Freelancer Tax Calculator: 8% vs Graduated

Self-employed in the Philippines? See which tax option costs you less — the 8% flat tax or the graduated rates — based on your income and expenses.

The two options

Option A — 8% flat tax

You pay 8% of your gross income above ₱250,000, and nothing else — it replaces both the income tax and the 3% percentage tax. No need to track expenses. Available to purely self-employed individuals/professionals with gross sales of ₱3,000,000 or less who opt in (usually on the first quarter return or upon registration).

Option B — Graduated rates

You pay the TRAIN graduated income tax on your net income (gross minus deductions) plus a 3% percentage tax on gross. Deductions are the higher of your actual expenses (itemized) or the 40% Optional Standard Deduction (OSD).

The structural difference is what the tax is charged on. Option A is a single charge on gross receipts with one fixed ₱250,000 relief. Option B charges income tax on net income — which the OSD alone shrinks to 60% of gross — but then adds a 3% levy on gross that never goes away, no matter how many expenses you claim.

Worked example: ₱600,000.00 gross, no expenses

A freelancer with ₱600,000.00 in annual receipts and nothing to itemize:

1. Option A. 8% × (₱600,000.00 − ₱250,000) = 8% × ₱350,000.00 = ₱28,000.00 for the year.
2. Option B, step 1 — deduction. The 40% OSD gives ₱240,000.00, which beats zero itemized expenses, so net taxable income is ₱600,000.00 − ₱240,000.00 = ₱360,000.00.
3. Option B, step 2 — income tax. ₱360,000.00 falls in the 15% TRAIN band: 15% × (₱360,000.00 − ₱250,000) = ₱16,500.00.
4. Option B, step 3 — percentage tax. 3% × ₱600,000.00 = ₱18,000.00, charged on gross regardless of expenses.
5. Option B total: ₱34,500.00. The 8% option wins by ₱6,500.00 a year.

Worked example: the same ₱600,000.00 with real expenses

Now give the same freelancer ₱350,000.00 of documented business expenses — equipment, software, a co-working desk, subcontractors:

• Itemized ₱350,000.00 beats the ₱240,000.00 OSD, so the deduction used is ₱350,000.00.
• Net taxable income drops to ₱250,000.00, where the income tax is ₱0.00 — the first ₱250,000 is exempt.
• The 3% percentage tax is unchanged at ₱18,000.00.
• Graduated total: ₱18,000.00 against ₱28,000.00 under the 8% option — graduated now wins by ₱10,000.00.

Notice what did the work: not the mere existence of expenses, but expenses large enough to push net income under the ₱250,000 exemption. The 8% figure never moved, because it ignores expenses entirely.

How high do expenses have to be?

"Above 40% of gross" is the usual rule of thumb, and it is too generous — the OSD hands you 40% for free, so beating the 8% option means clearing a much higher bar. Below is the break-even expense level at each income: spend more than this and graduated becomes the cheaper option.

The bar rises with income because of how the graduated schedule is shaped: at higher gross, the 8% option settles toward a flat 8% of everything you bill, while the graduated route stacks rising marginal rates on top of the 3% percentage tax. The graduated side climbs faster, so your expenses have to clear an ever-higher share of gross before it wins. In practice this means the 8% option suits most writers, designers, developers, and virtual assistants, while graduated rates favour resellers, production work, and anyone carrying real cost of goods.

Tax at common income levels (no itemized expenses)

There is one narrow exception worth knowing about. With no itemized expenses, the two options tie at exactly ₱400,000.00 and again at ₱437,500.00, and between those two points graduated is marginally cheaper. The advantage peaks at around ₱416,666.67 gross and is worth about ₱833.33 a year — real, but small enough that the simplicity of the 8% option is usually worth more than the difference.

What this calculator assumes

Purely self-employed, and opted in. The 8% figure assumes you are a purely self-employed individual or professional who has elected the 8% regime with the BIR. Mixed-income earners — anyone with a salaried job alongside freelance work — do not get the ₱250,000 deduction on the business portion, so the 8% column would overstate their relief.

Gross of ₱3,000,000 or less. Above that ceiling the 8% option is unavailable and 12% VAT replaces the 3% percentage tax. Enter a figure above ₱3M and the tool shows graduated only, without VAT — treat that as out of scope rather than a complete answer.

Annual figures, income tax only. The result is a full-year total, not a quarterly instalment, and it covers income and percentage tax alone. Self-employed SSS, PhilHealth, and Pag-IBIG contributions are separate costs and are not deducted here — see the SSS and PhilHealth calculators, both of which cover self-employed and voluntary members.

Itemized expenses are taken at face value. The calculator compares whatever you enter against the 40% OSD and uses the larger. It cannot tell whether an expense is deductible or properly supported by receipts — that part is on you and your bookkeeper.

Common mistakes

• Applying the 8% to net income. It is 8% of gross receipts above ₱250,000. Deducting expenses first understates the tax badly.
• Forgetting the 3% percentage tax under graduated. On ₱600,000.00 gross it is ₱18,000.00 — often more than the income tax itself — and it applies no matter how large your expenses are.
• Claiming the ₱250,000 twice. The ₱250,000 in the 8% formula and the ₱250,000 tax-exempt band under graduated rates are the same relief expressed two ways, not a deduction you stack on top of the OSD.
• Assuming any expenses make graduated better. They have to beat the 40% OSD first, then clear the break-even in the table above.
• Treating the choice as reversible at any time. The 8% option is an election made with the BIR, so the regime you are registered under governs the year — model the decision before you commit, not after.
• Ignoring the ₱3M ceiling when income is growing. Crossing it changes the regime entirely, including VAT registration.

Frequently asked questions

Which option should I pick if I have almost no expenses?
Almost always the 8% flat tax. At ₱600,000.00 gross it costs ₱28,000.00 against ₱34,500.00 under graduated rates — a saving of ₱6,500.00, with no bookkeeping of expenses required.

Is the 40% OSD better than itemizing?
Only if your real expenses are under 40% of gross. Above that, itemizing gives a bigger deduction — but you need documentation, and you still have to clear the break-even shown above before graduated beats the 8% option.

What if I earn over ₱3 million?
The 8% option is not available. You are on graduated rates, and 12% VAT replaces the 3% percentage tax. The calculator will show a graduated figure without VAT, so it understates the true cost at that level.

Does the 8% replace the percentage tax?
Yes — that is much of its appeal. One 8% charge covers both the income tax and the 3% percentage tax. Under graduated rates you file and pay both.

I have a job and freelance on the side. Does this apply?
Not directly. Mixed-income earners do not get the ₱250,000 deduction on the business side, since it is already used against salary income. Run your employment income through the Take-Home Pay Calculator and treat the 8% figure here as an upper-bound estimate only.

Why is my tax higher than the calculator says?
Common causes are non-deductible or unsupported expenses, income you did not include in gross receipts, penalties from late filings, or being registered under a different regime from the one you assumed. This tool models the arithmetic, not your BIR registration.

Employed too, or comparing a job offer? Use the Take-Home Pay Calculator, read how income tax is computed, or project what you save with the compound interest calculator.

Last updated: 2026-07-08. Based on RA 10963 (TRAIN): the 8% option, the ₱250,000 deduction, the 40% OSD, and the 3% percentage tax (the temporary 1% rate expired June 2023). Informational only, not tax advice — confirm with the BIR or an accountant.