Philippines tax deductions 2026: what still cuts your bill

Last reviewed: November 2026 · Reviewed by Stéphane Gombauld, tax expert, technologist and digital nomad

You earn a salary, freelance income or both in the Philippines and want to know what legally comes off your bill. This guide covers every exclusion, deduction and credit open to individuals in tax year 2026, who can use each one, and how the self-employed choose between three tax routes.

Philippines personal tax deductions and benefits in 2026: the key figures

NIRC means the National Internal Revenue Code of 1997, as amended. RA means Republic Act.

What changed for 2026

• No new rates for individuals. The graduated schedule in force since 1 January 2023 still applies in 2026, as set by the TRAIN Law (RA 10963).
• PERA gets an employer incentive. The Capital Markets Efficiency Promotion Act (RA 12214), approved on 29 May 2025, created a new Sec. 34(M). Employers deduct an additional 50% of their actual contributions to employees' PERA accounts, within the RA 9505 cap.
• Passive income is harmonised. Since 1 July 2025, the same Act sets a single 20% final tax on interest for individuals, whatever the deposit term. Final taxes leave no room for deductions, so plan your savings accordingly.

Is this guide for you?

Read on if you…

• are an employee wondering why your payslip shows no family allowance;
• freelance or consult and must pick between itemised deductions, the OSD and the 8% tax;
• are moving to the Philippines and want to know which reliefs you can use from your first year.

Probably not your case if you…

• run a corporation and want to know what it can deduct: read business expenses in the Philippines;
• are a non-resident alien not engaged in trade or business, taxed at a flat 25% final tax on Philippine income with no deductions.

What happened to personal exemptions in the Philippines?

Until 2017, every taxpayer deducted a personal exemption plus an amount per qualifying child. Section 12 of RA 10963 states that "Section 35 of the NIRC, as amended, is hereby repealed". That ended both allowances from 2018.

The trade-off is the 0% band. The first PHP 250,000 of taxable income is tax-free for everyone on graduated rates. That covers resident citizens, resident aliens and non-resident aliens engaged in trade or business.

In practice, marriage and children no longer change your income tax. Whether you count as a resident alien depends on your stay; our guide to obtaining tax residency in the Philippines walks through the categories.

The 2026 graduated rates

Which benefits are tax-free for employees?

Here's the catch for salaried people. The Sec. 34 deductions belong to business and professional income. PwC's summary puts it bluntly: aliens earning only compensation "are not allowed any deduction against such income". Home office, laptop and commuting costs are not deductible. Your relief comes from exclusions: amounts that never enter taxable income.

13th month pay and bonuses

Sec. 32(B)(7)(e) NIRC, as amended by TRAIN, excludes the 13th month pay and "other benefits such as productivity incentives and Christmas bonus". The total exclusion "shall not exceed Ninety thousand pesos (₱90,000)". Anything above is taxed as ordinary compensation at your marginal rate.

De minimis benefits

Small perks such as a rice subsidy, uniform allowance or medical cash allowance are tax-free within ceilings set by Bureau of Internal Revenue (BIR) regulations. The BIR updates these ceilings by regulation. Check the current list with your payroll provider before you rely on a figure.

Mandatory social security contributions

Your own share of contributions to the Social Security System (SSS), PhilHealth and Pag-IBIG, plus union dues, is excluded from gross income up to the prescribed amounts. The maximum monthly shares reported for 2026 are:

• SSS: up to PHP 1,750 for the employee and PHP 3,500 plus PHP 30 employees' compensation for the employer, mandatory provident fund included. The SSS contribution table in force since January 2025 gives the full bracket list (figures from PwC, secondary).
• PhilHealth: employee share capped at PHP 2,500 a month, generally matched by the employer (PwC, secondary).
• Pag-IBIG: employee share capped at PHP 200 a month, generally matched by the employer (PwC, secondary).

Good news for foreign employees: PwC reports that foreign nationals are no longer required to contribute to Pag-IBIG.

Other exempt pay

• Minimum wage earners pay no income tax on their minimum wage, holiday pay, overtime, night differential and hazard pay.
• Fringe benefits for managerial and supervisory staff, such as housing or a car, bear the 35% fringe benefit tax. The employer pays it, so the benefit stays off your return. For rank-and-file staff, the same perks are taxable compensation unless exempt.

What can the self-employed deduct?

Freelancers, consultants and sole proprietors pick one of three routes each year. The choice matters more than any single deduction.

Route 1: itemised deductions

You deduct the ordinary and necessary costs of the business: rent, software, depreciation, professional fees, travel and interest. Charitable contributions are deductible subject to limits. The Ease of Paying Taxes Act (RA 11976) repealed Sec. 34(K), the rule that made a deduction depend on withholding tax on the payment. Substantiation still matters. Graduated rates then apply to net profit.

Route 2: the Optional Standard Deduction

Instead of listing costs, you deduct up to 40% of gross sales or receipts. Sec. 34(L) says the election is made in the return and "shall be irrevocable for the taxable year". If you do not signal it, you are treated as itemising. Non-resident aliens cannot use the OSD.

