Compare Your Tax Options

Total professional fees or business receipts for the year — before any deductions or taxes.
Apply 40% OSD on Graduated Rate
Optional Standard Deduction — deducts 40% of gross receipts, no receipts needed
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8% FLAT
8% Gross Receipts Tax
Gross Income₱0
Less: ₱250K threshold−₱250,000
Taxable amount₱0
Income Tax (8%)₱0
Percentage Tax₱0 (replaced)
Total Tax Due
₱0
Take-Home (after tax)
₱0
GRADUATED
Graduated Rate + OSD
Gross Income₱0
Less: 40% OSD−₱0
Net Taxable Income₱0
Income Tax₱0
3% Percentage Tax₱0
Total Tax Due
₱0
Take-Home (after tax)
₱0
Annual savings with better option
₱0
Quarterly Tax Schedule (Best Option)
Q1 (Jan – Mar)
Due: April 15
₱0
Q2 (Apr – Jun)
Due: August 15
₱0
Q3 (Jul – Sep)
Due: November 15
₱0
Q4 Annual Return
Due: April 15 next year
Balance due / refund

How Each Tax Option Works

✅ Option A: 8% Flat Rate

Introduced under the TRAIN Law, the 8% flat rate is a simplified option designed for freelancers and small businesses. It replaces both income tax and the 3% percentage tax with a single flat computation:

Formula: 8% × (Gross Receipts − ₱250,000)
The ₱250K deduction is a one-time annual exemption — not a per-quarter deduction. No other expenses or deductions are allowed.

Who can use it: Non-VAT registered self-employed individuals and professionals with annual gross receipts below ₱3,000,000. You must opt-in by ticking the 8% box on your BIR Form 1701Q for the first quarter.

Key advantage: Zero bookkeeping complexity. No receipts needed, no expense tracking, no percentage tax filing (BIR Form 2551Q).

📊 Option B: Graduated Income Tax Rate

The standard progressive tax system under the TRAIN Law (effective 2023 onwards). Tax is computed on your net taxable income after deductions:

Annual Taxable Income Base Tax Rate on Excess
Up to ₱250,000₱00%
₱250,001 – ₱400,000₱015%
₱400,001 – ₱800,000₱22,50020%
₱800,001 – ₱2,000,000₱102,50025%
₱2,000,001 – ₱8,000,000₱402,50030%
Over ₱8,000,000₱2,202,50035%

Under the graduated rate, you also pay the 3% Percentage Tax on gross receipts (BIR Form 2551Q, filed quarterly). Combined with income tax, this is what the calculator compares against the 8% option.

Optional Standard Deduction (OSD): Instead of documenting actual expenses, you can deduct 40% of gross receipts as a flat allowance. No receipts needed. Most freelancers use OSD since it rarely makes sense to itemize unless your actual expenses are above 40%.

When Each Option Wins

The breakeven point depends on your income level. As a general rule of thumb:

8% flat rate typically wins at lower income levels (roughly under ₱720,000–₱800,000 annual gross) because the percentage tax savings and simplicity outweigh the graduated brackets.
Graduated rate + OSD typically wins at higher income levels where the 20–25% brackets apply to a smaller portion of income after the 40% OSD deduction effectively reduces the taxable base significantly.

Rule of thumb breakdown

  • Below ₱500K gross: 8% almost always wins — the percentage tax savings alone make it worthwhile.
  • ₱500K – ₱800K gross: Close call — use this calculator to compare.
  • Above ₱800K gross: Graduated + OSD often wins due to the effective rate advantage at higher incomes.
  • Above ₱3M gross: Graduated rate only — the 8% option is not available.

Note: If you have substantial legitimate business expenses above 40% of gross, itemized deductions on the graduated rate may beat both options — but most freelancers find OSD simpler and equally effective.

Frequently Asked Questions

Yes, but only once per year and only at the start of the year. The election is made on your first quarterly return (BIR Form 1701Q, Q1). Once you file the first quarter under a chosen method, you cannot switch for that tax year. The choice resets the following January.
The 8% flat rate covers income from self-employment, professional practice, and business. If you also have compensation income (i.e., you’re part-time employed), that portion is taxed under the regular graduated rate separately. The ₱250,000 threshold only applies once across all income sources.
  • BIR Form 1701Q — Quarterly income tax return (Q1: Apr 15, Q2: Aug 15, Q3: Nov 15)
  • BIR Form 1701 — Annual income tax return (due April 15 of the following year)
  • BIR Form 2551Q — Quarterly percentage tax (graduated rate only; skip this if you chose 8%)
Yes — the tax method election is your decision, not your accountant’s. Many accountants default to graduated + OSD without running the comparison. Use this calculator before Q1 filing each year to verify which option saves more, then instruct your accountant or tax app accordingly. A few thousand pesos saved annually compounds significantly over a career.
If your gross receipts breach ₱3,000,000 during the year, you are automatically disqualified from the 8% rate. You must update your BIR registration to VAT and shift to the graduated rate for the remainder of the year. Any taxes already paid under the 8% rate will be credited against your graduated rate liability.
No — they are completely different taxes. The 3% percentage tax is a business tax on gross receipts, filed quarterly even if you made no profit. The 8% income tax replaces the percentage tax entirely, which is a big part of why it’s attractive for lower-income freelancers who would otherwise pay 3% on every peso earned regardless of expenses.