Are Tips, Bonuses, and Raffle Prizes Taxable Income Under BIR Rules?

A Philippine employee’s year-end pay envelope can mix three legally distinct kinds of extra income — a service charge or tip, a 13th month pay or bonus, and a company raffle prize — and each one follows a different BIR tax rule. Tips and service charges are ordinary compensation subject to regular withholding tax. Bonuses and 13th month pay are tax-exempt only up to a combined ₱90,000 a year under NIRC Section 32(B)(7)(e). Raffle and contest prizes over ₱10,000 face a flat 20% final tax under Section 24(B)(1) — a completely separate rule from the bonus ceiling.

Are tips and service charges taxable compensation? #

Yes — both a direct cash tip and a pooled, employer-distributed service charge are taxable compensation income to the employee who receives them, just channeled through different rules. A voluntary tip handed straight to a server or driver is compensation connected to their work the moment it is received. A mandatory service charge added to a hotel or restaurant bill is a different legal creature under labor law, but the BIR still treats the employee’s share as compensation once the employer pools and distributes it.

Republic Act No. 11360 (2019) rewrote how service charges are shared, replacing the old 85%/15% employer-employee split under Article 96 of the Labor Code. Secondary summaries of the law describe the current rule plainly:

“All service charges collected by hotels, restaurants, and other similar establishments shall be distributed completely and equally among the covered workers,” except managerial employees.

Because the full service charge now reaches rank-and-file employees rather than being partly retained by the employer, the entire distributed amount is compensation in the employee’s hands — and the employer, acting as withholding agent, applies ordinary withholding tax on compensation to it just as it would to regular wages, following NIRC Section 24(A) and the BIR’s withholding tax tables. A straight cash tip handed informally by a customer is harder for an employer to track, but the underlying principle is the same: it is income connected to the recipient’s trade, business, or employment, and the recipient is responsible for reporting it even where no employer withholding occurs.

When is a bonus or 13th month pay tax-exempt? #

13th month pay, Christmas bonus, and similar benefits are tax-exempt only up to a combined ₱90,000 per employee per calendar year — not without limit. NIRC Section 32(B)(7)(e), as amended by the TRAIN Law (Republic Act No. 10963) effective January 1, 2018, raised this combined exclusion ceiling from the previous ₱82,000 (itself raised from an original ₱30,000). Everything an employer pays under this umbrella — statutory 13th month pay, a discretionary Christmas bonus, productivity incentives, a mid-year bonus, cash gifts — is added together and tested against the single ₱90,000 ceiling, not given a separate allowance each.

Any amount above ₱90,000 loses its exemption and is added back into the employee’s taxable compensation for the year, subject to withholding tax at the regular graduated compensation rates — it is not taxed at a special flat rate of its own. This is a different mechanism from the 20% final tax on prizes discussed below: a bonus above the ceiling is folded into ordinary graduated-rate compensation, while a prize is pulled out and taxed separately at a flat rate regardless of the employee’s regular tax bracket.

De minimis benefits — narrowly defined non-cash perks like a rice subsidy, a uniform allowance, or a laundry allowance, each with its own small BIR-set peso limit — sit outside the ₱90,000 ceiling as long as each stays within its own limit. The moment any one de minimis item exceeds its specific limit, though, the excess is reclassified out of the de minimis category and pooled into the same ₱90,000 bonus test described above.

How are company raffle prizes and contest winnings taxed? #

A raffle prize, contest award, or similar windfall an employee wins is not compensation for services — it is a “prize,” taxed under a separate 20% final withholding tax rule that has nothing to do with the ₱90,000 bonus ceiling. NIRC Section 24(B)(1), as amended by the TRAIN Law, sets this out directly:

A final tax of twenty percent (20%) is imposed on prizes (except prizes amounting to ten thousand pesos (₱10,000) or less, which shall be subject to tax under [the graduated income tax rates]) and other winnings… derived from sources within the Philippines.

