Two Ways Self-Employed Filipinos Are Taxed
If you are self-employed or a professional, BIR generally lets you choose between two income tax paths: the 8% option on gross receipts above ₱250,000, or the graduated rates under the TRAIN Law applied to your taxable income.
The right choice depends on your revenue, documented expenses, and registration. This guide explains the trade-offs so you can model scenarios before talking to a CPA.
The 8% Option in Plain Terms
The 8% option replaces both the graduated income tax and the percentage tax with a single flat rate. In simplified terms, you pay 8% of gross sales or receipts in excess of ₱250,000 for the year.
It tends to favor earners with low documented expenses, because it ignores your costs entirely. Eligibility depends on revenue limits and not being registered in a way that disqualifies the simplified rules.
The Graduated Path
Graduated tax applies TRAIN brackets to taxable income after allowable deductions. You can lower taxable income two main ways:
- Itemized deductions — list real, documented business costs.
- Optional Standard Deduction (OSD) — presume deductible expenses as a percentage of gross sales instead of listing every receipt.
This path tends to favor earners with heavy documented expenses.
How to Decide
| Your situation | Often better |
|---|---|
| High receipts, low expenses | 8% option |
| Heavy documented expenses | Graduated (itemized) |
| Moderate expenses, light bookkeeping | Graduated with OSD |
Model all three with the Freelancer Tax Calculator. Enter annual income and expense assumptions, then compare the annual tax figures side by side.
Do Not Forget Contributions
Income tax is only part of the picture. Voluntary SSS, PhilHealth, and Pag-IBIG still apply. Use the SSS Contribution Calculator and PhilHealth Premium Calculator to estimate those separately.
Common Mistakes
- Assuming the 8% option always wins because it sounds simple.
- Choosing the option without checking revenue thresholds.
- Forgetting quarterly filing obligations (1701Q, 2551Q where applicable).
- Mixing personal and business expenses, which weakens itemized claims.
Disclaimer
This is general education, not tax advice. Eligibility, thresholds, and forms change with BIR issuances. Confirm your case with the Bureau of Internal Revenue and a licensed tax practitioner before changing your registration.