Tax Incentives for Persons with Disability (PWD) Dependents under the TRAIN Law
A comprehensive Philippine-law overview
1. Snapshot of the Interlocking Statutes
| Law | Salient Coverage for PWD or their Families |
|---|---|
| Republic Act (RA) 7277 – “Magna Carta for Persons with Disability” (1992) | Foundational rights; 20 % discount & VAT-exempt purchases when made personally by the PWD. |
| RA 9442 (2006) | Expressly grants the VAT exemption that accompanies the 20 % discount. |
| RA 10754 (2016) | Tax-side add-ons: • Income-tax additional exemption ₱25 000 for every qualified PWD dependent; • Estate/Donor’s tax deductions for bequests or gifts exclusively in favor of PWDs; • Mandatory 2-year review by DOF/BIR. |
| RA 10963 – TRAIN Law (effective 1 Jan 2018) | Overhauls the National Internal Revenue Code (NIRC). Key change: abolishes personal & additional exemptions in § 35, replacing them with a blanket ₱250 000 income-tax shield and revised brackets. |
2. The PWD-Dependent Exemption Before TRAIN
Where it sat in the NIRC:
Old § 35 (B)(2) (inserted by RA 10754) allowed ₱25 000 per PWD dependent, on top of the regular ₱25 000 per child-dependent and outside the 4-dependent cap.Who qualified as a “PWD dependent”
- Legitimate, illegitimate or legally-adopted child or a legitimate parent.
- Filipino citizen, holding a government-issued PWD I.D.
- Chiefly dependent upon and living with the taxpayer.
- Age limit irrelevant – a PWD of any age could be claimed.
Substantiation
- PWD I.D. card and medical certificate describing the permanent impairment.
- Employer’s payroll file: BIR Form 2305 (for employer withholding adjustments) or Form 1905 (for self-employed).
- Sworn declaration that no other taxpayer is claiming the same dependent.
Withholding mechanics
- Employers set the taxpayer’s “Exemption Code” to “ME-n” + “PWD-m” in the old Alphalist file so that the monthly withholding reflected the extra ₱25 000.
3. What TRAIN Did (and Did Not Do)
| Train Provision | Practical Effect on PWD-Dependent Exemption |
|---|---|
| § 12 of TRAIN rewrote NIRC § 35 and scrapped personal & additional exemptions | From taxable year 2018 forward, no employee or self-employed individual may deduct ₱25 000 for any dependent, PWD or otherwise. |
| § 85 et seq. (re estate/donor’s tax) | No change – donations or bequests exclusively for the benefit of PWDs remain fully deductible. |
| VAT provisions (§§ 34–42) | No change – the 20 % discount plus VAT exemption under RA 9442/10754 endures because it is anchored on consumer protection statutes, not on the NIRC’s personal exemption scheme. |
| Fringe Benefit Tax, Percentage Taxes | Unaffected – no special break linked to PWD dependents existed here even before TRAIN. |
Key doctrinal point: RA 10963 is later in time and overhauled § 35 in its entirety; that impliedly repealed the specific additional-exemption clause that RA 10754 had inserted. The Bureau of Internal Revenue cemented the interpretation in Revenue Regulations No. 5-2018 and Revenue Memorandum Circular No. 26-2018, instructing employers to cease granting the ₱25 000 PWD-dependent allowance in payroll and in the 2018 annualization.
4. Remaining Tax Favors that Still Help Families with PWD Members
₱250 000 Universal Exclusion – The first ₱250 000 of compensation or self-employment income is tax-free for everyone; families who previously relied on the PWD-dependent break often find themselves still better off in absolute peso terms.
Medical Expense Planning
- Pure compensation earners cannot itemize, but self-employed or mixed-income taxpayers who choose itemized deductions may deduct direct medical expenses of the business-related kind (e.g., rehabilitation clinic run as a sole proprietorship).
Estate/Donor’s Tax
- Gifts, devices or legacies solely and directly in favor of a PWD enjoy 100 % deduction from the gross estate/donation base (NIRC § 87 & § 101, as modified by RA 10754).
- Documentary stamp tax on inter vivos donations to PWDs is also exempt.
Corporate Incentive for Employers of PWDs
- Under RA 10524 and its IRR, a private-sector employer may claim an additional 25 % deduction from taxable income for the total wages paid to PWD employees, plus full deduction for PWD-specific training expenses.
VAT & Percentage Tax
- Goods and services purchased by the PWD for his/her own consumption remain VAT-exempt, creating an indirect benefit for family finance.
5. Compliance Pointers for 2025 Filings
- Do not reflect a PWD-dependent code in BIR Forms 1700 / 1701 (annual income-tax return) for 2024 income onwards.
- Keep PWD I.D.s and medical certificates anyway; they support VAT-exempt and discounted transactions and the estate/donor’s-tax deductions.
- Businesses claiming the 25 % wage deduction must keep a registry of PWD employees and copies of their PWD I.D.s, as mandated by DOLE‐BWC Labor Advisory 6-17.
6. Pending Legislative Repairs
Both Houses have filed bills (e.g., Senate Bill No. 1907; House Bill Nos. 6748 & 8818) to reinstate the ₱25 000 PWD-dependent exemption by carving it out of § 35 even after TRAIN. Committee deliberations continue as of April 2025; none have become law.
7. Practical Take-Away
From 2018 to date, Filipino taxpayers no longer get the once-popular ₱25 000 income-tax exemption for each PWD dependent. Families must instead:
- Rely on the TRAIN-era ₱250 000 zero-bracket,
- Avail of the VAT-exempt buying privileges (20 % discount + 12 % VAT savings ≈ 28 % retail relief),
- Structure gratuitous transfers to maximize the estate/donor’s-tax deductions, and
- Encourage employers (including one’s own family corporations) to hire PWDs and lawfully deduct 25 % of their wages from taxable income.
Until Congress enacts a corrective amendment, those are the complete—and exclusive—tax incentives presently available to households supporting persons with disability.