How 13th Month Pay Is Computed and Taxed

The 13th month pay is a legal right for rank-and-file employees, not a bonus an employer can choose to skip. The rule behind it is short, and the math is simpler than most people expect.

Where it comes from

It was created by Presidential Decree 851 in 1975. It originally covered only lower-paid workers, but a 1986 amendment removed the salary cap, so today every rank-and-file employee is entitled to it regardless of pay. Managerial employees are the main group left out.

The formula

Your 13th month pay is your total basic salary earned during the year, divided by 12. Basic salary is the key phrase. It leaves out allowances, overtime, and other add-ons that are not part of your basic rate. If you worked the full year at a steady ₱24,000 a month, your basic salary for the year is ₱288,000, and your 13th month pay is ₱24,000.

If you did not work the whole year

Because it is based on what you actually earned, a partial year gives a partial amount. Someone who started in July, or who took stretches of unpaid leave, gets the total basic salary they earned divided by 12, which naturally comes out lower than a full month's pay. This is also why it shows up in a final pay computation when you resign partway through the year.

The tax on it

Your 13th month pay is tax-free up to a point. It shares a ₱90,000 yearly allowance with other benefits such as a Christmas bonus. Add them up, and only the amount past ₱90,000 is taxed. For most employees the 13th month pay sits under that line and arrives untaxed in full.

When it must be paid

The law sets the deadline at December 24 each year. Some employers split it, paying half around mid-year and half in December, which is allowed as long as the full amount lands by the deadline.

To estimate yours, including a partial year, use the 13th month pay calculator.