If you freelance, do VA work, sell online or take on-the-side projects, sooner or later you will hear about the BIR’s “8% option.” Many Filipino freelancers find it simpler than the regular graduated rates, but it is not automatically the best choice for everyone. This guide explains what the 8% income tax option is, who can use it, how to compute it in pesos, and how to decide whether it fits your situation.
Quick note: the peso examples below are for illustration only, so you can see how the math works. Your actual tax depends on your income, expenses and registration. When in doubt, ask your Revenue District Office (RDO) or a licensed accountant.
What is the 8% income tax option?
Under BIR Revenue Regulations No. 8-2018, self-employed individuals and professionals whose gross sales or receipts and other non-operating income do not go over the VAT threshold of ₱3,000,000 may choose between two ways of paying income tax:
- Graduated income tax rates on your net taxable income, plus a separate percentage tax if you are non-VAT; or
- A flat 8% tax on your gross sales or receipts and other non-operating income in excess of ₱250,000. This replaces both the graduated income tax and the percentage tax, but you cannot deduct business expenses.
Who can use it (and who cannot)
According to the BIR digest of Revenue Memorandum Order No. 23-2018, you may qualify if all of these are true:
- You earn from self-employment or the practice of a profession (single proprietor, professional, or mixed-income earner).
- Your gross sales/receipts and other non-operating income did not exceed ₱3 million during the year.
- You are not VAT-registered (you are subject only to percentage tax under Section 116, or exempt from VAT and other percentage taxes).
- You formally signify that you are choosing the 8% rate.
The option is not available to purely compensation (employee-only) earners, VAT-registered taxpayers regardless of how much they earn, and those subject to other percentage taxes outside Section 116.
About the ₱3 million figure: the BIR’s RR No. 3-2024, which implements the Ease of Paying Taxes (EOPT) Act, says the VAT threshold will be adjusted to its present value every three years using the Consumer Price Index. Check the BIR website for any updated amount before relying on ₱3 million.
How the 8% is computed
For a purely self-employed freelancer, the formula is:
(Gross sales/receipts + other non-operating income − ₱250,000) × 8%
For a mixed-income earner (for example, an employee with a freelance sideline), RR 8-2018 explains that the ₱250,000 reduction is not applied to the business income, because it is already built into the 0% first bracket of the compensation income tax. Your salary is taxed at graduated rates, and the 8% applies to your full business gross.
The graduated rates, for comparison
If you do not choose 8%, your net taxable income is taxed under the table effective January 1, 2023 onward (RR 8-2018):
- Not over ₱250,000: 0%
- Over ₱250,000 to ₱400,000: 15% of the excess over ₱250,000
- Over ₱400,000 to ₱800,000: ₱22,500 + 20% of the excess over ₱400,000
- Over ₱800,000 to ₱2,000,000: ₱102,500 + 25% of the excess over ₱800,000
- Over ₱2,000,000 to ₱8,000,000: ₱402,500 + 30% of the excess over ₱2,000,000
- Over ₱8,000,000: 35% on the excess, plus the base amount in the table
To get net taxable income, you subtract either your itemized (documented) business expenses or the Optional Standard Deduction (OSD), which for individuals is 40% of gross sales/receipts under RR 8-2018. Non-VAT taxpayers on graduated rates also pay percentage tax, which went back to 3% of gross quarterly sales or receipts on July 1, 2023, per BIR Revenue Memorandum Circular No. 69-2023. That circular also confirms the 3% does not apply to those availing of the 8% rate.
Example: ₱600,000 a year, purely freelance
Say Ana is a full-time freelance graphic designer with no other job, and her gross receipts for the year are ₱600,000 with no other income. (These are made-up numbers for illustration.)
Option A, 8%: (₱600,000 − ₱250,000) × 8% = ₱28,000 total income tax, and no percentage tax.
Option B, graduated rates with 40% OSD:
- OSD: ₱600,000 × 40% = ₱240,000, so taxable income is ₱360,000
- Income tax: (₱360,000 − ₱250,000) × 15% = ₱16,500
- Percentage tax: ₱600,000 × 3% = ₱18,000
- Total: ₱34,500
In this example the 8% option costs ₱6,500 less and comes with fewer returns to file.
When graduated rates might be better
The 8% option is not always cheaper. Graduated rates may come out lower if:
- Your expenses are very high and well documented. For example, a seller who buys inventory or a freelancer with big equipment, software, or subcontractor costs might have itemized deductions large enough to beat the 8%.
- Your income is low. If your net taxable income stays near or below ₱250,000, the income tax under graduated rates can be very small. But remember that non-VAT taxpayers on graduated rates still pay the 3% percentage tax on gross, so run the numbers both ways.
How and when to choose the 8%
Timing matters. RR 8-2018 says that unless you signify the 8% election in your first-quarter percentage and/or income tax return (or the initial quarter return when you start a new business or profession), you are treated as having chosen graduated rates. The election is irrevocable for that taxable year, meaning you cannot switch midyear.
Ways to signify the option, per the RMO 23-2018 digest:
- New registrants: on BIR Form 1901 (Application for Registration) and/or the first 1701Q, or on the initial quarter return after you start.
- Existing registered taxpayers: by filing BIR Form 1905 at the start of the year to end the quarterly percentage tax form type, then choosing 8% on the first quarterly income tax return; or via the first-quarter percentage tax or income tax return.
You can also register and update registration details online through the BIR’s Online Registration and Update System (ORUS), which lists availment of the 8% option as one of the updates it handles.
Filing deadlines to remember
Based on the BIR Form 1701Q guidelines, calendar-year self-employed individuals file the quarterly income tax return on or before:
- May 15 for the first quarter (January to March)
- August 15 for the second quarter (April to June)
- November 15 for the third quarter (July to September)
There is no 1701Q for the fourth quarter. The full year is settled in the annual income tax return, due on or before April 15 of the following year. November 15, 2026 falls on a Sunday, so check the BIR website for the official working-day deadline for this quarter.
Under the 8% option the quarterly computation is cumulative: you add up gross receipts from January, and the ₱250,000 is deducted only once against the running total, not again every quarter.
Good news from the Ease of Paying Taxes Act
The BIR’s EOPT Act flyer (Republic Act No. 11976, effective January 22, 2024) lists several changes that help small freelancers:
- The ₱500 annual registration fee was removed.
- You can file and pay with any authorized agent bank, Revenue District Office, or authorized tax software provider, and the “wrong venue” penalty was removed.
- Micro taxpayers (gross sales below ₱3,000,000) get a simplified two-page income tax return, a reduced 10% civil penalty rate, and 50% lower interest on late payments.
Practical tips before you decide
- Track every peso of gross income, including payments through GCash, Maya, PayPal, bank transfers and platforms. The 8% is based on gross, so missing receipts is not a “saving.” It is under-declaration.
- Set aside tax money as you get paid in a separate account so quarterly payments are never a surprise.
- Watch the ₱3 million line. If you go over the VAT threshold, the 8% option no longer applies and different rules kick in.
- Ignore “fixers” who offer to “lower your tax” or process your registration for a fee outside official channels. Use ORUS, your RDO, or a licensed accountant.
The bottom line
For many freelancers with modest expenses and income under ₱3 million, the 8% option is simpler and can mean lower tax than graduated rates plus 3% percentage tax. But it removes all expense deductions, it must be chosen at the start of the year, and you are locked in until the next taxable year. Do a quick side-by-side computation with your own numbers, choose on time, and keep good records all year.
This article is general information only and not financial advice. Rates, rules and fees change, so please verify with the provider or the official agency before deciding.