Graduated Tax Rates and Income Brackets
Updated June 13, 2026
On this page
Definition
A tax system where higher income levels are taxed at progressively higher rates, with income divided into brackets each subject to different tax rates, also known as progressive taxation.
Graduated tax rates form the backbone of the Philippine income tax system under Republic Act 10963 (TRAIN Law). Instead of applying a single tax rate to all income, the system divides taxable income into brackets, with each bracket taxed at an increasing rate. For individual taxpayers in 2026, the graduated rates range from 0% for the first ₱250,000 of taxable income to 35% for income exceeding ₱8,000,000. This progressive structure means that as your income increases, only the additional income in higher brackets is taxed at the higher rates, not your entire income. The system applies to compensation income (salaries), business income, and other sources of income, with specific brackets defined in Section 24(A) of the Tax Code as amended by the TRAIN Law.
Detailed explanation
What Are Graduated Tax Rates?
Graduated tax rates, also called progressive taxation, are a basic feature of the Philippine income tax system for individuals. Taxable income is divided into brackets, and each bracket is taxed at a different rate. As income increases, the marginal rate (the rate applied to the next peso earned) increases, but only the income within each bracket is taxed at that bracket's rate. This differs from a flat tax, where all income is taxed at a single rate.
The current table comes from the Tax Reform for Acceleration and Inclusion (TRAIN) Law, Republic Act No. 10963. TRAIN set one table for 2018 to 2022 and a lower table from January 1, 2023 onward. Later laws, including CREATE (RA 11534, 2021) and CMEPA (RA 12214, 2025), did not change the individual brackets.
Current Individual Income Tax Table (2023 Onward)
- ₱250,000 or less: 0%
- Over ₱250,000 to ₱400,000: 15% of the excess over ₱250,000
- Over ₱400,000 to ₱800,000: ₱22,500 plus 20% of the excess over ₱400,000
- Over ₱800,000 to ₱2,000,000: ₱102,500 plus 25% of the excess over ₱800,000
- Over ₱2,000,000 to ₱8,000,000: ₱402,500 plus 30% of the excess over ₱2,000,000
- Over ₱8,000,000: ₱2,202,500 plus 35% of the excess over ₱8,000,000
These rates apply to citizens, resident aliens and non-resident aliens engaged in trade or business in the Philippines (NIRC §24(A)(2), as amended by RA 10963).
How Graduated Rates Work in Practice
You do not pay the highest marginal rate on your entire income. Only the portion that falls within each bracket is taxed at that bracket's rate. For example, if Juan dela Cruz has ₱600,000 of taxable income:
- First ₱250,000 at 0% = ₱0
- Next ₱150,000 (over ₱250,000 to ₱400,000) at 15% = ₱22,500
- Last ₱200,000 (over ₱400,000 to ₱600,000) at 20% = ₱40,000
- Total tax: ₱62,500
Juan's effective tax rate is ₱62,500 ÷ ₱600,000 = 10.42%, not 20% (the marginal rate on his last peso).
Non-Resident Aliens and Special Rates
Non-resident aliens not engaged in trade or business in the Philippines pay a 25% final tax on gross income from Philippine sources (NIRC §25(B)). Non-resident aliens engaged in trade or business, including those who stay more than 180 days in a year, pay the graduated rates on Philippine-source income (NIRC §25(A)). Resident citizens are taxed on worldwide income; non-resident citizens and overseas contract workers are taxed only on Philippine-source income (NIRC §23).
Corporate Income Tax Rates
Corporations do not use the graduated table. Under the CREATE Law (RA 11534), domestic corporations pay 25% of taxable income from July 1, 2020, down from 30%. Corporations with net taxable income of ₱5,000,000 or less and total assets of ₱100,000,000 or less, excluding the land on which their office, plant and equipment stand, pay 20% (NIRC §27(A)).
Purpose and Rationale
Graduated tax rates follow the principle of ability to pay: those with higher incomes contribute a larger share of their income to government revenue. The TRAIN Law replaced the old personal and additional exemptions with a 0% bracket for the first ₱250,000 of taxable income, so workers with taxable income at or below that level pay no income tax.
