How the 8% tax is computed
The formula is refreshingly simple. As a purely self-employed individual, you pay:
The ₱250,000 deduction applies once per year if your income is purely from business or practice of profession. There are no expenses to track and no 2551Q percentage-tax return to file — one of the biggest reasons small earners choose it.
Worked example
Say you're a freelance designer with ₱600,000 in gross receipts for the year and you've elected the 8% rate:
| ₱600,000 gross · 8% option | Amount |
|---|---|
| Gross sales/receipts | ₱600,000 |
| Less: annual deduction | −₱250,000 |
| Taxable base | ₱350,000 |
| × 8% | ₱28,000 |
| Total tax for the year | ₱28,000 |
That ₱28,000 covers your income tax andpercentage tax for the whole year — no separate 3% to add. Your own numbers will differ; the free calculator does this instantly and also shows what you'd pay under graduated rates.
Who can use the 8% option?
You can generally elect the 8% flat rate if all of these are true:
- You're a self-employed individual — a freelancer, online seller, sole proprietor, professional, or creator (not a corporation).
- Your gross annual sales/receipts are under the ₱3,000,000 VAT threshold.
- You're not VAT-registered and not subject to other percentage taxes that disqualify the option.
- You elected it on time — on your first quarter return or upon registration.
8% vs graduated: which is cheaper?
The 8% flat rate usually wins for low-expensebusinesses — services, digital products, freelancing, high-margin resale — because you're taxed on gross with no benefit from deductions. Graduated rates can win when your expenses are a large share of sales, because you're taxed on profit instead.
| Annual taxable income | Graduated income tax |
|---|---|
| ₱0 – 250,000 | 0% |
| Over 250k – 400k | 15% of excess over 250k |
| Over 400k – 800k | ₱22,500 + 20% of excess |
| Over 800k – 2M | ₱102,500 + 25% of excess |
| Over 2M – 8M | ₱402,500 + 30% of excess |
| Over 8M | ₱2,202,500 + 35% of excess |
Remember: under graduated you also add a 3% percentage tax on gross (via 2551Q), which the 8% option skips entirely. The only reliable way to know which is cheaper for you is to compute both.
See both, side-by-side
The calculator computes 8% and graduated together and tells you which is lower.
Compare 8% vs graduated →How to elect the 8% rate
The 8% option isn't automatic — you have to choose it, and on time:
- At registration: indicate the 8% option on your BIR registration forms when you register as self-employed.
- Each year: signify your choice on your first quarter percentage/income tax return for that taxable year. If you miss it, you default to graduated rates for the whole year.
- Stay eligible: if your gross crosses ₱3,000,000 mid-year, you must shift to VAT and graduated rules — the 8% election no longer applies.
Frequently asked questions
＋ How do I compute the 8% tax in the Philippines?
Subtract ₱250,000 from your annual gross sales or receipts, then multiply the result by 8%. That single amount replaces both income tax and the 3% percentage tax. For example, ₱600,000 gross gives (600,000 − 250,000) × 8% = ₱28,000.
＋ Does the ₱250,000 deduction apply every year under the 8% option?
Yes, once per year, if your income is purely from business or practice of profession. Mixed-income earners who also receive a salary do not deduct the ₱250,000 again from business income under the 8% option.
＋ Is the 8% flat rate always cheaper than graduated rates?
No. The 8% flat rate is usually cheaper for low-expense businesses. Graduated rates, which tax profit, can be cheaper when expenses are a large share of sales. You should compute both to see which is lower.
＋ Do I still file 2551Q if I choose the 8% option?
No. Choosing the 8% option means you no longer file the quarterly percentage tax return (2551Q). You still file quarterly (1701Q) and annual (1701A) income tax returns.
＋ Who cannot use the 8% tax option?
VAT-registered taxpayers, those with gross sales over ₱3,000,000, corporations, and taxpayers subject to other percentage taxes that disqualify the option cannot use it. It is designed for small, non-VAT, self-employed individuals.
Stay compliant without the stress
Compute your tax, make BIR invoices, and get free deadline reminders.
Try Resibo free →Disclaimer: This calculator and guide are general information for purely self-employed individuals (non-VAT, gross ≤ ₱3,000,000) and are not official tax advice. Rules, rates, and deadlines can change and your situation may differ. Confirm specifics with a licensed CPA or your BIR RDO. Current as of 2026.