Money 101  >  Money Myths

"13th-month is completely non-taxable."

POSTED ON November 14, 2019

The myth

Under Section 32 (B)(7)(e) of the National Internal Revenue Code (NIRC) – which was amended by Republic Act No. 10963, more popularly known as the TRAIN Act – private employees have a PHP 90,000 ceiling for the 13th-month bonus and other benefits.

This means that the combined value of all bonuses you receive during the year will not be taxed as long as it is PHP 90,000 or below. Any amount in excess will be subject to income tax.

Why do people believe it?

Because the 13th-month bonus has long been said to be tax-free (even though it actually has a limit, now raised to PHP 90,000 from the previous amount of PHP 82,000), some people believe that all bonuses provided by an employer are not subject to taxation.

Risks of believing this myth

If you calculate your annual net income based on the assumption that you will receive all your bonuses in full, you may fall short of the amount you expect to get. This deficit may have a significant impact on your financial plans, especially if you were planning to invest some of the money or purchase something with it.

Verdict: False.

The 13th-month and all yearly other bonuses will not be taxed up to a combined value of PHP 90,000 or below. The income tax percentage of your earning bracket will be applied to the excess amount.