The 20% rate applies to the entire prize amount once it exceeds ₱10,000 — not just the portion above ₱10,000 — and it is a final tax, meaning the company withholds it at source and the winner has no further income tax obligation on that specific prize. A prize of ₱10,000 or less instead gets folded into the winner’s regular graduated-rate income tax, the same treatment that applies to ordinary compensation. This is the identical statutory provision that taxes PCSO lotto winnings and casino jackpots above the threshold — a company’s year-end raffle, sales contest, or employee-engagement giveaway falls under the same rule, with narrow statutory exceptions (such as the athlete’s-prize exemption under RA No. 10699) that generally don’t apply to an ordinary office raffle.

A worked example: one employee’s year-end pay envelope #

Maria is a rank-and-file waitress at a Manila hotel restaurant. In December, her pay envelope includes four items the restaurant must sort correctly:

Her service charge share is taxed as ordinary wages. Her 13th month pay and Christmas bonus (₱27,000 combined, against the ₱90,000 cap, assuming no other bonus payments that year) pass through tax-free. Her raffle prize is pulled out entirely and taxed at a flat 20% regardless of her income bracket — three different rules applied to three line items in the same pay envelope.

FAQs #

Are tips taxable income in the Philippines? #

Yes. A tip or gratuity an employee receives in connection with their job is taxable income, whether it is handed directly by a customer or pooled and distributed by the employer as a mandatory service charge. When an employer collects and distributes it — as hotels and restaurants must do with service charges under RA No. 11360 — the amount is treated as part of the employee’s compensation and is subject to withholding tax on compensation, the same as regular wages.

Is my 13th month pay taxable? #

Only the portion that pushes your combined 13th month pay and other benefits over ₱90,000 for the calendar year. NIRC Section 32(B)(7)(e), as amended by the TRAIN Law (RA No. 10963), excludes 13th month pay, Christmas bonus, productivity incentives, and similar benefits from gross income up to a combined ₱90,000 per year. Any amount above that combined ceiling is added back to taxable compensation and subjected to withholding tax at graduated rates.

Do de minimis benefits count toward the ₱90,000 bonus ceiling? #

De minimis benefits (small, specific non-cash perks like a rice subsidy or uniform allowance within their own BIR-set limits) are exempt under their own separate ceiling and are not part of the ₱90,000 13th-month/other-benefits cap. However, any amount that exceeds a de minimis item’s own limit is reclassified and folded into the ₱90,000 bonus pool for testing — it does not disappear, it just moves categories.

If I win a company raffle prize worth ₱15,000, how much tax is withheld? #

Under NIRC Section 24(B)(1), as amended by the TRAIN Law, prizes over ₱10,000 are subject to a flat 20% final withholding tax, applied to the full prize value, not just the excess over ₱10,000. On a ₱15,000 prize, the company withholds ₱3,000 and the winner nets ₱12,000 (or, for a non-cash prize, the company typically grosses up or requires the winner to cover the tax before releasing the item).

Why isn’t a company raffle prize taxed the same way as a bonus? #

Because the NIRC treats them as different kinds of income. A bonus or 13th month pay is compensation for services rendered, taxed (if at all) under the graduated compensation rules and the ₱90,000 benefits ceiling. A raffle or contest prize is not pay for work performed — it is winnings, taxed instead under the separate 20% final-tax rule for prizes in Section 24(B)(1), with no connection to the ₱90,000 ceiling at all.

Summary #

Three different BIR rules govern three kinds of extra pay that employees often lump together as “bonus money.” Tips and service charges are ordinary compensation, withheld like regular wages. 13th month pay and other bonuses are exempt only up to a combined ₱90,000 a year under Section 32(B)(7)(e), with any excess taxed at graduated rates. Company raffle and contest prizes over ₱10,000 face a flat 20% final tax under Section 24(B)(1), entirely independent of the bonus ceiling. Payroll and HR teams that treat all three as interchangeable “extra pay” risk under-withholding on raffle prizes or miscounting the ₱90,000 ceiling — see this site’s guide to de minimis benefit limits and withholding tax on prizes and winnings for the rules on the two categories not covered in depth here.