The 8% Income Tax Option for Self-Employed Filipinos

The 8% income tax option can make filing simpler for some self-employed people. It is not automatically the cheapest choice, and it is not limited to people who have no employment income.

The rules come from the TRAIN Law and the BIR’s implementing guidance. The BIR’s RMO No. 23-2018 digest is a useful starting point because it covers eligibility, mixed income, and the annual election.

What the 8% option replaces

For a qualified taxpayer, the option applies an 8% income tax to gross sales or receipts and other non-operating income. It replaces:

• Graduated income tax on the covered business or professional income
• Percentage tax under Section 116

It does not replace every possible tax obligation. Withholding, VAT, payroll taxes, and other tax types may still apply depending on your registration and transactions.

Who may qualify

The option is generally available to self-employed individuals and professionals who meet all of these conditions:

• Gross sales or receipts and other non-operating income do not exceed the VAT threshold
• The taxpayer is not VAT-registered
• The taxpayer is not subject to a percentage tax other than the tax under Section 116
• The option is properly elected for the taxable year

Corporations and partnerships cannot use this individual income tax option.

If your sales cross the VAT threshold during the year, your VAT and income tax treatment can change. Ask your RDO or tax adviser how to handle the transition.

Purely self-employed computation

For a qualified person earning purely from business or professional practice, the basic annual formula is:

(Gross sales or receipts plus other non-operating income minus PHP 250,000) multiplied by 8%

Example:

Item	Amount
Gross receipts	PHP 800,000
Less PHP 250,000 reduction	PHP 250,000
Amount subject to 8%	PHP 550,000
Income tax before credits	PHP 44,000

Prior quarterly payments and creditable taxes withheld may reduce the amount still payable on the annual return.

Mixed-income computation

A mixed-income earner has compensation income and business or professional income in the same taxable year. A qualified mixed-income earner may elect the 8% option for the business portion.

The PHP 250,000 reduction is not deducted from the business income in this case. The BIR explains that the reduction is already built into the graduated income tax rates applied to compensation income.

The total tax is therefore the sum of:

1. Tax on compensation income using graduated rates
2. Eight percent of gross business or professional income and other non-operating income, before applicable credits

This distinction matters. Applying the PHP 250,000 reduction twice would understate the tax.

How the option compares with graduated rates

The 8% option uses gross income and does not allow itemized deductions or the optional standard deduction. Graduated rates use taxable income after the applicable deduction method, with percentage tax handled separately when required.

Consideration	8% option	Graduated rates
Starting point	Gross sales or receipts	Net taxable income
Expense deductions	Not applied	Itemized deductions or OSD
Section 116 percentage tax	Replaced by the 8% option	Filed separately when applicable
Recordkeeping	Still required	Required, with more support needed for itemized deductions

A service provider with few expenses may prefer the simpler 8% computation. A business with substantial deductible costs may pay less under graduated rates. There is no reliable one-line rule because withholding credits, other income, and the nature of the expenses can change the result.

Run both computations using your actual records before electing.

How to elect the option

New business registrants can state the election during registration. Existing taxpayers may signify the election at the beginning of the year through Form 1905 or in the first applicable quarterly percentage or income tax return, following current BIR procedures.

The election is made for each taxable year. It is not a permanent registration choice. If you do not properly elect it, the graduated rates apply.

Filing responsibilities

An 8% taxpayer generally files Form 1701Q for the first three quarters and an applicable annual income tax return. The annual form may be Form 1701-MS, 1701A, or 1701, depending on the taxpayer’s classification and income profile.

The standard individual deadlines are:

Return	Standard deadline
1701Q, first quarter	May 15
1701Q, second quarter	August 15
1701Q, third quarter	November 15
Annual income tax return	April 15 of the following year

Check BIR advisories for weekends, holidays, system issues, and filing extensions. eFPS filers may also follow schedules specific to their filing group.

Before you choose

• Confirm that you are not VAT-registered and remain below the VAT threshold.
• Compare the 8% and graduated-rate computations using actual figures.
• Check how mixed income affects the PHP 250,000 reduction.
• Make the election using the correct channel and keep proof.
• Confirm which quarterly and annual forms are registered to you.

Tamoogi can help you track the election, quarterly returns, and supporting records. Tax computation and filing remain your responsibility or your accountant’s.

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This article is general information, not tax advice. Verify your eligibility and filing method with the BIR or a qualified tax professional before making an election.