13th Month Pay Explained: Tax-Free & Taxable Calculation

The Bureau of Internal Revenue (BIR) has clarified that only up to ₱90,000 of the 13th month pay is considered non-taxable. Any amount exceeding this threshold is subject to income tax. Here’s a detailed guide on how to compute the taxable portion of your 13th month pay:

Non-Taxable Amount

According to the BIR, the first ₱90,000 of your 13th month pay is exempt from income tax. This means that if your 13th month pay is ₱90,000 or less, you won’t have to pay any taxes on it.

Taxable Amount

Any amount over ₱90,000 is considered taxable. To compute the Withholding Tax, you need to refer to the Monthly Withholding Tax Table provided by the BIR. Here’s how it works:

Example Calculation

Let’s say your 13th month pay is ₱120,000. Here’s how you would compute the taxable amount:

1. Non-Taxable Amount: ₱90,000

2. Taxable Amount: ₱120,000 - ₱90,000 = ₱30,000

Next, you need to determine the tax rate based on the Monthly Withholding Tax Table. Since ₱120,000 falls within the range of ₱66,666.01 - ₱166,666, the tax rate is 30%.

3. Tax Due: 30% of ₱30,000 = ₱9,000

So, the total amount you will receive after tax is ₱111,000 (₱120,000 - ₱9,000).

Conclusion

Understanding the tax implications of your 13th month pay is crucial to ensure you’re not caught off guard during tax season. By following the guidelines set by the BIR, you can accurately compute the taxable portion and plan your finances accordingly.

Reference: 13TH MONTH MAY TAX? | MAGKANO? | 13th Month Tax Computation