Total annual tax for a Philippine freelancer.
Lower annual tax
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Graduated + 3%
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8% flat tax
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Effective rate
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Two tax routes, one choice that shapes your year
When you register as self-employed with the Bureau of Internal Revenue (BIR), you pick how your income is taxed, and the two paths can produce very different bills. The first is the graduated route: graduated income tax on your net income, plus a separate 3 percent percentage tax on your gross receipts. The second is the 8 percent flat option, a single charge on gross that stands in for both the income tax and the percentage tax. This calculator runs both on the same numbers and tells you which leaves more in your pocket, so the decision rests on arithmetic rather than guesswork.
The choice is not permanent, but it is sticky. You declare it near the start of the tax year and live with it until the next one, so it pays to model a realistic full-year gross and expense figure before you commit rather than discovering the cheaper path in hindsight.
Two things almost everyone gets wrong about the 8 percent
The first trap is assuming 8 percent of your gross is your tax. It is not. The rate this calculator applies charges 8 percent only on gross above a PHP 250,000 reduction, so your effective rate always lands below 8 percent. The second trap sits on the graduated side: the 3 percent percentage tax is levied on gross receipts, not on net income. Freelancers who mentally net it against expenses underpay. Both figures, the PHP 250,000 reduction and the 3 percent rate, are modelling assumptions here that you should confirm with the BIR, because percentage-tax relief has changed before and could again.
A PHP 900,000 earner, both routes side by side
Take the tool's default: PHP 900,000 of annual gross receipts and PHP 200,000 of expenses. On the graduated route, net income is PHP 700,000, the graduated income tax on that is PHP 82,500, and the 3 percent percentage tax on the full PHP 900,000 gross adds PHP 27,000, for PHP 109,500 in total. On the 8 percent route, you charge 8 percent on PHP 900,000 less PHP 250,000, which is PHP 52,000 flat. The 8 percent option wins here by PHP 57,500, and the effective rate on the cheaper path is PHP 52,000 divided by PHP 900,000, just 5.78 percent.
| Item | Graduated plus 3 percent | 8 percent flat |
|---|
The chart sets the two totals against each other so the gap is obvious at a glance.
When the graduated route quietly wins
The 8 percent option looks unbeatable in the example, but it loses its shine in two situations. The first is genuinely high expenses. A videographer or a reseller with heavy gear and cost of goods may deduct so much that net income is small, and graduated tax on a thin net can fall below 8 percent of a large gross. Push the expense field up and watch the recommendation flip. The second is lower income overall: someone whose net sits under PHP 250,000 pays no graduated income tax at all, so even with the 3 percent percentage tax the graduated route can edge out the flat charge.
There is also a hard ceiling on the 8 percent path. It is open only while annual gross stays at or below the PHP 3,000,000 VAT threshold. Cross that line and the option vanishes: you must register for VAT, charge 12 percent, and tax your income on the graduated scale. The calculator enforces this by showing the flat option as unavailable once gross passes PHP 3,000,000.
Does the 8 percent really replace the percentage tax too?
Yes, and that is the point of it. The flat 8 percent is charged in lieu of both the graduated income tax and the 3 percent percentage tax, which is why it can beat a graduated bill that carries the percentage tax as a separate line. You do not file and pay the 3 percent on top. Just remember the comparison only holds while you remain a non-VAT taxpayer below the PHP 3,000,000 threshold.
Are my SSS and PhilHealth payments part of this number?
No. This calculator estimates income tax and percentage tax only. Your mandatory SSS, PhilHealth, and Pag-IBIG contributions are separate obligations that a registered self-employed person remits on their own schedule, and they do not appear in either column above. Treat them as a distinct cost of being self-employed and confirm the current contribution rates directly with SSS, PhilHealth, and Pag-IBIG.