Interaction with Deductions and Credits
Graduated rates apply to taxable income after the exclusions and deductions the law allows (for business and professional income, itemized deductions or the optional standard deduction; employees cannot deduct expenses) and before tax credits. Tax credits, such as income tax already withheld by employers or creditable withholding tax shown on BIR Form 2307, then reduce the tax computed under the graduated rates.
Why it matters
Graduated tax rates determine how much income tax you owe based on your total income. Understanding which bracket you fall into helps you estimate your annual tax liability, plan for withholding, and make informed financial decisions. Misunderstanding how brackets work often leads to overpayment or underpayment of taxes.
How it works
Determine Your Total Taxable Income
Add up your compensation, business and other income taxed at graduated rates; passive income already subject to final tax, such as bank interest, is left out. Subtract what the law allows (for employees, mandatory contributions and tax-free benefits; for business and professional income, itemized deductions or the 40% optional standard deduction). The result is taxable income, and its first ₱250,000 is taxed at 0% (NIRC §24(A), §32, §34).
Identify Your Applicable Bracket
Locate your taxable income amount within the six individual brackets. Note that you may span multiple brackets; only the portion in each bracket is taxed at that rate.
Calculate Tax for Each Bracket
Multiply the income within each bracket by the corresponding rate. Sum the results to get total income tax before credits (NIRC §24(A)).
Apply Tax Credits and Withholdings
Subtract tax credits, such as income tax withheld by your employer or creditable withholding tax shown on BIR Form 2307, from the computed tax. The result is the tax still payable or the overpayment.
Examples
Salaried Employee Earning ₱500,000 Annually
Maria Santos has ₱500,000 of taxable income. The first ₱250,000 is taxed at 0%, the next ₱150,000 at 15% (₱22,500) and the last ₱100,000 at 20% (₱20,000), so her income tax is ₱42,500 (NIRC §24(A), RA 10963).
Self-Employed Professional Earning ₱1,200,000
Ramon Reyes, a consultant, earns ₱1,200,000 and has ₱300,000 in deductible business expenses. Taxable income: ₱900,000. Tax: ₱0 (first ₱250k) + ₱22,500 (next ₱150k at 15%) + ₱100,000 (next ₱400k at 20%) + ₱25,000 (next ₱100k at 25%) = ₱147,500 (NIRC §24(A)).
High-Income Executive Earning ₱6,000,000
Anna Tan has ₱6,000,000 of taxable income. Tax: ₱0 + ₱22,500 + ₱80,000 + ₱300,000 + ₱1,200,000 (30% of the ₱4,000,000 above ₱2,000,000) = ₱1,602,500. Effective rate: about 26.7% (NIRC §24(A)).
Non-Resident Alien Earning Philippine-Source Income
David Chen, a non-resident alien not engaged in business in the Philippines, earns ₱800,000 in rent from Philippine real estate. Graduated rates do not apply to him: he pays a 25% final tax on the gross amount, ₱800,000 × 25% = ₱200,000 (NIRC §25(B)).
Common misconceptions
- Myth: If you earn ₱500,000, you pay 20% tax on all of it because that's the bracket rate.
- Fact: Only the portion of income within each bracket is taxed at that rate. Income below ₱250,000 is exempt; the next ₱150,000 is taxed at 15%; only income above ₱400,000 is taxed at 20% (NIRC §24(A)).
- Myth: Earning more income always results in a higher take-home pay because you move into a higher tax bracket.
- Fact: You only pay the higher rate on the additional income in that bracket, not on all income. Moving to a higher bracket always increases net income, though at a lower rate than the marginal tax rate (progressive taxation principle).
- Myth: The ₱250,000 zero-rate bracket means only people earning under ₱250,000 benefit from it.
- Fact: Everyone pays 0% on their first ₱250,000 of taxable income; only the amount above it is taxed at the higher brackets. It is a bracket in the tax table, not a personal exemption or a credit against tax (NIRC §24(A), RA 10963).
- Myth: Non-resident aliens pay graduated rates like residents.
- Fact: Non-resident aliens not engaged in business pay a 25% final tax on gross Philippine-source income. Those engaged in trade or business pay graduated rates, also only on Philippine-source income (NIRC §25(A), §25(B)).
Questions people ask
What is the difference between marginal rate and effective tax rate?
