The 13th-month pay is a mandatory benefit for rank-and-file employees in the Philippines who work at least one month in a year. It equals at least one-twelfth of their total basic salary and is tax-exempt up to P90,000 when combined with other bonuses. A proposed GINHAWA Act aims to increase these exemptions.
The 13th-month pay, mandated by Presidential Decree No. 851, is provided to all rank-and-file employees in the private sector who work at least one month during the calendar year. Its calculation is straightforward: it equals one-twelfth of the total basic salary earned by the employee over the year. For those not employed the full 12 months—for instance, starting mid-year, resigning, or being terminated—it is pro-rated based on salary from the start date to the separation date.
Basic salary refers to regular or fixed compensation for services rendered, excluding supplementary benefits like bonuses or allowances. Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, or Republic Act 10963, the 13th-month pay and other benefits such as Christmas bonuses and productivity incentives are exempt from income tax up to an aggregate of P90,000. If the total does not exceed this limit, the entire amount is tax-free; if it does, only the excess is subject to regular income tax.
The GINHAWA Act, filed by Senator Win Gatchalian and currently under deliberation in Congress, seeks to expand tax exemptions for Filipino workers. If passed, it would raise the income tax exemption threshold from P250,000 to P400,000 for annual net taxable income and increase the bonus ceiling from P90,000 to P150,000. It would also exempt overtime pay up to P100,000, night differential, holiday pay, hazard pay, and service charges from income tax. However, as a proposal, its provisions are not yet law and not enforceable.
These changes would benefit many low- and middle-income earners by boosting take-home pay, especially during the holiday season. Employees should stay informed about these benefits to maximize their earnings.
