Income Tax (2026 Guide)
Income tax in the Philippines is a progressive annual tax on individual and corporate income, with individual rates from 0% to 35% under the TRAIN Law and a 25% corporate rate under CREATE. Individuals file BIR Form 1700, 1701, or 1701A; corporations file Form 1702.
The Definition
Income tax is the primary direct tax the Philippine government imposes on the income of individuals and corporations. It is governed by the National Internal Revenue Code (NIRC) of 1997, as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Act of 2017 (Republic Act 10963) and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act of 2021 (Republic Act 11534). The tax applies to natural and juridical persons who earn income from sources within and, for residents, outside the Philippines. It is computed on gross income less allowable deductions. For individuals the rates are progressive, ranging from 0% to 35%. For corporations the regular rate is 25% under CREATE, with a 20% rate for qualifying small domestic corporations. The legal basis is found chiefly in NIRC sections 24 (individuals), 27-28 (corporations), and 32-34 (gross income, exclusions, and deductions).
Who Pays Income Tax in the Philippines
Income tax reaches almost everyone who earns. Resident citizens are taxed on worldwide income, while resident aliens and non-resident citizens are taxed only on Philippine-source income. The taxpayer population includes employees earning salaries, self-employed professionals, business owners, mixed-income earners, investors, and corporations. Employees are generally covered by withholding tax on compensation and, where one employer withholds correctly, by substituted filing. Self-employed individuals and professionals file their own returns based on net income after deductions, or under the 8% flat option. Domestic corporations are taxed on worldwide income; resident foreign corporations on Philippine-source income; and non-resident foreign corporations on Philippine-source gross income. Non-stock, non-profit organizations and government instrumentalities that meet NIRC section 30 conditions are exempt.
How Much Is Income Tax in the Philippines
For individuals, tax is computed on the TRAIN graduated table effective January 1, 2023 and still current. The brackets for resident individuals are: 0% on the first P250,000 of taxable income (exempt); 15% of the excess over P250,000 for income of P250,001 to P400,000; P22,500 + 20% of the excess over P400,000 for P400,001 to P800,000; P102,500 + 25% of the excess over P800,000 for P800,001 to P2,000,000; P402,500 + 30% of the excess over P2,000,000 for P2,000,001 to P8,000,000; and P2,202,500 + 35% of the excess over P8,000,000 for income above P8,000,000 (NIRC section 24(A), as amended by RA 10963). The formula is Taxable Income = Gross Income minus Allowable Deductions. Crucially, the TRAIN Law repealed the old P50,000 personal exemption and the P25,000 per-dependent additional exemption; that relief is now built into the P250,000 zero-tax band, so no exemption amounts are subtracted. Self-employed individuals and professionals whose gross sales or receipts do not exceed the P3,000,000 VAT threshold may instead elect a flat 8% tax on gross sales or receipts in excess of P250,000, in lieu of both the graduated tax and the 3% percentage tax. For corporations, tax equals Net Taxable Income times the rate. Under CREATE the rate is 25% for domestic and resident foreign corporations, or 20% for domestic corporations with net taxable income up to P5,000,000 and total assets up to P100,000,000 (excluding the land where the business is situated). A minimum corporate income tax of 2% of gross income applies from the fourth taxable year when it exceeds the regular tax.
What Forms Are Used to File Income Tax
Building on the rates above, the return you file depends on your income type, and only four individual income tax forms exist. Individuals earning purely compensation income file BIR Form 1700. Individuals with business, professional, or mixed income who use graduated rates with itemized deductions file BIR Form 1701, the same form used by estates and trusts. Individuals earning purely from business or profession who chose the 8% flat rate or the 40% Optional Standard Deduction file BIR Form 1701A. Quarterly income tax is filed on BIR Form 1701Q. There is no BIR Form 1701-C and no BIR Form 1701-E; those numbers do not exist in the BIR forms catalog. The annual deadline for individuals is on or before April 15 of the following year, and Form 1701Q quarters are due May 15, August 15, and November 15 (NIRC sections 51, 74-75). Corporations file Form 1702-RT, 1702-EX, or 1702-MX annually, with quarterly declarations on Form 1702Q. Returns may be filed through eBIRForms or the eFPS, or manually at the taxpayer's Revenue District Office.