The marginal rate is the rate applied to your last peso of taxable income (the highest bracket you reach). The effective rate is total tax divided by taxable income. For example, ₱1,000,000 of taxable income is taxed ₱102,500 plus 25% of the ₱200,000 above ₱800,000, or ₱152,500. The effective rate is 15.25%, while the marginal rate is 25% (NIRC §24(A)).
Do I pay tax on the first ₱250,000 I earn?
No. The first ₱250,000 of annual taxable income falls in the 0% bracket of the graduated table (NIRC §24(A), RA 10963). Only taxable income above ₱250,000 is taxed, at 15% to 35%. The old personal exemption was repealed in 2018.
How do graduated rates apply if I have multiple income sources?
Compensation income and business or professional income taxed at graduated rates are added together, and the graduated table is applied to the combined taxable income, unless you elect the 8% rate on your business income. Passive income already subject to final tax, such as bank interest and dividends, is not added (NIRC §24(A), §24(B)).
Are bonuses and 13th-month pay taxed at graduated rates?
Bonuses are part of taxable compensation. 13th month pay and other benefits, including bonuses, are excluded up to ₱90,000 a year in total; the excess is added to taxable income and taxed at graduated rates (NIRC §32(B)(7)(e)).
What happens if I earn income in multiple years; do I use graduated rates for each year separately?
Yes. Graduated rates are applied annually to each taxable year's income. Income from 2023 and 2024 are taxed separately using the brackets applicable in each year (NIRC §24(A)).
Do corporations use the same graduated brackets as individuals?
No. Domestic corporations pay a flat 25% regular corporate income tax, or 20% if their net taxable income does not exceed ₱5,000,000 and their total assets, excluding the land on which their office, plant and equipment stand, do not exceed ₱100,000,000 (NIRC §27(A), as amended by CREATE, RA 11534).
How do tax credits reduce my tax liability under graduated rates?
Tax credits directly reduce the tax computed under the graduated rates. For example, if your graduated tax is ₱100,000 and ₱20,000 was withheld from your income during the year, you still owe ₱80,000.
If I am a non-resident alien, do I use graduated rates?
Only if you are engaged in trade or business in the Philippines, which includes staying in the country for more than 180 days in the year. You then pay graduated rates on Philippine-source income (NIRC §25(A)). If you are not engaged in business, you pay a 25% final tax on gross Philippine-source income (NIRC §25(B)). Aliens are not taxed on foreign-source income either way.
In practice
- Employers withhold income tax from employee salaries using graduated rates and BIR withholding tables; employees reconcile actual liability on their annual return.
- Self-employed individuals and professionals file quarterly income tax returns and pay tax on income earned so far in the year, computed with the graduated rates or the 8% option (NIRC §74).
- Businesses planning expansion or salary increases must model the impact of graduated rates on after-tax income to assess profitability.
- Filipinos working abroad who qualify as non-resident citizens or overseas contract workers are taxed only on income from Philippine sources, while resident citizens are taxed on worldwide income (NIRC §23).
- Tax planning strategies such as income splitting, timing of bonuses, or use of tax-deductible expenses are designed to minimize taxable income and thus the marginal bracket applied.
Next steps
Learn more
Income Tax Calculator Compute Tax Using Current Graduated Rates
Payroll Tax Calculator Calculate Withholding Tax With Graduated Rates
Self Employed Tax Calculator Estimated Quarterly Tax Computation
Tax Bracket Calculator Determine Your Marginal And Effective Rates
BIR Form 1700 Annual Income Tax Return For Employees
BIR Form 1701 Annual Income Tax Return For Self Employed
BIR Form 1701Q Quarterly Income Tax Return
BIR Form 2316 Certificate Of Compensation Payment/Tax Withheld
Related content
Calculators
Tax types
Taxpayer guides
BIR forms
Guides
Glossary
Sources & References (3)
Primary sources and the laws, regulations, and official issuances this page relies on. Each citation links directly to the issuing authority’s document.
- LawPhil Project (Arellano Law Foundation). “NIRC §24(A) as amended by RA 10963 (TRAIN): 2023+ brackets 0/15/20/25/30/35%; 35% over P8,000,000.” lawphil.net. Republic Act No. 10963 (TRAIN), amending NIRC Sec. 24(A). Accessed .
- Bureau of Internal Revenue. “BIR: Income Tax tables (graduated rates effective 2023 onward).” bir.gov.ph. Bureau of Internal Revenue, Income Tax tables. Accessed .