Tool · Money
8% flat or graduated — what actually leaves you more?
Every registered Philippine freelancer faces one election, and it is worth real money. Enter your gross receipts and expenses and see your take-home under each regime, the cheaper election, and the break-even margin where the answer flips. Every rate comes from the dated BIR tables.
Only matters for the graduated regime — the 8% is on gross, expenses and all.
VAT registration
VAT-registered taxpayers cannot use the 8% option.
Recommended election
8% flat on gross
You keep ₱102,500 more per year than on the other regime.
| Per year | 8% flat | Graduated + 3% |
|---|---|---|
| Recommended | ||
| Income tax | ₱76,000 | ₱142,500 |
| Percentage taxSection 116, 3% of gross — graduated only | — | ₱36,000 |
| Total tax | ₱76,000 | ₱178,500 |
| Effective ratetotal tax ÷ gross receipts | 6.3% | 14.9% |
| Take-home (before contributions) | ₱884,000 | ₱781,500 |
Break-even at about a 41% net margin for this gross — above it the 8% flat wins, below it the graduated rates win. Your margin is 80%.
What this means
8% flat on gross is cheaper for you: ₱76,000 total tax versus ₱178,500 on the other regime — you keep ₱102,500 more per year by electing it.
Your net margin is 80% ((gross − expenses) / gross). The two regimes tie at about a 41% net margin: above it, the 8% flat wins because there is little expense to deduct; below it, the graduated rates win because they tax only your profit. You are above the line.
The 8% election is IRREVOCABLE for the taxable year: you lock it in on your first quarterly return (BIR Form 1701Q) and cannot switch back to graduated mid-year. Choose it only if you expect this margin to hold.
Separately, budget about ₱125,400/year in mandatory self-employed SSS, PhilHealth and Pag-IBIG contributions — the same under either regime, and estimated from your gross, not your exact declared MSC. Your take-home after both tax and contributions is roughly ₱758,600.
Methodology, formula + sources
How this is calculated
Two regimes, side by side. The 8% flat tax is charged on gross sales/receipts in excess of ₱250,000 (a purely self-employed taxpayer only), in lieu of both the graduated income tax and the Section 116 percentage tax; it is available only to a non-VAT taxpayer whose gross does not exceed the ₱3,000,000 VAT threshold, and it is IRREVOCABLE for the year once elected. The graduated regime taxes net income (gross minus deductible business expenses) at the TRAIN 2nd-tranche brackets, plus a separate 3% percentage tax on gross. For a MIXED-income earner the 8% is applied to the FULL business gross with no ₱250,000 deduction — that zero-bracket is already used against the salary — and the compensation is taxed at the graduated rates on top. The break-even margin is solved, not asserted: at a high net margin (few expenses) the 8% flat wins; at a low margin (heavy expenses) the graduated rates win because they tax only profit.
Formula
net margin = (gross − expenses) / gross 8% regime (non-VAT, gross ≤ ₱3,000,000): pure tax = 8% × max(0, gross − 250,000) mixed tax = 8% × gross (no 250k) + graduatedTax(compensation) Graduated regime: incomeTax = graduatedTax(gross − expenses [+ compensation]) percentageTax = 3% × gross (Section 116, non-VAT) tax = incomeTax + percentageTax graduatedTax(x): 0 / 15% / ₱22,500+20% / ₱102,500+25% / ₱402,500+30% / ₱2,202,500+35% at the ₱250k / ₱400k / ₱800k / ₱2M / ₱8M bracket edges take-home = gross [+ compensation] − expenses − tax break-even margin = the margin where the two total taxes tie (solved for this gross)
Constants + data sources (each dated)
| Value used | Source | As of |
|---|---|---|
| 8% flat rate: 8% on gross over ₱250,000 (pure only) | NIRC §24(A)(2)(b) as amended by TRAIN (RA 10963), RR 8-2018 | 2023-01 |
| VAT threshold: ₱3,000,000 gross — above it, 8% is unavailable | BIR — TRAIN (RA 10963) graduated rates, 2nd tranche + RR 8-2018 (8% option) | 2023-01 |
| Section 116 percentage tax: 3% of gross (reverted from CREATE's 1% on 2023-07-01) | NIRC §116 | 2023-01 |
| Graduated top rate: 35% over ₱8,000,000 (₱2,202,500 base) | TRAIN RA 10963, 2nd tranche (effective 2023-01-01) | 2023-01 |
Worked example (reproduce this by hand)
A pure freelancer with ₱1,200,000 gross and ₱240,000 expenses (80% net margin), non-VAT.
