How Philippine Income Tax Works: The Graduated Tax Brackets Explained (2026)

If you have ever looked at your payslip and wondered why a certain amount was deducted for "withholding tax," you are not alone. Income tax in the Philippines follows a graduated (or progressive) system, which means the rate you pay rises in steps as your income grows. The rules come from the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963), and they are the same tables the Bureau of Internal Revenue (BIR) requires every employer to use when withholding tax from your salary.

This guide breaks down exactly how those brackets work in 2026, what "marginal" really means, how your employer computes the deduction each payday, and how you can check the math yourself. We use the exact, current BIR tables that power our Philippine income tax calculator.

A short history: TRAIN Law and the current rates

Before 2018, Filipino employees paid income tax under a different schedule and could claim personal and additional exemptions based on marital status and number of dependents. The TRAIN Law, which took effect on 1 January 2018, restructured that system completely. It lowered the rates, simplified the brackets, and — most importantly for individual earners — repealed the personal exemptions that used to reduce taxable income.

In exchange, TRAIN introduced a generous 0% bracket on the first ₱250,000 of taxable income. In practical terms, that tax-free threshold replaced the old personal exemption. Most low- and middle-income earners ended up paying less tax overall, even without exemptions, because the lower rates and the tax-free band more than compensated.

The schedule was rolled out in two phases. The lower, final rates (shown below) took full effect starting in 2023 and remain the law in 2026. You may also hear about the CREATE Act (Republic Act No. 11534). It is important to know that CREATE focused on corporate income tax and tax incentives — it did not change the individual graduated brackets. The tables that apply to your salary are still the TRAIN tables. You can verify the current rates directly on the BIR website.

The 2026 graduated income tax brackets

The table below shows the annual graduated income tax schedule for compensation income earners in 2026. These figures are annual — that is, they apply to your total taxable income for the whole calendar year, not a single month.

Each bracket's fixed amount (for example, ₱22,500 in the third row) is simply the total tax on everything below that bracket. It is already "baked in," so you only ever apply the percentage to the income that spills over the lower threshold.

Marginal, not flat: the single most important concept

Here is where many people get confused — and it costs them peace of mind. A common worry sounds like this: "If my salary goes up and pushes me into the 25% bracket, will I suddenly owe 25% on everything and actually take home less?"

The answer is no. The Philippine system is marginal. Each rate applies only to the slice of income that falls inside its band. Your lower slices keep being taxed at their own, lower rates. Moving into a higher bracket never reduces your take-home pay; you simply pay a higher rate on the extra pesos above the threshold.

Think of it like a staircase. The first ₱250,000 of your income walks up the first step for free. The next portion climbs the 15% step. Only the part that reaches the 20% step is taxed at 20% — everything below it stays where it was. This is why the effective (average) tax rate is always lower than your top marginal rate, and the two should not be confused.

Worked example 1: a ₱30,000 monthly earner

Let us put the brackets to work with a realistic Filipino salary. Suppose you earn ₱30,000 a month, or ₱360,000 a year before deductions. That sounds like it lands in the 15% band (₱250,001 to ₱400,000) — but tax is computed on your taxable income, which is your gross pay minus mandatory contributions.

As an employee, you contribute to SSS, PhilHealth, and Pag-IBIG. For a ₱30,000 monthly salary these three combined come to roughly ₱2,450 a month, or about ₱29,400 a year. (You can see the full breakdown in our guide to SSS, PhilHealth, and Pag-IBIG contributions.) These contributions are deducted before income tax is calculated, which lowers your tax bill.

So the total income tax for the year is ₱12,090, or about ₱1,007.50 a month withheld from your pay. Notice that even though this earner's top marginal rate is 15%, the effective tax rate is only ₱12,090 ÷ ₱330,600 ≈ 3.7% of taxable income — because the entire first ₱250,000 was taxed at 0%. That is the power of marginal brackets and the tax-free band working together.

Worked example 2: a higher bracket, same principle

To really see the marginal system in action, consider a larger income. Imagine a professional with ₱1,000,000 of annual taxable income (after contributions and other deductions). That places her in the over ₱800,000 to ₱2,000,000 bracket, with a 25% marginal rate. But she does not pay 25% on the whole million.

Her effective tax rate is ₱152,500 ÷ ₱1,000,000 = 15.25% — far below her 25% marginal rate. The built-in ₱102,500 already captures the tax on her income up to ₱800,000 (the 0%, 15%, 20%, and the start of the 25% portions combined), and only the final ₱200,000 is actually taxed at 25%. This is exactly why getting a raise that nudges you into a higher bracket is almost never a reason to refuse the raise.