What Deductions and Exemptions Apply
Deductions follow the taxpayer type. Self-employed individuals and professionals choose one of three methods each year: itemized deductions (ordinary and necessary business expenses with documentation), the 40% Optional Standard Deduction on gross sales or receipts (no documentation required), or the 8% flat rate in lieu of graduated tax and percentage tax. Because the TRAIN Law repealed personal and additional exemptions and the health-insurance premium deduction, individuals no longer subtract those items. Certain income is excluded from gross income under NIRC section 32(B): qualified SSS, GSIS, and BIR-approved retirement benefits; life insurance proceeds; prizes and awards in recognized fields; the proceeds of a qualifying sale of a principal residence (subject to conditions under NIRC section 24(D)); and the 13th-month pay and other benefits up to P90,000. Corporations may deduct ordinary and necessary business expenses, interest, depreciation, bad debts, and charitable contributions within statutory limits.
Worked Example: Reconciling the Graduated Table
Consider Andres Bautista, a self-employed software developer in Quezon City with P1,500,000 of taxable income who uses graduated rates. His income lands in the P800,001 to P2,000,000 bracket, so the tax is P102,500 + 25% of the excess over P800,000. Tax = P102,500 + 25% x (P1,500,000 - P800,000) = P102,500 + P175,000 = P277,500. This single computation demonstrates how each bracket's base figure already embeds the tax on all lower brackets, so the rate is applied only to the income above the bracket floor, never to the whole amount. If Andres instead had only P700,000 of taxable income, he would fall in the P400,001 to P800,000 bracket: P22,500 + 20% x (P700,000 - P400,000) = P22,500 + P60,000 = P82,500. The table is internally consistent: the base figure for each bracket equals the cumulative tax computed at the top of the prior bracket (for example, P22,500 at P400,000, P102,500 at P800,000, and P402,500 at P2,000,000).
Penalties for Non-Compliance
Failure to file or pay on time carries firm penalties under NIRC sections 248-249. The standard penalty is a 25% surcharge on the unpaid tax (50% where there is willful neglect or fraud), plus 12% annual interest from the due date until full payment, plus a compromise penalty. For example, a taxpayer who owes P100,000 due April 15 but pays three months late owes P25,000 surcharge plus about P3,000 interest, totaling roughly P128,000. Willful failure to file a return or pay tax can result in a fine of not less than P10,000 and imprisonment of 1 to 10 years (NIRC section 255), and tax evasion carries heavier penalties under NIRC section 254. The BIR may assess deficiency taxes through audit, and taxpayers may contest assessments administratively and, if necessary, before the Court of Tax Appeals. Withholding agents who fail to remit withheld taxes face the same surcharge and interest plus potential criminal liability.
Sources and References
- Bureau of Internal Revenue, Income Tax (bir.gov.ph/income-tax)
- Bureau of Internal Revenue, BIR Forms list and Form 1700/1701/1701A/1701Q guidelines (bir.gov.ph/bir-forms)
- PwC Philippines, Taxes on Personal Income, Tax Summaries (taxsummaries.pwc.com/philippines/individual/taxes-on-personal-income)
- Republic Act 10963 (TRAIN), Official Gazette (officialgazette.gov.ph)
- Republic Act 11534 (CREATE), Official Gazette (officialgazette.gov.ph)
- Grant Thornton Philippines, Annual Income Tax Return Filing and Payment Guidelines (grantthornton.com.ph)
Form 1700 (individuals earning purely compensation income), Form 1701 (self-employed and mixed-income earners using graduated rates with itemized deductions, plus estates and trusts), or Form 1701A (individuals earning purely from business or profession who use the 8% flat rate or the Optional Standard Deduction)
On or before April 15 of the following year (NIRC section 51)
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Calculate Your Income TaxWho Pays Income Tax?
check_circleMandatory for:
Resident citizens are taxed on worldwide income; resident aliens and non-resident citizens are taxed on Philippine-source income; self-employed individuals, professionals, and mixed-income earners are taxed on net business or professional income; domestic corporations are taxed on worldwide income and resident foreign corporations on Philippine-source income (NIRC sections 23-25, 27-28, as amended by RA 10963 and RA 11534).
infoVoluntary for:
Employees earning purely compensation income that produces taxable income of P250,000 or less per year owe zero tax, but they may still file BIR Form 1700 to claim a refund of any over-withheld tax.
cancelExempt:
Statutory minimum wage earners are exempt on their minimum wage, holiday pay, overtime pay, night-shift differential, and hazard pay (NIRC section 24(A)(2)); non-stock, non-profit organizations and government instrumentalities meeting NIRC section 30 conditions are exempt; and specific income items under NIRC section 32(B), such as qualified SSS, GSIS, and BIR-approved retirement benefits, are exempt.
