8% vs Graduated Income Tax: Which Should Filipino Freelancers Choose?

If you’re self-employed or a professional in the Philippines, the BIR lets you choose how you’re taxed: a flat 8% on gross receipts, or the graduated income-tax rates. Picking the right one can save you real money — here’s how to decide.

Want to compare your actual numbers right now? Use the 8% vs Graduated Tax comparison, which puts both calculators side by side.

Option 1 — The 8% flat tax

You pay 8% of your gross receipts over ₱250,000, and that’s it — it replaces both the graduated income tax and the 3% percentage tax. It’s simple, predictable, and skips a lot of paperwork. Estimate it with the 8% Freelancer Tax Calculator.

You qualify only if your gross receipts stay within the ₱3 million VAT threshold. Cross that, and you must use graduated rates and register for VAT.

Option 2 — Graduated income tax

Here you’re taxed on net taxable income (gross minus allowable business expenses) using the TRAIN brackets, plus a 3% percentage tax (or 12% VAT above the threshold). The Income Tax Calculator computes the graduated portion.

The deciding factor: your expenses

The choice usually comes down to how much you can legitimately deduct:

• Few expenses (you keep most of what you bill) → the 8% option usually wins. It’s a flat rate on gross with no 3% percentage tax, and the first ₱250,000 is effectively free.
• High expenses (large costs eat into your gross) → graduated rates can win, because you’re taxed on a much smaller net figure, and deductions can pull you into a lower bracket.
• Higher incomes also tilt toward graduated in some cases, because the 8% applies to your whole gross while graduated taxes only net income.

A quick rule of thumb

For a freelancer with light expenses earning under a few million pesos a year, the 8% flat tax is typically simpler and cheaper. As your deductible costs grow, run both — the crossover point depends entirely on your numbers. The side-by-side comparison makes the break-even obvious.

Don’t forget

• You generally elect the 8% option at the start of the year (or upon registration); you can’t freely switch mid-year.
• The 8% replaces the percentage tax — don’t pay both.
• Keep records either way; the BIR can ask you to substantiate income and (for graduated) expenses.

FAQ

Is the 8% on my profit or my total income? On gross receipts (total billed), minus the ₱250,000 allowance — not on profit.

Can I switch between the two each year? You elect your method per taxable year, typically with your first quarterly return; it’s not a mid-year toggle.

What happens if I exceed ₱3M? You lose the 8% option, must use graduated rates, and register as a VAT taxpayer.

This is general information, not tax advice — confirm with the BIR or a tax professional for your situation.