How to Compute Your Income Tax: A Step-by-Step 2025 Guide

If you are an employee in the Philippines and need to file your income tax return (ITR), you must ensure you’re doing it right. Tax filing can seem overwhelming, but with the correct steps, it doesn’t have to be. Let’s break down the income tax computation process and how you can file it correctly this 2025.

Key Takeaways

• “Substituted Filing” is an Option for Many Employees: Employees who have had only one employer for the entire year and no other sources of taxable income are generally eligible for “substituted filing.” This means they do not need to file their own Income Tax Return (ITR), as their employer’s filed BIR Form 2316 serves as their ITR.
• The Correct Employee Tax Formula Has Changed: The article clarifies that for salaried employees in 2025, the old ₱50,000 personal exemption and the 40% Optional Standard Deduction (OSD) no longer apply. The correct formula is Gross Annual Income minus mandatory contributions (SSS, PhilHealth, Pag-IBIG) and the non-taxable 13th-month pay and bonuses (up to ₱90,000).
• Key Tax-Free Thresholds to Know: There are two main exemptions for employees: the first ₱250,000 of net taxable income is taxed at 0%, and the first ₱90,000 of 13th-month pay and other bonuses is also tax-exempt.
• The 15% Tax Bracket is in Effect: The income tax table effective for 2025 (which began in 2023) applies a 15% tax rate to net taxable income in the bracket just above the tax-free threshold (₱250,001 to ₱400,000).
• The “Ease of Paying Taxes” (EOPT) Act Simplifies the Process: A new law, RA 11976, is in effect for 2025 filings. For employees, its main impact is to simplify the administrative process, such as unifying the deadlines for both filing and paying taxes.

Understanding the Income Tax Filing Process

As an employee, you are required to file your personal income tax return (ITR) with the Bureau of Internal Revenue (BIR) if you are not qualified for substituted filing. The deadline for filing is April 15, following the close of the calendar year. For those who are not familiar with it, substituted filing means you don’t need to file a separate ITR because your employer’s BIR Form No. 2316 serves as your tax return.

Who Qualifies for Substituted Filing?

You are eligible for substituted filing if you meet all the following conditions:

1. You had only one employer during the year.
2. You have no other sources of taxable income except for your employment.
3. Your spouse also meets the same qualifications.

If you don’t meet these criteria, you must file your own income tax return.

Important: Verify Your RDO Code

Before preparing your ITR, confirm the correct Revenue District Office (RDO) where you are registered. Incorrect filing due to an incorrect RDO can result in penalties. You can verify this by contacting or visiting the BIR office where you are registered.

How much is a 25k salary after tax in the Philippines?

A ₱25,000 monthly salary is above the ₱250,000 annual tax-free threshold, but the final tax is determined by mandatory employee contributions, not personal exemptions or the 40% standard deduction (which does not apply to employees).

Let’s compute this correctly for 2025.

Step 1: Compute Gross Annual Income ₱25,000 / month × 12 months = ₱300,000

Step 2: Compute Annual Mandatory Contributions These deductions are based on 2025 contribution tables:

• SSS (4.5%): Based on a ₱25,000 salary, the employee share is ₱1,125/month.
  • Annual SSS: ₱1,125 × 12 = ₱13,500
• PhilHealth (5.0%): The employee share is 2.5% of ₱25,000, or ₱625/month.
  • Annual PhilHealth: ₱625 × 12 = ₱7,500
• Pag-IBIG (2%): The employee share is capped at ₱100/month.
  • Annual Pag-IBIG: ₱100 × 12 = ₱1,200
• Total Annual Deductions: ₱13,500 + ₱7,500 + ₱1,200 = ₱22,200

Step 3: Calculate Net Taxable Income

Gross Income – Total Deductions = Taxable Income

₱300,000 – ₱22,200 = ₱277,800

Step 4: Compute Annual Tax Due Using the official BIR tax table (effective 2023-2025):

• The first ₱250,000 is taxed at 0%.
• The remaining amount (₱277,800 – ₱250,000 = ₱27,800) is taxed at the 15% rate.
• Annual Tax: ₱27,800 × 0.15 = ₱4,167

An employee earning ₱25,000 monthly will have an annual income tax liability of approximately ₱4,167. This is typically collected by the employer as a monthly withholding tax of around ₱347.25.

What’s the Formula for Calculating Taxable Income?

The formula and tax rates for employees were fundamentally changed by the TRAIN Law (RA 10963). Personal exemptions (e.g., ₱50,000) were removed and replaced with a higher tax-free threshold of ₱250,000.

The 40% Optional Standard Deduction (OSD) mentioned in many old guides is not available to employees earning compensation income; it is exclusively for self-employed individuals and professionals.

The correct formula for a salaried employee in 2025 is:

Gross Annual Income

Less: Mandatory Contributions (SSS, PhilHealth, Pag-IBIG)

Less: Non-Taxable 13th Month Pay and Bonuses (up to ₱90,000)

= Net Taxable Income

This Net Taxable Income is then applied to the official 2025 BIR tax table, which has been effective since January 1, 2023.

Philippine Income Tax Table (Effective 2023-2025)

Net Taxable Income	Tax Rate
₱250,000 and below	0%
Over ₱250,000 to ₱400,000	15% of 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

How to Compute Your Income Tax

To compute your income tax, follow these straightforward steps:

Step 1: Gather Required Forms and Information

First, download the latest version of the eBIRForms from the BIR website. You will use this for your ITR filing.