Categories
Individual Income Tax
For employees, self-employed individuals, professionals, and mixed-income earners
Tax Rates:
Corporate Income Tax
For corporations, partnerships, and other juridical entities
Tax Rates:
Deductions
For Individuals
- check_circleOptional Standard Deduction (OSD) of 40% of gross sales or gross receipts, in lieu of itemized deductions
- check_circleItemized ordinary and necessary business or professional expenses (for self-employed and mixed-income earners)
- check_circlePremiums on health and hospitalization insurance were removed by the TRAIN Law and are no longer deductible; personal and additional (dependent) exemptions were also repealed and replaced by the P250,000 zero-tax band
For Corporations
- check_circleOrdinary and necessary business expenses
- check_circleInterest expense
- check_circleDepreciation
- check_circleBad debts
- check_circleCharitable contributions (up to 5% of taxable income for corporations, with certain donations fully deductible)
Worked Examples
Maria Santos, a salaried employee in Manila, earns P600,000 in annual taxable compensation with no other income.
Computation
Taxable income is P600,000, which falls in the P400,001-P800,000 bracket of the TRAIN graduated table (NIRC section 24(A), as amended by RA 10963): P22,500 + 20% of the excess over P400,000. Tax = P22,500 + 20% x (P600,000 - P400,000) = P22,500 + P40,000 = P62,500. Note: the TRAIN Law repealed personal and additional exemptions, so no P50,000 personal exemption is subtracted; the relief is built into the P250,000 zero-tax band.
Result
Maria's annual income tax is P62,500, withheld monthly by her employer (about P5,208 per month) under the BIR withholding tax tables. As a pure-compensation earner under substituted filing, she receives BIR Form 2316 and generally does not file Form 1700 herself.
Juan Reyes, a self-employed consultant in Cebu, reports gross receipts of P1,200,000 with itemized business expenses of P400,000, and elects the graduated rates rather than the 8% flat tax.
Computation
Gross receipts P1,200,000 less itemized expenses P400,000 = taxable income P800,000. This sits at the top of the P400,001-P800,000 bracket: P22,500 + 20% of the excess over P400,000. Tax = P22,500 + 20% x (P800,000 - P400,000) = P22,500 + P80,000 = P102,500.
Result
Juan's annual income tax is P102,500. He files Form 1701 (graduated rates with itemized deductions) by April 15 and pays quarterly income tax using Form 1701Q, due May 15, August 15, and November 15.
Liza Cruz, a freelance graphic designer in Davao, has gross receipts of P900,000, no VAT registration, and elects the 8% flat income tax option.
Computation
Under the 8% optional rate (NIRC section 24(A)(2)(b), as amended by RA 10963), tax is 8% of gross receipts in excess of P250,000, in lieu of both the graduated tax and the 3% percentage tax. Tax = 8% x (P900,000 - P250,000) = 8% x P650,000 = P52,000.
Result
Liza's annual income tax is P52,000. Because she availed of the 8% flat rate, she files Form 1701A (not Form 1701) by April 15 and files Form 1701Q quarterly. The 8% option is available only to those whose gross sales or receipts do not exceed the P3,000,000 VAT threshold.
ABC Corporation, a domestic corporation on a calendar year with total assets of P150,000,000, reports net taxable income of P5,000,000 for 2024.
Computation
Because its total assets exceed P100,000,000, ABC does not qualify for the 20% small-business rate and is taxed at the regular 25% rate under CREATE (NIRC section 27, as amended by RA 11534). Tax = P5,000,000 x 25% = P1,250,000.
Result
ABC Corporation's annual income tax is P1,250,000. It files Form 1702-RT by April 15 of the following year and pays quarterly using Form 1702Q by the 15th day of the 2nd month after each of the first three quarters.
Rosa Gonzales, a retiree, receives P300,000 in annual pension from a BIR-approved private retirement plan and P200,000 in taxable freelance bookkeeping income.
Computation
Pension income from a BIR-approved plan is exempt under NIRC section 32(B)(6) and is not counted. Taxable freelance income is P200,000, which falls entirely within the first P250,000 bracket taxed at 0%. Tax = P0.
