Philippines Income Tax Calculator (Graduated vs 8%)

About the Philippines Income Tax Calculator (Graduated vs 8%)

Work out your Philippine income tax for the year, and for a freelancer, professional or shop owner, see whether the graduated rates or the 8% option costs less. The calculator follows the Tax Code: graduated rates on taxable income, the 40% optional standard deduction or your itemised costs, and the 8% tax on gross sales and other non-operating income above ₱250,000 that takes the place of both the graduated rates and the 3% percentage tax.

Mixed-income earners get the full treatment — compensation always at the graduated rates, business income either way, and no ₱250,000 deduction under the 8% rate, because that amount is already inside the first bracket. Every line of both computations is shown, in the order BIR Forms 1701 and 1701A use, so you can check a return line by line.

Common uses

• Decide between the 8% rate and the graduated rates before you file your first quarterly return.
• Check an accountant’s computation line by line against the Tax Code.
• See what registering for VAT would do to your tax once sales approach ₱3,000,000.
• Work out the tax on a side business beside your salary.
• Estimate what is still payable in April after the tax already withheld by clients.

The graduated rates

Individual citizens and resident aliens are taxed on taxable income at the graduated rates of Section 24(A)(2) of the Tax Code: nothing up to ₱250,000, then 15% of the excess to ₱400,000, ₱22,500 + 20% to ₱800,000, ₱102,500 + 25% to ₱2,000,000, ₱402,500 + 30% to ₱8,000,000 and ₱2,202,500 + 35% above that.

Taxable compensation is your pay less the amounts the Code excludes: the employee share of SSS, PhilHealth and Pag-IBIG, the 13th month pay and other benefits up to ₱90,000, and de minimis benefits. Taxable business income is gross sales or receipts less your deductions, plus other non-operating income. The rates here come from the Tax Code itself and are the second of the two tables BIR Form 1701A prints. If a table you find elsewhere starts with 20% above ₱250,000 and has a 32% band, it is the earlier TRAIN schedule, which the calculator keeps for an earlier year.

The 8% option, and when you cannot use it

A self-employed individual or professional whose gross sales or receipts and other non-operating income do not exceed the ₱3,000,000 VAT threshold may instead pay 8% of that gross above ₱250,000, in place of both the graduated rates and the percentage tax of Section 116 (Section 24(A)(2)(b), RR No. 8-2018).

The option is not open to a VAT-registered taxpayer whatever the sales, nor to someone subject to another percentage tax under Title V (a nightclub, for example), nor to a partner for a share of income from a general professional partnership. It has to be chosen in the first quarterly percentage or income tax return of the year, or in the first return after a new business or practice starts; the choice is irrevocable for that year, and the graduated rates apply if nothing is chosen. If gross sales pass ₱3,000,000 during the year the graduated rates take over automatically and the 8% already paid is credited.

Expenses: the optional standard deduction or itemised costs

Under the graduated rates you either itemise your cost of sales and operating expenses, or take the optional standard deduction of 40% of gross sales or receipts without receipts (Section 34(L)). The deduction applies to sales and receipts only — other non-operating income is added in full — and the choice is irrevocable for the year once the return is filed. With the deduction you need not attach financial statements to the return.

Which is better depends on your margin: a professional with few costs usually pays less with the 40% deduction or the 8% rate, while a trader whose costs are above 40% of sales does better itemising.

Percentage tax, and what the 8% rate replaces

A person whose sales are below the VAT threshold and who is not VAT-registered pays a percentage tax of 3% of gross quarterly sales or receipts (Section 116). That is a business tax, not an income tax, so under the graduated rates you pay both — which is why the calculator adds it to the graduated column.

The 8% rate replaces it. That is often the whole saving: on ₱1,000,000 of receipts the percentage tax alone is ₱30,000. A VAT-registered taxpayer charges 12% VAT on sales and claims input VAT instead; VAT is collected from customers and is not included here.

Returns and deadlines

The annual return is due on or before 15 April for the previous calendar year (BIR: Income Tax). Use BIR Form 1701A if your income is purely from business or a profession and you take the optional standard deduction or the 8% rate, and BIR Form 1701 for mixed income or itemised deductions. Employees with one employer whose tax was withheld correctly need not file at all (substituted filing).

Quarterly returns on BIR Form 1701Q are due on 15 May, 15 August and 15 November. When the tax due is more than ₱2,000 an individual may pay in two equal instalments, the second on or before 15 October. Every form is on the BIR's forms page.

Limitations

• For individual citizens and resident aliens taxed at the graduated rates. Non-resident aliens, corporations, estates and trusts, and taxpayers under special or preferential rates are not covered.
• Passive income taxed at final rates — bank interest, dividends, royalties, capital gains on shares or real property — is outside the return and is not included.
• A business loss, a net operating loss carry-over, foreign tax credits, premium payments on health insurance and special allowable deductions are not worked out.
• Other percentage taxes under Title V (amusement, franchise and the like) block the 8% option; the calculator only tests the Section 116 case.
• A partner’s distributive share from a general professional partnership cannot use the 8% rate even though it is business income.
• VAT is a business tax on your customers and is not included in either column.
• An estimate — not tax advice. Have a CPA or the BIR check anything you file.

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