Is 13th month pay taxable? The ₱90,000 ceiling
13th month pay and other benefits are tax-free up to a combined ₱90,000 a year. Only the amount above ₱90,000 is added to taxable income.
The rule
Under the TRAIN Law, the total of 13th month pay and other benefits is excluded from gross income up to ₱90,000 for the calendar year. Only the part above ₱90,000 is taxable compensation.
This is separate from the rule that employers must pay 13th month pay. Whether the pay is required and whether it is taxed are two questions.
What is added together
All of these count toward the ₱90,000 for the same year:
- 13th month pay
- The Christmas bonus and other year-end bonuses
- Productivity incentives
- Loyalty awards and similar benefits
The amounts are summed for the year. Do not test each benefit on its own.
Example
An employee earns ₱40,000 a month.
| Item | Amount |
|---|---|
| 13th month pay (₱40,000 x 12 / 12) | ₱40,000 |
| Christmas bonus | ₱30,000 |
| Productivity incentive | ₱30,000 |
| Total | ₱100,000 |
| Exempt up to | ₱90,000 |
| Taxable excess | ₱10,000 |
The ₱10,000 is added to the employee's other taxable compensation for the year, and withholding tax is computed on the larger total.
Excess de minimis benefits
Benefits that go over the de minimis ceilings are not lost. The excess is treated as part of the "13th month pay and other benefits" total, so it uses up the same ₱90,000. See De minimis benefits.
For payroll
- Track the running total of 13th month pay and other benefits for each employee through the year.
- When the total passes ₱90,000, the excess belongs in taxable compensation.
- The annual figures appear on the BIR Form 2316, where non-taxable and taxable parts are shown separately.
For the computation of the 13th month pay itself, see How to compute 13th month pay.
Questions people ask
Is 13th month pay taxable?
Not up to the ceiling. 13th month pay and other benefits are exempt up to ₱90,000 a year in total. Anything above ₱90,000 is taxable compensation.
What counts toward the ₱90,000?
13th month pay, plus other benefits such as the Christmas bonus, productivity incentives and similar bonuses, added together for the year.
Does the ₱90,000 apply per benefit?
No. It is one combined ceiling for the calendar year.
Is the 13th month pay itself required by law?
Yes. Rank-and-file employees who worked at least one month in the year must receive it by December 24. See the computation article.
Sources
- Republic Act No. 10963 (TRAIN Law), amending Section 32(B)(7)(e) of the National Internal Revenue Code
- Presidential Decree No. 851, 13th month pay
- BIR Revenue Regulations No. 11-2018, implementing the TRAIN Law on withholding tax on compensation