Result
Rosa owes P0 in graduated income tax because her P200,000 of taxable income is below the P250,000 zero-rate threshold. She still files Form 1701 to report the freelance income. Bank interest, by contrast, is taxed separately at a 20% final withholding tax under NIRC section 24(B) and is not added to graduated income.
Common Mistakes to Avoid
errorFiling the wrong individual return, for example using Form 1701 when you elected the 8% flat rate or the Optional Standard Deduction (which require Form 1701A), or assuming non-existent forms like '1701-C' or '1701-E' exist.
Penalty: BIR may treat the return as not filed or require an amended return, exposing you to a 25% surcharge and 12% annual interest on any tax that ends up underpaid. There is no BIR Form 1701-C or 1701-E; the only individual income tax returns are 1700, 1701, 1701A, and 1701Q.
How to Avoid: Match the form to your situation: Form 1700 for pure compensation income, Form 1701 for mixed income or business income under graduated rates with itemized deductions, Form 1701A for pure business or professional income under the 8% rate or OSD, and Form 1701Q for quarterly filing. Verify the current form on bir.gov.ph before filing.
errorStill claiming a P50,000 personal exemption or P25,000 per-dependent additional exemption, which the TRAIN Law repealed effective January 1, 2018.
Penalty: Claiming repealed exemptions understates taxable income, leading to a deficiency assessment plus a 25% surcharge and 12% annual interest on the underpaid tax (NIRC sections 248-249).
How to Avoid: Do not subtract any personal or additional exemptions. The P250,000 zero-tax band already replaces them for all individuals. Self-employed taxpayers instead choose either itemized deductions, the 40% OSD, or the 8% flat rate.
errorFailing to report all income sources, such as a side business, rental income, or freelance fees, on the annual return.
Penalty: BIR may assess deficiency tax plus a 25% surcharge and 12% annual interest, and may impose a 50% surcharge for fraud where the omission is willful (NIRC sections 248-249).
How to Avoid: Consolidate all taxable income on the correct return. Compensation-only earners use Form 1700; anyone with business, professional, or mixed income uses Form 1701 or Form 1701A. Reconcile your figures against your BIR Form 2316 and books of account.
errorMissing the April 15 annual deadline or the quarterly Form 1701Q deadlines (May 15, August 15, November 15).
Penalty: Late filing or payment triggers a 25% surcharge plus 12% annual interest, and a compromise penalty. Willful failure to file can lead to a fine of P10,000 or more and imprisonment of 1 to 10 years (NIRC sections 248, 255).
How to Avoid: Calendar all four individual deadlines (annual April 15; quarters May 15, August 15, November 15) and file electronically through eBIRForms or eFPS to obtain a dated confirmation.
Tax Optimization Strategies
lightbulbCompare the 8% flat rate against the graduated rates each year if your gross sales or receipts are under the P3,000,000 VAT threshold. The 8% option taxes gross receipts above P250,000 and replaces the 3% percentage tax, while graduated rates allow deductions.
Potential Savings: A consultant with P1,200,000 gross receipts and only P150,000 in real expenses pays roughly P76,000 under the 8% rate versus about P127,500 under graduated rates with limited deductions, saving over P50,000. A taxpayer with heavy expenses should instead use graduated rates with itemized deductions or the 40% OSD.
lightbulbUse the 40% Optional Standard Deduction if you lack complete receipts. The OSD deducts 40% of gross sales or receipts with no documentation, and is claimed on Form 1701A.
Potential Savings: A professional with P1,000,000 gross receipts who cannot fully document expenses deducts P400,000 via OSD, cutting taxable income to P600,000 and removing income otherwise taxed at the 20% marginal bracket, saving roughly P40,000 versus claiming no deductions.
lightbulbKeep complete, organized records when you choose itemized deductions, so all ordinary and necessary business expenses (rent, utilities, supplies, professional fees) survive a BIR audit.
Potential Savings: A self-employed professional with P1,000,000 gross income who properly documents P300,000 of expenses cuts taxable income to P700,000, removing income taxed at the 20% marginal rate and saving about P60,000 (20% x P300,000) versus claiming nothing.
lightbulbTime discretionary income and deductible expenses around the P2,000,000 and P8,000,000 bracket thresholds, where the marginal rate steps up from 25% to 30% and from 30% to 35%.
Potential Savings: A business owner with P2,100,000 projected taxable income who defers P100,000 of income to the next year (bringing this year to P2,000,000) shifts that P100,000 from the 30% bracket to the 25% bracket, saving about P5,000 (5% x P100,000).
