Is 13th Month Pay Taxable? BIR Rules on the ₱90,000 Tax-Free Threshold
13th month pay is exempt from income tax up to a combined ₱90,000 per employee per year, together with other similar benefits like Christmas bonuses and productivity incentives. Any amount above that combined ₱90,000 ceiling is added back to taxable compensation and subject to withholding tax — the exemption is a cap, not a blanket exclusion.
Get the Year-End BIR Form 2316 Right FREE →What does the law actually exempt? #
NIRC Section 32(B)(7)(e), as amended by the TRAIN Law (RA No. 10963), excludes 13th month pay and “other benefits” from gross income up to a combined ₱90,000 per employee per taxable year. This threshold replaced an earlier ₱82,000 cap, effective January 2018. “Other benefits” in this exemption bucket include Christmas bonuses, productivity incentives, and similar year-end payments — they are added together with 13th month pay, not exempted separately.
De minimis benefits (like the rice subsidy and uniform allowance covered in a companion post) are exempt under a separate ceiling and generally do not count against this ₱90,000 threshold unless they exceed their own individual de minimis limits, in which case the excess is tested against the ₱90,000 cap.
How does the threshold apply in practice? #
An employer combines 13th month pay with any other bonuses paid during the year, compares the total against ₱90,000, and only withholds tax on the amount above that line — the first ₱90,000 stays untouched regardless of the employee’s salary bracket.
| Component | Treatment |
|---|---|
| 13th month pay | Counted toward the P90,000 combined cap |
| Christmas bonus | Counted toward the same P90,000 cap |
| Productivity incentive bonus | Counted toward the same P90,000 cap |
| Amount within P90,000 total | Exempt from income tax and withholding |
| Amount exceeding P90,000 total | Added to taxable compensation, subject to withholding tax |
A worked example #
An employee receives ₱95,000 in 13th month pay plus a separate ₱20,000 year-end productivity bonus, for a combined ₱115,000 in benefits covered by this exemption bucket. Subtracting the ₱90,000 threshold leaves ₱25,000 as the taxable excess, which the employer adds to the employee’s compensation for the applicable payroll period and withholds tax on using the graduated withholding table — the same table used for monthly BIR Form 1601-C remittances. The remaining ₱90,000 stays fully exempt regardless of the employee’s regular salary level.
Why this matters for year-end reporting #
The taxable excess over ₱90,000 must flow correctly into the employee’s year-end BIR Form 2316 and the employer’s BIR Form 1604-C alphalist — understating it is a common source of mismatches between monthly withholding remittances and annual reconciliation. Employers computing year-end adjustments should total each employee’s 13th month pay and other bonuses before finalizing the 2316 certificate, not treat the exemption as automatic for the full 13th month pay amount.
For the de minimis benefits that sit alongside this exemption, see De Minimis Benefits in the Philippines. For how this feeds into the employee’s certificate, see What Is BIR Form 2316 and When Must You Issue It? and BIR Annual Alphalist (1604-C, 1604-E, 1604-F).
Summary #
13th month pay and similar bonuses are tax-exempt only up to a combined ₱90,000 per employee per year under the TRAIN Law’s amendment to NIRC Section 32(B)(7)(e) — any excess is taxable compensation, not a fully tax-free benefit. Getting this computation right at year-end keeps BIR Form 2316 and BIR Form 1604-C consistent with what was actually withheld during the year.