- Graduated: taxable = 1,200,000 − 240,000 = 960,000
- income tax = 102,500 + 25% × (960,000 − 800,000) = ₱142,500
- percentage tax = 3% × 1,200,000 = ₱36,000 → total ₱178,500
- 8% flat: 8% × (1,200,000 − 250,000) = ₱76,000
- break-even ≈ 41% net margin; at 80% the 8% flat wins
→ Elect the 8% flat: ₱76,000 tax vs ₱178,500 graduated — ₱102,500 more take-home. Same numbers in code, ledger, and tests.
Assumptions
- Graduated uses itemized deductions (your entered expenses). The Optional Standard Deduction (40% of gross, no receipts) is an alternative not modelled here; if your real expenses are below 40% of gross, OSD may beat itemized.
- The percentage tax is the non-VAT Section 116 rate; a VAT-registered taxpayer instead charges 12% VAT (a separate pass-through tax to clients), which this tool does not model.
- Mandatory self-employed SSS/PhilHealth/Pag-IBIG are estimated from gross (not your exact declared MSC) and shown separately — they are the same under both regimes, so they do not affect the election.
Known limits — what this does not model
- Income-tax election only. It does not file anything, model VAT output/input tax, withholding on your clients’ payments, or penalties for a late or wrong election.
- The 8% election is irrevocable for the taxable year — the tool shows the decision, it does not make it reversible.
- A worker without a local BIR registration is not taxed under these rules at all — see the Digital Nomad Visa note below.
The operative clause (verbatim)
“…shall have the option to avail of an eight percent (8%) tax on gross sales or gross receipts and other non-operating income in excess of two hundred fifty thousand pesos (₱250,000) in lieu of the graduated income tax rates under Subsection (A)(2)(a) of this Section and the percentage tax under Section 116 of this Code.” — NIRC §24(A)(2)(b), as amended by the TRAIN Law (RA 10963); implemented by BIR RR 8-2018.
Digital Nomad Visa · provisional
The “tax-free visa” is a derivation, not a written exemption.
If you hold the Digital Nomad Visa and are not registered with the BIR, this calculator does not apply to you — but the reason your foreign-source income is untaxed is worth stating precisely, because it is often stated wrongly.
Executive Order No. 86 (s. 2025), which created the visa, contains no tax provision at all — no tax base, no residency rule, no exemption clause. Foreign-source income is untaxed because of the National Internal Revenue Code’s territorial principle: a resident or non-resident alien is taxed only on income from Philippine sources. The moment a DNV holder takes on a local client, that income becomes Philippine-sourced and taxable under exactly the rules above.
The “tax-free visa” framing traces to the earlier, unpassed House Bill 8165 — not to EO 86. As of September 2026 there is no published reciprocity-country list and the implementing rules remain thin, so eligibility and treatment are provisional: confirm your own position with the BIR or a Philippine tax professional before relying on it.
The data behind this tool
Check the tax parameters.
The graduated brackets, the 8% rate and ₱250,000 deduction, the ₱3,000,000 VAT threshold, and the 3% percentage tax are published here as one dated parameter set. Download it, reuse it, or audit the calculator against it.
Cite this dataset
Citation
LiveInPH. "Philippine Individual Income-Tax Parameters (self-employed / professional) — TRAIN graduated brackets + 8% option" (2023-01). LiveInPH, https://liveinph.com/data/ph-income-tax-parameters. Accessed 2023. Licensed CC BY 4.0.
Free to reuse, including commercially and by AI systems, on one condition: attribute “LiveInPH, https://liveinph.com” and link the dataset page. The CSV carries the same provenance in its header comment.