PH Tax Update: RR No. 29-2025 and What Philippine Business Owners Should Do in January 2026
Published Date: February 18, 2026
Published By: Jac Cantos, Upcloud Accounting
As we start January 2026, Philippine business owners should be aware of a tax update that directly affects employee benefits, payroll, and withholding taxes. On December 22, 2025, the Bureau of Internal Revenue issued Revenue Regulations (RR) No. 29-2025, updating the rules on de minimis benefits, or employee benefits that can be given tax-free, as long as they stay within prescribed limits. This matters now because many businesses are finalizing payroll structures and benefit policies for the year.
What RR No. 29-2025 Means (In Simpler Terms)
RR No. 29-2025 does not introduce new benefits. It increases and clarifies the maximum amounts that can be treated as non-taxable for certain common employee benefits. When applied correctly:
These benefits are not subject to income tax
They are not subject to withholding tax
They do not increase employer payroll tax exposure
When applied incorrectly:
Any excess becomes taxable compensation
Employee tax increases
Employer audit and compliance risk increases
What Changed: De Minimis Benefits (Before vs After)
Amounts within these updated limits remain non-taxable. Any excess is treated as taxable compensation.
Why This Matters for PH Business Owners?
For many businesses, employee benefits quietly make up a material portion of total payroll costs. This update gives employers:
More flexibility to support employees without increasing taxes
Clearer boundaries on what is safe vs. taxable
An opportunity to review and clean up payroll structures early in the year
How Does This Apply in Practice?
The increase in de minimis thresholds does not mean employers should automatically change compensation packages.
Reviewing Existing Payroll Structures: Some allowances were previously taxed simply because they exceeded prior limits. Under RR No. 29-2025, a larger portion may now qualify as non-taxable, reducing both employer cost and employee withholding tax, without changing total compensation.
Structuring Compensation for New Hires: For new employees, part of the total compensation may be thoughtfully allocated to de minimis benefits instead of basic pay, provided that: the total compensation package remains the same, updated non-taxable limits are not exceeded, and changes are documented and agreed upon.
This can improve net take-home pay while keeping employer costs under control. That said, this is not a purely tax decision. Some benefits (e.g., 13th-month pay) are tied to basic salary; any adjustments should be deliberate and aligned with company policy.
What Does This Look Like in Numbers?
To illustrate, consider an employee receiving a total monthly allowance of ₱7,258.44. Before RR No. 29-2025, only ₱3,050 of the allowance could be treated as non-taxable, and the excess had to be classified as a taxable allowance, resulting in higher withholding tax for the employee. After RR No. 29-2025, the non-taxable portion increases to ₱3,899.67, so a smaller portion of the allowance is now taxable. This leads to lower withholding tax, with no change in total compensation package. Total compensation remains the same, but the tax treatment improves.
Based on anonymized sample payroll data, this can result in a monthly withholding tax reduction of approximately ₱283, although the actual impact varies by tax bracket and compensation structure.
What This Means for Employers and Employees
For Employers:
Reduce unnecessary payroll tax leakage
Lower gross-up costs on allowances
Improve payroll efficiency without increasing total compensation
Maintain compliance while offering competitive benefits
This is especially relevant for businesses with:
Allowance-heavy compensation structures
Growing teams
Payroll setups that haven’t been revisited in years
For Employees:
Lower withholding tax on the same compensation
Improved net take-home pay
Clearer classification of benefits
Fewer year-end payroll adjustments
When payroll is structured correctly, employees benefit immediately, without the company incurring additional costs. The key point: this is not a benefit increase; it’s a tax-efficiency correction.
What We Recommend Doing This January?
Review current benefits and allowances: Identify which items qualify as de minimis and whether they now fall within the updated limits.
Align HR, Finance, and Payroll Policies: Payroll setup and tax treatment must be consistent.
Be deliberate with any restructuring: Changes should be documented, agreed upon, and aligned with employee expectations.
Confirm payroll tax classification: Ensure taxable and non-taxable items are correctly mapped starting January.
Keep documentation ready: Proper records matter in case of a BIR review.
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Our goal is to increase efficiency, automation, and transparency across the accounting and finance functions of our clients with our cutting-edge technology. If you want to move your company’s finance function online, contact our Team of Expert Accountants and Bookkeepers directly via [email protected] or visit www.upcloudaccounting.comto learn more about how Upcloud Accounting accounting services can support your PH business!
Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at [email protected].