What happened to personal exemptions?

Under the old (pre-2018) rules, you could deduct a personal exemption of ₱50,000 plus additional exemptions for qualified dependents. TRAIN removed all of that. There are no longer personal or additional exemptions for compensation income earners. Do not subtract anything for yourself, your spouse, or your children when computing income tax under the current law.

Instead, the law gives every taxpayer the same built-in benefit: the first ₱250,000 of taxable income is tax-free. For the great majority of employees this is more valuable than the old exemption structure, and it is much simpler because there is nothing to claim, prove, or document. The tax-free band is the modern equivalent of the personal exemption.

How withholding works each payday

Your employer does not wait until year-end to collect income tax. Instead, it withholds a portion of your pay every cutoff and remits it to the BIR on your behalf. To do this fairly, the employer uses the same annual graduated table shown above, but applies it on a monthly (or semi-monthly) basis through the BIR's Withholding Tax Table (BIR Form 1601 and related publications).

The monthly withholding is essentially an estimate. Each pay period, the employer annualizes your income so far, projects the full-year tax, divides it across 12 months, and subtracts what has already been withheld. By the end of December, the running total should closely match your true annual tax under the graduated table. Small mismatches can happen — for example, if you joined or left mid-year, received a large bonus, or had variable commission — but the system is designed to "true up" by year-end.

Each January, your employer gives you a BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld). This document summarizes your gross pay, taxable income, and the total tax withheld for the previous year. If you have only one employer and stayed the whole year, Form 2316 often serves as your final income tax return and you may not need to file separately — but always confirm your own situation. You can read about how withholding fits into your overall take-home pay in our dedicated guide.

Mandatory contributions reduce your taxable income

One often-overlooked detail: your SSS, PhilHealth, and Pag-IBIG contributions are deducted from your gross pay before income tax is computed. That means every peso you contribute lowers your taxable income and therefore your tax. Employer shares are separate and are not added to your taxable compensation.

This is why the ₱30,000-a-month earner in our first example was taxed on ₱330,600 rather than ₱360,000. The ₱29,400 in annual contributions shaved roughly ₱4,410 off her income tax (15% of ₱29,400). Other pre-tax items — such as certain de minimis benefits within BIR limits and approved contributions — can also reduce taxable income, so the full picture is more than just "gross salary minus the bracket."

A note on the optional 8% flat tax

You may have heard of an 8% income tax option. It exists, but it applies only to self-employed individuals and professionals (and mixed-income earners) whose gross sales or receipts are below ₱3,000,000. They can choose, instead of the graduated brackets, to pay a flat 8% on gross sales/receipts plus 8% on any passive income, with the first ₱250,000 still tax-free.

For pure compensation income earners — that is, regular employees — the 8% option is not available. Employees always use the graduated brackets above. If you earn both a salary and have a side business, the rules split your income between the two regimes, and you should seek personalized guidance.

Common mistakes to avoid

• Treating the marginal rate as a flat rate. Being "in the 25% bracket" does not mean 25% of your whole income goes to tax. Always apply each rate only to the income inside its band.
• Adding back old personal exemptions. They no longer exist. The ₱250,000 tax-free band is their replacement.
• Forgetting that contributions are pre-tax. SSS, PhilHealth, and Pag-IBIG lower your taxable income, so always subtract them before applying the bracket.
• Confusing gross and taxable income. The brackets apply to taxable compensation, not your headline salary.
• Ignoring Form 2316. It is the authoritative record of what you earned and what was withheld. Review it each January.

Check your own numbers in seconds

Reading about brackets is useful, but seeing your actual take-home pay is what most employees really want. Our calculator applies these exact same official BIR graduated tables, along with current SSS, PhilHealth, and Pag-IBIG contribution schedules, to turn any salary into an accurate monthly and annual breakdown — including effective tax rate, total deductions, and net pay. You can also explore ready-made salary examples to compare scenarios before negotiating a raise or evaluating a job offer.

Sources and official references

• Bureau of Internal Revenue (BIR) — official tax tables, withholding tables, and forms (including BIR Form 2316).
• Republic Act No. 10963 (TRAIN Law) — the statute that restructured individual income tax into the current graduated schedule.
• Republic Act No. 11534 (CREATE Act) — addressed corporate tax; individual brackets were left unchanged.

Frequently Asked Questions