BIR withholding tax on compensation: 2026 TRAIN Law tables Philippines
The graduated tax table, how to compute monthly withholding, year-end annualisation, and BIR Form 2316 — the compliance steps most Philippine HR teams get wrong.
In this guide
- What is withholding tax on compensation?
- TRAIN Law tax table 2026
- How to compute monthly withholding
- Non-taxable compensation items
- Year-end annualisation
- BIR Form 2316
- Filing deadlines
- Common mistakes
- FAQs
What is withholding tax on compensation?
Withholding tax on compensation is the income tax deducted by the employer from the employee's salary each payroll period and remitted to the Bureau of Internal Revenue (BIR). It is not a separate tax — it is a pre-payment of the employee's annual income tax obligation, collected at source. The employer acts as a withholding agent: deduct, remit, file.
Failure to withhold, under-withholding, or failure to remit makes the employer liable — not just the employee. BIR can assess penalties, surcharges, and interest against the employer even if the employee's tax liability is ultimately zero.
TRAIN Law income tax table 2026
Under the TRAIN Law (RA 10963), the following annual income tax schedule applies to individual taxpayers earning compensation income:
| Annual taxable income | Tax due |
|---|---|
| Not over ₱250,000 | 0% — exempt |
| Over ₱250,000 to ₱400,000 | 15% of the excess over ₱250,000 |
| Over ₱400,000 to ₱800,000 | ₱22,500 + 20% of excess over ₱400,000 |
| Over ₱800,000 to ₱2,000,000 | ₱102,500 + 25% of excess over ₱800,000 |
| Over ₱2,000,000 to ₱8,000,000 | ₱402,500 + 30% of excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of excess over ₱8,000,000 |
Monthly table
BIR also publishes a monthly withholding tax table for convenience. Divide each annual bracket by 12 to get the monthly equivalent. The tax rates are the same — only the income thresholds are scaled to the monthly period.
How to compute monthly withholding
Monthly withholding tax is computed on taxable compensation income — total gross compensation minus non-taxable items and statutory deductions.
Step 1: Compute gross monthly compensation
Gross = Basic Salary + Overtime + Allowances + Other Earnings
Step 2: Subtract non-taxable items
Taxable = Gross − (SSS + PhilHealth + Pag-IBIG employee shares) − Non-taxable allowances
Step 3: Apply the monthly tax table
Monthly Withholding Tax = Tax on Annual Taxable Income ÷ 12
Scenario 1
Monthly salary earner
Employee earns ₱45,000/month basic salary. SSS: ₱1,800. PhilHealth: ₱1,125. Pag-IBIG: ₱200. Non-taxable allowances: ₱2,000.
Non-taxable compensation items
| Item | Exemption limit |
|---|---|
| 13th month pay and other bonuses | Up to ₱90,000 combined per year |
| De minimis benefits (rice allowance, uniform, laundry, etc.) | Per BIR RR limits per item |
| SSS, PhilHealth, Pag-IBIG employee contributions | Fully exempt — deducted before tax computation |
| GSIS contributions (government employees) | Fully exempt |
| Hazard pay (for minimum wage earners only) | Fully exempt for minimum wage earners |
| Minimum wage — basic pay | Fully exempt for statutory minimum wage earners |
Year-end annualisation
At year-end (typically processed in December payroll), the employer must reconcile total tax withheld throughout the year against the employee's actual annual income tax liability. This is called annualisation.
If more was withheld than owed, the excess must be refunded to the employee via the December payroll or January payroll of the following year. If less was withheld, the deficiency is collected from the December payroll. The refund or deficiency must be reflected in BIR Form 2316.
December payroll deadline
Year-end annualisation must be completed before the December payroll is released — it directly affects the net pay of every employee. Late annualisation means incorrect December payslips and an incorrect BIR Form 2316.
BIR Form 2316
BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld) must be issued to every employee — active and separated — no later than January 31 of the following year. For separated employees, it must be issued within 30 days of separation.
Employees who have only one employer for the full year and whose tax is fully withheld at source are not required to file an annual income tax return — provided the employer submits the substituted filing (BIR Form 2316) on their behalf.
Filing and remittance deadlines
Withholding tax — computed, remitted, and Form 2316 generated.
KAMI Payroll computes monthly withholding tax using the current BIR TRAIN Law table, handles year-end annualisation automatically, and generates BIR Form 2316 for every employee — no manual spreadsheet, no calculation risk.
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Frequently asked questions
What is the penalty for failure to withhold?
The employer is liable for the tax that should have been withheld, plus a 25% surcharge, 12% per annum interest, and a compromise penalty. Under-withholding exposes the employer to BIR assessment even if the employee eventually pays the tax personally.
Are minimum wage earners subject to withholding tax?
No. Statutory minimum wage earners are exempt from income tax on their basic pay, holiday pay, overtime, and night shift differential. They are not subject to withholding tax on these components.
Can an employee request a different withholding amount?
An employee may execute a waiver to allow additional withholding if they prefer to pre-pay more tax. They cannot request less withholding than what the law requires.
Is the 13th month pay included in the annualisation?
Yes. The 13th month pay and other bonuses are included in the year-end computation. The ₱90,000 tax-exempt ceiling is applied during annualisation, and any taxable excess is included in December's taxable compensation.
This guide reflects Philippine law and DOLE/BIR guidelines current as of May 2026. Regulations change — always verify against the latest government issuances, or consult a licensed Philippine labour lawyer for specific situations. Published by KAMI Workforce.
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