BIR Form No. 1700: This form is for individuals earning purely compensation income, and it will help you compute your tax due based on your salary.

Step 2: Complete Your Personal Information

When filling out the form, make sure to include your personal details, such as your name, address, and Taxpayer Identification Number (TIN). Additionally, ensure you use a valid email address because the BIR will send your Tax Return Receipt Confirmation (TRRC) email to this address as proof of filing.

Step 3: Report Your Income

Next, consolidate your income from your employers, including taxable and non-taxable items. Don’t forget to input the taxes withheld from your BIR Form No. 2316 from your previous and current employers. You can also combine both your and your spouse’s income on one return if applicable.

Related: Know if you’re getting fair compensation in the Penbrothers Salary Guide 2025.

Step 4: Claim Exemptions

Employees are eligible for an exemption of up to P90,000 on their 13th-month pay and other benefits, such as bonuses. The exemption will be the lower of P90,000 or the total amount of bonuses and benefits you received during the year.

Step 5: Calculate Your Tax Due

The BIR Form No. 1700 automatically computes your tax due based on the information you provided. Most employees will find that their tax due exceeds the taxes already withheld, which means you’ll have to pay additional tax. If your taxes withheld are greater than your tax due, you have overpaid, and you may be eligible for a refund.

Step 6: Validate and Submit Your Tax Return

Once you’ve filled out the form, click “Validate” to check for any missing information. After validating, click “Submit/Final Copy.” A successful submission notice will appear, and you should also receive the TRRC email from the BIR as proof.

Step 7: Pay Your Taxes

If you owe additional taxes, you can pay them either online or manually:

• Online Payment: Use the ePayment channels available on the BIR website for a quicker and more convenient payment process.

Manual Payment: Print your BIR Form No. 1700 and Form No. 2316, then submit and pay at an authorized agent bank (AAB) or the Revenue Collection Officer (RCO) at your RDO.

Step 8: Submit Your Documents

If paying manually, print at least three copies of your BIR Forms and the TRRC email (or screenshot of the successful submission notice). Sign the forms, then submit them along with your payment.

2025 Tax Calculations and Law Updates

How much is a 70k salary taxed in the Philippines?

Let’s use the correct 2025 formula for a ₱70,000 monthly salary, assuming a standard 13th-month pay.

Step 1: Compute Gross Compensation

• Annual Salary: ₱70,000 × 12 = ₱840,000
• 13th Month Pay: ₱70,000
• Total Annual Gross Compensation: ₱840,000 + ₱70,000 = ₱910,000

Step 2: Compute Non-Taxable Income

• Mandatory Contributions (Annual):
  • SSS: Capped at ₱1,350/month (based on ₱30,000 MSC) = ₱16,200
  • PhilHealth: 2.5% of ₱70,000 = ₱1,750/month = ₱21,000
  • Pag-IBIG: Capped at ₱100/month = ₱1,200
• Non-Taxable Bonus: The 13th-month pay of ₱70,000 is fully exempt, as it is below the ₱90,000 tax-free limit.
• Total Non-Taxable Income: ₱16,200 + ₱21,000 + ₱1,200 + ₱70,000 = ₱108,400

Step 3: Calculate Net Taxable Income Gross Compensation - Total Non-Taxable Income = Taxable Income ₱910,000 – ₱108,400 = ₱801,600

Step 4: Compute Annual Tax Due Using the tax table, ₱801,600 falls into the ₱800,001 to ₱2,000,000 bracket.

• Base Tax: ₱102,500
• Excess: ₱801,600 – ₱800,000 = ₱1,600
• Tax on Excess: ₱1,600 × 0.25 (25% rate) = ₱400
• Annual Tax: ₱102,500 + ₱400 = ₱102,900

Is withholding tax 15%?

Yes, for a specific income bracket. As of 2025, the 15% income tax rate applies to individuals with a net taxable income over ₱250,000 but not exceeding ₱400,000.

This is a key change from the pre-2023 law, which applied a 20% rate to this same bracket. This reduction is part of the TRAIN Law adjustments that took full effect in 2023 and remain the standard for 2025.

How the ‘Ease of Paying Taxes’ (EOPT) Act Affects Filers

While the tax rates are set by the TRAIN Law, the process of filing in 2025 is governed by the new Ease of Paying Taxes (EOPT) Act (RA 11976), which was enacted in 2024.

For employees, the primary impact is administrative simplification. The law emphasizes electronic filing and removes the previous distinction between “filing” and “payment” deadlines, unifying them to a single due date. For employees filing Form 1700, this deadline remains April 15.

Simplify Your Tax Filing: Ensure Accuracy and Compliance Today

Filing your income tax return (ITR) in the Philippines can be simple once you understand the process. Employers help by withholding taxes, but it’s your responsibility to ensure the correct filing and payment of any additional tax due. Remember to verify your RDO, use the eBIRForms, and ensure you claim the appropriate exemptions. By following these steps, you’ll be well on your way to filing your tax return correctly this 2025.

For further details, always check the BIR guidelines or consult with a tax professional if needed. Happy filing!

Frequently Asked Questions