13th month pay is one-twelfth of the basic salary earned in the year, so the whole computation depends on what counts as basic salary. Here is what goes into the base, what stays out, and how the ₱90,000 tax exemption applies to the result.
- In: basic salary actually earned, including days of paid leave taken.
- Out: overtime, holiday and rest day premiums, night differential, most allowances and cash conversion of unused leave.
- Lowered by: unpaid absences, lates and undertime.
- Tax: exempt up to ₱90,000.00 together with other bonuses; only the excess is taxed.
What is included and excluded
The Revised Guidelines define basic salary as all pay for services rendered, but not allowances and benefits that are not part of the regular wage.
| Pay item | In the 13th month base? |
|---|---|
| Basic salary or daily wage for days worked | Yes |
| Paid leave taken (SIL, vacation, sick leave with pay) | Yes |
| Cost of living allowance integrated into the basic wage | Yes |
| Sales commissions that make up the salary | Yes, per Philippine Duplicators v. NLRC |
| Overtime pay | No |
| Holiday, rest day and special day premiums | No |
| Night shift differential | No |
| COLA not integrated, transport, meal, rice and other allowances | No |
| Cash conversion of unused leave credits | No |
| Productivity bonuses and incentives | No, per Boie-Takeda v. De la Serna |
| Unpaid absences, lates and undertime | Deducted from the base |
Example: overtime and allowances left out
A worker earns ₱18,000.00 a month in basic salary, and also averages ₱2,400.00 of overtime and a ₱1,500.00 transport allowance every month. Only the basic salary goes into the base.
- Basic salary, 12 × ₱18,000.00
- ₱216,000.00
- Overtime, 12 × ₱2,400.00
- Excluded
- Transport allowance, 12 × ₱1,500.00
- Excluded
- 13th month pay, ₱216,000.00 ÷ 12
- ₱18,000.00
Including the overtime and allowance by mistake would overpay by ₱3,900.00.
How the ₱90,000 exemption works
The NIRC exempts 13th month pay and other benefits up to ₱90,000.00 a year. "Other benefits" covers the Christmas bonus, productivity incentives, loyalty awards and the part of de minimis benefits above their own ceilings. All of them share the one ceiling; only the total above it is taxable.
- 13th month pay
- ₱60,000.00
- Christmas bonus
- ₱35,000.00
- Total 13th month and other benefits
- ₱95,000.00
- Exempt (up to the ceiling)
- ₱90,000.00
- Taxable excess
- ₱5,000.00
The taxable excess is added to the year's taxable compensation in the December annualization, not taxed separately.
Most rank-and-file employees stay under the ceiling: an employee would need a monthly basic above ₱90,000.00 for the 13th month pay alone to be taxable. Minimum wage earners pay no income tax on their 13th month pay in any case.
Common mistakes
- Using the monthly rate × months instead of what was earned. Unpaid absences reduce the base. A payroll system that records attendance handles this automatically.
- Counting the 13th month alone against ₱90,000. Every bonus and benefit in the year shares the ceiling.
- Forgetting mid-year raises. The base is the actual basic salary paid each month, so a raise in July changes only the months from July.
For coverage and deadlines, see the 13th month pay law.