Every December, Filipinos look forward to two things: the holidays and the extra income that usually comes with them. Whether it’s a 13th-month pay, a performance bonus, or a holiday incentive, year-end earnings can feel like a reward for surviving another year of work.

But with extra income comes a familiar question: Is my Christmas bonus taxed?
And for freelancers in the Philippines, another question follows: Do these tax rules even apply to me?

Here’s a clear, updated, and practical guide on how Christmas bonuses are taxed — and what freelancers should understand before the year ends.

What Counts as a Christmas Bonus?

In the Philippines, “Christmas bonus” is not actually a mandatory benefit. Instead, it’s a voluntary incentive given at the employer’s discretion.

However, employees are legally entitled to 13th-month pay, as mandated by Presidential Decree 851.

In practice, most people receive:

• 13th-month pay (mandatory)
• Christmas bonus (optional)
• Productivity or performance bonuses (optional)
• Other year-end benefits (company-based)

All of these fall under “13th-month pay and other benefits” for tax purposes.

The ₱90,000 Tax-Exempt Rule (TRAIN Law)

Under TRAIN Law and BIR Revenue Regulation 11-2018, the total value of: 13th-month pay + Christmas bonus + other benefits is tax-exempt up to ₱90,000 per year.

This is the official rule used by the BIR.

If the total benefits do not exceed ₱90,000 → NO TAX.

If they exceed ₱90,000 → the excess is taxable.

Example:

13th-month pay: ₱50,000
Christmas bonus: ₱40,000
Other bonus: ₱10,000

Total year-end benefits = ₱100,000
Tax-exempt limit = ₱90,000
Taxable = ₱10,000

Only the amount above the threshold is included in taxable compensation.

Do Freelancers in the Philippines Get a Christmas Bonus?

Here’s where things differ.

Freelancers, independent contractors, and self-employed individuals are not employees, so they are not covered by 13th-month pay and bonus rules under PD 851.

Any “bonus” they receive — whether from clients, projects, or agencies — is treated as:

Regular taxable income.

There is no tax-exempt threshold for freelancers similar to the ₱90,000 employee benefit rule.

For freelancers:

• A Christmas “bonus” is simply additional income.
• All income is generally fully taxable.
  
• If a local company pays them, it may be subject to Creditable Withholding Tax (CWT) (usually 10% or 15%).
• Income must be reported in their Quarterly and Annual Income Tax Returns (1701 or 1701A).

This is why many freelancers get confused when they see additional income in December — they expect deductions or exemptions similar to employees, but the rules are completely different.

How Christmas Bonuses Affect Your Income Tax Return (ITR)

For Employees

• Any amount within the ₱90,000 limit is not part of taxable income.
• Any excess is added to total compensation, increasing the annual tax computation.
• Withholding tax should reflect the correct treatment.

For Freelancers

• All bonuses are considered professional income.
• They increase gross receipts, which influence:
  • quarterly percentage tax or VAT
  • quarterly income tax
  • annual income tax return
• If the client withheld taxes (CWT), the freelancer must claim it through Form 2307 during ITR filing.

Improper classification — or forgetting to record bonus income — can lead to tax mismatches and future penalties.

Why Year-End Tax Awareness Matters

The holiday season is usually a time of spending, not planning, but misunderstanding Christmas bonus tax rules can affect:

• your tax due
• your ITR computation
• your compliance status
• visa and bank document requirements
• and even penalties if income is misreported

For freelancers in particular, year-end income often spikes — and the BIR expects that spike to be reported correctly.

Need Help Sorting Out Your Year-End Taxes?

Whether you’re an employee trying to understand your bonus tax or a freelancer preparing your year-end records, Tax Assist PH can guide you.

We help with:

• withholding tax and 2307 reconciliation
• quarterly and annual ITR filing
• freelancer tax compliance
• clean financial statements
• penalty avoidance and proper documentation

Book your FREE initial consultation with Tax Assist PH today. Send us an e-mail at taxassistph@gmail.com.

Make this Christmas season stress-free — at least when it comes to taxes.