Related Resources
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Related BIR Forms
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Glossary Terms
Frequently Asked Questions
Individual income tax is progressive: 0% on the first P250,000 of annual taxable income, then 15%, 20%, 25%, 30%, and 35% on higher brackets, up to a top rate of 35% on income over P8,000,000 (NIRC section 24(A), as amended by RA 10963). Corporations pay 25% under CREATE, or 20% if they are domestic corporations with net taxable income up to P5,000,000 and total assets up to P100,000,000. This is the TRAIN graduated schedule effective since January 1, 2023.
Individuals use one of four forms: Form 1700 if you earn purely compensation income; Form 1701 if you have business, professional, or mixed income under graduated rates with itemized deductions; Form 1701A if you earn purely from business or profession under the 8% flat rate or the Optional Standard Deduction; and Form 1701Q for quarterly filing. There is no Form 1701-C or Form 1701-E. Corporations use Form 1702-RT, 1702-EX, or 1702-MX. The annual deadline is April 15 (NIRC section 51).
Yes. The TRAIN Law (RA 10963), effective January 1, 2018, repealed the P50,000 personal exemption and the P25,000 per-dependent additional exemption for individual income tax. It replaced them with a single P250,000 zero-tax band that applies to all individual taxpayers. It also removed the deduction for health and hospitalization insurance premiums. Self-employed taxpayers instead choose itemized deductions, the 40% OSD, or the 8% flat rate.
If you earn purely compensation income from a single employer and tax is correctly withheld, you are usually covered by substituted filing using BIR Form 2316 and do not file separately. If you have two or more employers, business income, or other taxable income, you must file Form 1700 (pure compensation) or Form 1701 or 1701A (with business income) by April 15. Even when not required, you may file Form 1700 to claim a refund of over-withheld tax (NIRC section 51).
The 8% option lets self-employed individuals and professionals whose gross sales or receipts do not exceed the P3,000,000 VAT threshold pay a flat 8% on gross sales or receipts in excess of P250,000, in lieu of both the graduated income tax and the 3% percentage tax (NIRC section 24(A)(2)(b), as amended by RA 10963). It is elected at the start of the year and filed on Form 1701A. It usually benefits taxpayers with low deductible expenses; those with high expenses are better off on graduated rates.
Late payment carries a 25% surcharge on the unpaid tax plus 12% annual interest from the due date until full payment, and a compromise penalty (NIRC sections 248-249, as amended by RA 10963). For example, P100,000 paid three months late accrues a P25,000 surcharge plus about P3,000 interest, totaling roughly P128,000. Willful failure to file can mean a fine of P10,000 or more and imprisonment of 1 to 10 years (NIRC section 255).
Under the CREATE Act (RA 11534), the regular corporate income tax rate is 25% for domestic and resident foreign corporations, down from 30%. Domestic corporations with net taxable income up to P5,000,000 and total assets up to P100,000,000 (excluding the land on which the business sits) pay a reduced 20%. Non-resident foreign corporations pay 25% on Philippine-source gross income. The minimum corporate income tax is 2% of gross income (NIRC sections 27-28, as amended by RA 11534).
Qualified retirement benefits are exempt under NIRC section 32(B)(6): benefits from the SSS, GSIS, and BIR-approved private retirement plans (where the employee is at least 50 years old with at least 10 years of service, availed only once) are not taxed. SSS and GSIS pensions are likewise exempt. However, any separate ongoing income you earn after retirement, such as freelance fees, remains taxable and must be reported on Form 1701.
Sources & References (4)
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 Section 24(A) graduated rates as amended by RA 10963 (TRAIN), 2023 schedule (0%-35%).” lawphil.net. Republic Act No. 10963 (TRAIN), amending NIRC Sec. 24(A). Accessed .
- LawPhil Project (Arellano Law Foundation). “NIRC Sections 27-28 corporate income tax as amended by RA 11534 (CREATE) — 25%/20% regular, 1% MCIT.” lawphil.net. Republic Act No. 11534 (CREATE), amending NIRC Sec. 27-28. Accessed .
- Bureau of Internal Revenue. “BIR — Income Tax (rates, BIR Forms 1700/1701/1702 series, deadlines).” bir.gov.ph. Bureau of Internal Revenue, Income Tax information page. Accessed .
Last Updated: June 21, 2026