Route 3: the 8% tax

If gross sales or receipts stay at or below the PHP 3 million VAT threshold, you can pay 8% on receipts above PHP 250,000. It replaces both graduated income tax and the 3% percentage tax under Sec. 116. No other deductions apply.

Mixed-income earners (salary plus business) can also choose 8% on the business part under Sec. 24(A)(2)(c). That subsection applies 8% to gross receipts with no PHP 250,000 reduction, because your salary already uses the 0% band.

For VAT and percentage tax in detail, see specific taxes in the Philippines. If you hold digital assets, cryptocurrency taxes in the Philippines covers how that income is treated.

Are there tax credits and savings schemes?

PERA: the Philippine retirement account

The Personal Equity and Retirement Account Act (RA 9505) gives three benefits:

1. Tax credit: 5% of your total PERA contributions, under Sec. 8.
2. Cap: contributions up to PHP 100,000 a year; overseas Filipinos may contribute double, so PHP 200,000 (Sec. 5).
3. Tax-free growth: income from investing the allowed maximum is exempt (Sec. 9).

You can withdraw without penalty from age 55, provided you contributed for at least five years (Sec. 12). An early withdrawal triggers a penalty at least equal to the incentives you received (Sec. 13).

What is not deductible

PwC's summary lists home mortgage interest, medical expenses and other personal expenses as non-deductible. No provision we verified gives individuals a deduction for health insurance premiums. Since RA 12214, Sec. 34(M) covers employers' PERA contributions instead.

Common mistakes (and what they cost)

• Planning around dependant allowances. They were repealed with Sec. 35. Budgeting on them overstates take-home pay for every year since 2018.
• Letting bonuses breach PHP 90,000. Every peso above the cap is taxed at your marginal rate, up to 35% above PHP 8 million of taxable income.
• Forgetting to signal the OSD in the return. Without it you are treated as itemising, and costs without substantiation are disallowed in an audit.
• Choosing 8% after crossing PHP 3 million. The option is only open up to the VAT threshold. Above it you are on graduated rates and must register for VAT.
• Withdrawing PERA early. The penalty is at least equal to the tax credit and exemptions you enjoyed, so the scheme ends up costing you.

Frequently asked questions

Are there personal exemptions in the Philippines in 2026?

No. Sec. 35 of the NIRC, which granted the personal and additional exemptions, was repealed by section 12 of the TRAIN Law (RA 10963). Instead, the first PHP 250,000 of taxable income is taxed at 0% for anyone on graduated rates. Your marital status and number of children do not change your income tax in 2026.

How much 13th month pay is tax-free in the Philippines?

Your 13th month pay, Christmas bonus, productivity incentives and other benefits are excluded up to a combined PHP 90,000 a year under Sec. 32(B)(7)(e) of the NIRC. Any amount above PHP 90,000 is added to your taxable compensation and taxed at the graduated rates, which reach 35% above PHP 8 million.

Can employees deduct work expenses in the Philippines?

No. Pure compensation earners cannot itemise. Home office, laptop, internet and commuting costs stay non-deductible. Your relief comes from exclusions: the PHP 90,000 bonus cap, de minimis benefits and mandatory SSS, PhilHealth and Pag-IBIG contributions. If you also freelance, business costs reduce only the freelance income, or you can use the 40% OSD or the 8% option instead.

What is the Optional Standard Deduction in the Philippines?

A deduction of up to 40% of gross sales or receipts that self-employed individuals take instead of itemised costs, under Sec. 34(L) of the NIRC. You elect it in your return and it is irrevocable for that taxable year. Non-resident aliens cannot use it. It suits freelancers whose real costs sit well below 40% of turnover.

Is the 8% tax better than the OSD?

Usually, when your receipts are under PHP 3 million and you are purely self-employed. The 8% replaces both graduated income tax and the 3% percentage tax. It loses its edge when real costs are high, or for mixed-income earners, who pay 8% on all gross receipts with no PHP 250,000 reduction. Run both numbers before your first return of the year.

How does the PERA tax credit work?

You receive an income tax credit of 5% of your PERA contributions, under Sec. 8 of RA 9505. Contributions are capped at PHP 100,000 a year, or PHP 200,000 for overseas Filipinos. Investment income inside the account is tax-exempt. Withdrawals are penalty-free from age 55 after at least five years of contributions.

Related guides

• Specific taxes in the Philippines: VAT, final taxes and local levies
• Business expenses in the Philippines and what is deductible
• Tax incentives for expats and digital nomads in the Philippines
• Tax landscape overview of the Philippines
• Personal tax deductions and benefits in Hong Kong
• Personal tax deductions and benefits in Sri Lanka
• All country tax guides

Sources

• Republic Act No. 10963 (TRAIN Law), amending the NIRC – Congress of the Philippines, via Lawphil
• Republic Act No. 12214 (Capital Markets Efficiency Promotion Act) – Congress of the Philippines, via Lawphil
• Republic Act No. 9505 (PERA Act of 2008) – Congress of the Philippines, via Lawphil
• SSS contribution table, effective January 2025 – Social Security System
• Philippines, Individual – Deductions – PwC Worldwide Tax Summaries (secondary)
• Philippines, Individual – Significant developments – PwC Worldwide Tax Summaries (secondary)

This guide is general information, not personalised tax advice. See how we research and review.