13th month pay: what it is and how it is taxed

Where 13th month pay is required

Mexico's version is half a month, not a full one; see aguinaldo. Brazil's is covered in decimo terceiro. Portugal's two subsidies are on the Portugal EOR page, and Mexico's year-end rules on the Mexico EOR page.

How to compute it: Philippines example

Take total basic salary earned in the calendar year and divide by 12. Basic salary generally excludes overtime, premium pay and cost of living allowances.

• PHP 30,000 a month for all of 2026: 360,000 / 12 = PHP 30,000.
• Same salary, hired June 1 (7 months worked): 210,000 / 12 = PHP 17,500.

Rank-and-file employees who worked at least one month in the calendar year are covered, according to DOLE.

Is 13th month pay taxable?

Philippines: 13th month pay and other benefits are excluded from taxable income up to a combined PHP 90,000 a year (Tax Code Sec. 32(B)(7)(e), as amended by RA 10963). At PHP 210,000 a month, the 13th month is PHP 210,000, so PHP 120,000 is taxable if the employee gets no other excluded benefits.

Brazil: employer contributions apply to the 13th salary as well as base pay, which is part of why the employer on-cost reaches 50.9% of base salary on our Brazil EOR page.

United States: a year-end bonus is a supplemental wage. Employers can withhold federal income tax at a flat 22% (37% above $1 million), plus FICA.

What it adds to the cost of a hire

One-twelfth is 8.33% of annual basic pay. In the Philippines, on a PHP 2,520,000 salary, statutory contributions are 2.97% and the 13th month adds 8.33 points, for an 11.30% on-cost. An EOR bills it to you; ask whether it accrues the cost monthly or bills it in December, and see the Philippines EOR page and compare countries in the employer cost index. Budget it from the first month: an employee who leaves in October has still earned ten-twelfths of the payment. To price a full year with the 13th month included, use the international employee cost calculator.