Your 3rd Tranche salary increase under National Budget Circular No. 601 (for NGA employees) and Local Budget Circular No. 172 (for LGU employees) doesn’t land in your bank account untouched — a portion goes to higher GSIS and PhilHealth contributions, and depending on your Salary Grade, a bigger slice of BIR withholding tax.
Using the official Revised Withholding Tax Table, most government employees keep between 70% and 90% of their raise as real take-home pay. Below are the exact computations, with real Salary Grade examples, so you know precisely what to expect on your payslip.
What Is the “Tax Impact” of a Salary Increase?
Your basic monthly salary is the base figure for three deductions that all move together whenever it goes up:
• GSIS premium — a flat 9% of your basic salary, no ceiling (RA 8291)
• PhilHealth premium — 2.5% of your basic salary, within a ₱10,000–₱100,000 salary band (RA 11223)
• Withholding tax — applied to what’s left after GSIS, PhilHealth, and Pag-IBIG are deducted, using the BIR’s Revised Withholding Tax Table
A raise increases your GSIS and PhilHealth deductions automatically, since both are straight percentages of basic pay.
The tax portion is trickier:
If the increase pushes your taxable compensation income further into your current bracket — or across the line into the next one — a larger share of that specific increase is withheld as tax. This is why two employees getting the “same” percentage raise can see noticeably different amounts land in their pockets.
Note: PERA (₱2,000/month), the 13th month pay and other bonuses up to ₱90,000/year, and de minimis benefits sit outside this computation entirely — they’re not part of “basic pay.”
Why the Tax Table Itself Hasn’t Changed
The BIR did not raise tax rates for 2026. The Revised Withholding Tax Table under RR No. 11-2018 (as amended), implementing the TRAIN Law’s second-phase rates, has been in effect since January 1, 2023 and remains unchanged through 2026. What changes is your position within that table — because your peso base got bigger, not because the rates did.
Who Does This Affect?
This applies to anyone covered by the 3rd Tranche under Executive Order No. 64, s. 2024 — permanent, temporary, casual, and coterminous employees in national government agencies, SUCs, and constitutional offices (effective January 1, 2026), and LGU employees once their Sanggunian approves implementation, targeted for August 2026 — meaning many LGU employees are about to see this exact impact hit their payslip. GOCCs under the SSL follow the same schedule.
JO and COS workers are excluded from the tranche increase entirely, so none of this applies to them.
(Full eligibility details: Full Guide: 3rd Tranche Salary Increase of Government Employees for 2026.)
Since your net take-home pay is what’s actually changing, it’s worth a quick check of any pending loan plans, too — GSIS, Pag-IBIG, and agency salary loans are all gated by your Mandatory Net Take-Home Pay (NTHP) ceiling. A higher NTHP after this raise could open loan room that wasn’t there before.
See: Ano ang Mandatory Net Take Home Pay ng Government Employees sa 2026?
How Much More Tax Will You Pay? (Sample Computations)
A note on this computation: Figures below are computed on an annual basis, since income tax under Section 24(A) of the NIRC is legally an annual tax and this is how most agencies prepare their Personnel Services (PS) budgets. Monthly-equivalent amounts are shown alongside for comparison against your actual payslip.
| Annual Taxable Income | Annual Income Tax |
|---|---|
| Not over ₱250,000 | ₱0 |
| Over ₱250,001 – ₱400,000 | 15% of the excess over ₱250,000 |
| Over ₱401,000 – ₱800,000 | ₱22,500 + 20% of the excess over ₱400,000 |
| Over ₱800,001 – ₱2,000,000 | ₱102,500 + 25% of the excess over ₱800,000 |
| Over ₱2,000,001 – ₱8,000,000 | ₱402,500 + 30% of the excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of the excess over ₱8,000,000 |
Mandatory Contributions Deducted Before Tax
| Contribution | Rate | Floor / Ceiling |
|---|---|---|
| GSIS | 9% of basic salary | No ceiling (RA 8291) |
| PhilHealth | 2.5% of basic salary | Monthly floor ₱10,000 / ceiling ₱100,000 (RA 11223) |
| Pag-IBIG | 2% of basic salary | Capped at ₱200/month (₱2,400/year) |
Full Walkthrough — SG 11, Step 1 (Teacher I / Administrative Officer II)
One of the most common Salary Grades in government, so let’s compute it in full, annualized.
| 2025 (Annual) | 2026 (Annual) | |
|---|---|---|
| Basic Pay | ₱360,288.00 | ₱380,460.00 |
| GSIS (9%) | ₱32,425.92 | ₱34,241.40 |
| PhilHealth (2.5%) | ₱9,007.20 | ₱9,511.50 |
| Pag-IBIG | ₱2,400.00 | ₱2,400.00 |
| Taxable Income | ₱316,454.88 | ₱334,307.10 |
| Income Tax | ₱9,968.23 | ₱12,646.07 |
| Net Take-Home Pay | ₱306,486.65 | ₱321,661.03 |
Result: Of the ₱20,172.00 annual gross raise, ₱15,174.38 (75.2%) actually reaches take-home pay — that’s ₱1,264.53/month in real terms. The remaining ₱4,997.62 goes to higher GSIS, PhilHealth, and tax combined.
