philippines Inc.+1 |
2. Understanding “Taxable Income” vs “Gross Salary/Income”3. How to Compute Income Tax (Simplified Steps)
If your taxable income for the year is ₱600,000 → falls in ₱400,001–₱800,000 bracket → tax = ₱22,500 + 20% of (₱600,000 − ₱400,000) = ₱22,500 + ₱40,000 = ₱62,500 tax due. jalagaoaccountingfirm.com+14. For Employees vs Freelancers / Self-Employed: What You Should Know
✅ Employees / Compensation Income Earners
📑 Freelancers, Professionals, Mixed-Income Earners, Small Business Owners5. Common Mistakes to Avoid6. Why It Matters: Benefits of Knowing Tax Rules & Doing It Right7. Final Thoughts & Practical Tips
Understanding income tax in the Philippines is essential — whether you’re an employee, freelancer, small-business owner, or mixed-income earner. This guide explains the current tax rules (as of 2025), how to compute your tax, and what you need to know to stay compliant and avoid surprises.
As of 2025, the tax structure under TRAIN Law (Republic Act 10963) remains the basis for personal income tax for most Filipinos. GreatDay HR+2SunFish DataOn Philippines Inc.+2
Because of these brackets:
Individuals earning annual taxable income ₱250,000 or less pay no income tax. Respicio & Co.+1
As income increases, tax is computed on a progressive basis — only the portion above each threshold is taxed at the higher rate.
This system helps protect low to middle-income earners while ensuring higher earners contribute more.
It’s important to know that the rates above apply to taxable income, not necessarily your raw gross. What this means:
Taxable income is your gross earnings after allowable deductions and exemptions — such as certain non-taxable benefits, mandatory contributions (SSS, PhilHealth, Pag-IBIG), and other allowable deductions. Respicio & Co.+1
For regular employees, deductions reduce the taxable base. For freelancers/self-employed or mixed-income earners, you may also account for business expenses (if you choose itemized deduction) or opt for a simpler scheme (e.g. fixed percentage). Taxumo+1
Here’s a straightforward way to compute your income tax under 2025 rules:
Calculate your total annual gross income (salary + bonuses + other earnings + side income if any).
Subtract allowed deductions or non-taxable parts (e.g. SSS/PhilHealth contributions; non-taxable benefits; business expenses for self-employed).
The result is your taxable income.
Use the table above to apply the correct bracket — compute the tax owed.
If you’re an employee, the employer may already withhold taxes via payroll; but if self-employed or have mixed income, you must file returns and pay the difference (if any).
Example:
Income tax is usually withheld by employer monthly based on withholding tables aligned with the law. Sprout+1
Employer must issue BIR Form 2316 — summary of compensation and tax withheld — typically by January 31 of the following year (or on final pay if separated). Sprout+1
If you have just one employer and no other income, filing annual ITR may not be needed; but mixed-income or multiple employers may require filing.
Must compute taxable income themselves (gross receipts minus expenses/deductions).
Can choose between graduated income tax rates (as per table above) or the simpler 8% flat tax option (for qualifying non-VAT-registered persons earning below certain thresholds). Taxumo+1
Use correct forms (e.g. BIR Form 1701Q for quarterly filing, BIR Form 1701A or BIR Form 1701 for annual) depending on your status. Taxumo+1
Keep accurate records of income and expenses to support deductions.
Assuming gross salary = taxable income — failing to subtract allowable deductions.
Forgetting to include bonuses, commissions, side-income, or freelance income.
Missing quarterly filings (for freelancers/self-employed) — penalties may apply.
Choosing 8% flat tax without verifying eligibility (gross receipts threshold, VAT status, etc.). Taxumo+1
Ignoring paperwork: forms, receipts, and proper record-keeping are essential especially for audit/tracking.
Maximize Take-Home Pay — properly deducted taxes and exemptions prevent over-withholding.
Avoid Penalties and Legal Issues — timely filing and correct reporting keeps you compliant.
Plan Finances Better — knowing net income helps with budgeting, savings, investments, business planning.
For Freelancers/Entrepreneurs: Optimize Expenses — knowing how deductions work can reduce taxable income legally.
For Career or Business Growth Decisions — accurate figures help you choose projects, negotiate salaries/fees, or expand ventures.
Always compute using taxable income, not just gross income.
Keep a clear record of income, extras, deductions, receipts — especially if you have multiple income sources.
Evaluate whether to use graduated rates or flat-rate (if eligible) — whichever suits your business or personal situation.
Don’t rely only on payroll withholding if you have additional income sources.
When in doubt, consider consulting a licensed accountant or tax professional to ensure compliance and maximize benefits.