The 13th-month pay is one of the most anticipated benefits for Filipino workers. Mandated by Presidential Decree No. 851, it is legally required to be given to rank-and-file employees on or before December 24 of every year.
But how exactly is it computed? And more importantly, is it taxable? Let's break it down based on the latest 2026 regulations.
The Basic Formula
The formula for the 13th-month pay is straightforward: Total Basic Salary Earned during the year ÷ 12
For example, if your basic salary is ₱30,000 and you worked for a full 12 months without any absences, your 13th-month pay is exactly ₱30,000.
The "Basic Salary" Trap: What is Excluded?
The most common mistake employees make is assuming their entire paycheck counts towards the 13th-month computation. It does not.
By DOLE standards, "Basic Salary" strictly excludes:
- Overtime Pay
- Holiday Pay
- Night Shift Differential (NSD)
- Cost of Living Allowances (COLA)
- Cash equivalent of unused vacation and sick leaves
If you earned ₱40,000 in a month, but ₱10,000 of that was from Overtime and Holiday pay, only ₱30,000 goes into the 13th-month pay bucket for that month.
Is 13th-Month Pay Taxable? (TRAIN Law 2026)
Good news! Under the TRAIN Law (Republic Act No. 10963), the 13th-month pay and other equivalent benefits (like Christmas bonuses) are tax-exempt up to ₱90,000.
If your 13th-month pay combined with other bonuses exceeds ₱90,000, only the excess amount will be added to your gross taxable income for the year and subjected to normal income tax rates.
What if I resign before December?
You are still entitled to a prorated 13th-month pay! As long as you worked for at least one (1) month during the calendar year, you will receive it as part of your Final Pay.
The computation remains the same: sum up all the basic salary you earned from January 1 up to your last day, and divide it by 12.
Ready to compute your salary and taxes? Check out our Free Salary Calculator.