Same Computation, Other Salary Grades
| Salary Grade (example) | 2025 Annual Basic | 2026 Annual Basic | Annual Gross Increase | Annual Net Increase | Monthly Net Increase | % of Raise Kept |
|---|---|---|---|---|---|---|
| SG 1, Step 1 (e.g., Utility Worker I) | ₱168,732.00 | ₱175,608.00 | ₱6,876.00 | ₱6,085.26 | ₱507.11 | 88.5% |
| SG 11, Step 1 (Teacher I / Admin Officer II) | ₱360,288.00 | ₱380,460.00 | ₱20,172.00 | ₱15,174.38 | ₱1,264.53 | 75.2% |
| SG 18 (e.g., Sr. Agrarian Reform Program Officer) | ₱615,648.00 | ₱645,816.00 | ₱30,168.00 | ₱21,358.95 | ₱1,779.91 | 70.8% |
When Does This Take Effect?
National Government Agencies: Effective January 1, 2026. If your agency implemented late due to NOSA delays, the tax impact applies retroactively as a salary differential.
Local Government Units: Implementation is targeted for August 2026, subject to Sanggunian approval and available funds — if you’re LGU-based, this is likely showing up on your very next payslip.
Note for payroll and accounting staff: If your agency releases the increase as a lump-sum salary differential covering several back months, that lump sum is still withheld in the month actually paid — it isn’t automatically spread out, so that specific cutoff can look like a bigger tax hit than a smooth monthly increase would. Any over- or under-withholding is reconciled at year-end through Form 2316, against the annual table above.
DBM Guidelines on 3rd Tranche Salary Increase (NGA and LGUs) (Legal Basis) (PDF)
• Executive Order No. 64, s. 2024 — salary increase in four tranches (2024–2027)
• National Budget Circular No. 601 (DBM, January 22, 2026) — 3rd Tranche implementing guidelines
• National Internal Revenue Code, Section 24(A), as amended by Republic Act No. 10963 (TRAIN Law) — annual graduated income tax table
• Revenue Regulations No. 11-2018, as amended — governs monthly withholding mechanics used to prepay the annual tax, effective January 1, 2023
• Republic Act No. 8291 (GSIS Act of 1997) — GSIS premium share
• Republic Act No. 11223 (Universal Health Care Act) — PhilHealth premium schedule
• National Internal Revenue Code, as amended — exclusion of mandatory contributions and 13th month pay/bonuses (up to ₱90,000) from taxable compensation
Frequently Asked Questions
Will my entire salary increase be taxed?
No. Only the portion of your new taxable income above ₱250,000 per year (≈₱20,833/month) is subject to income tax, and only at the marginal rate for that bracket — not your whole salary.
Why did my GSIS and PhilHealth deductions go up too?
Both are straight percentages of basic salary (9% and 2.5%), so any basic pay increase raises them automatically — separately from the tax computation.
Is my salary differential (back pay) taxed differently?
It’s still subject to withholding tax, but since it’s usually released as a lump sum, it may look like a bigger deduction in that specific pay period. It’s reconciled with your actual annual tax due at year-end.
Will everyone owe more tax because of the 3rd Tranche?
Not necessarily. Employees whose annual taxable income stays below ₱250,000 (≈₱20,833/month) even after the increase — generally lower Salary Grades — pay no additional tax at all.
How do I compute my exact tax impact?
Use the Government Employee Tax Calculator with your old and new basic pay from the Salary Increase Comparison Calculator.
Summary / Key Takeaways
• The 3rd Tranche increase raises your GSIS (9%) and PhilHealth (2.5%) deductions automatically, since both are percentages of basic pay.
• Income tax is legally an annual tax (NIRC Sec. 24(A)) — monthly withholding is a prepayment toward it. Rates haven’t changed since 2023; only your bracket position has.
• Sample computations show employees typically keep 70–90% of their gross raise as actual take-home increase, with higher Salary Grades keeping a smaller share.
• Employees whose taxable income stays under ₱250,000/year (≈₱20,833/month) pay no additional tax on the raise at all.
• LGU employees should watch for this starting August 2026.
• Salary differentials remain taxable and may look like a bigger one-time deduction when released as a lump sum.
Related Posts
• Full Guide: 3rd Tranche Salary Increase of Government Employees for 2026 (EO 64, s. 2024)
• Guide on the Salary Differential and Back Pay of Government Employees for FY 2026
• Ano ang Mandatory Net Take Home Pay ng Government Employees sa 2026?
• Full Guide: Personnel Economic Relief Allowance (PERA) of Government Employees
• 3rd Tranche Salary Schedule of Government Employees effective January 1, 2026
Try Our Tools
• Government Employee Tax Calculator
• NGA Salary Increase Comparison Calculator
• LGU Salary Increase Comparison Calculator
Disclaimer: This article was written based on Executive Order No. 64, s. 2024; National Budget Circular No. 601; the National Internal Revenue Code, Section 24(A), as amended by Republic Act No. 10963 (TRAIN Law); Revenue Regulations No. 11-2018, as amended; Republic Act No. 8291; and Republic Act No. 11223, and is intended for educational and informational purposes only. Sample computations are illustrative, based on standard/default cases only; actual withholding may vary by agency, exemptions, or other allowances. This post shall not be used as reference or legal basis for any government transaction or payroll processing. For authoritative guidance, always refer to the official text of the applicable laws and issuances, or consult your agency’s HRMO, Budget Office, Accounting Office, or the BIR.
