BIR Tax Rules for Mixed Income Earners (2018)
What are the applicable tax rules for mixed income earners under the approved Tax Reform for Acceleration and Inclusion or TRAIN?
You can find the answer below.
First, who are Mixed Income Earners?
Mixed income earners refer to individuals receiving income from various sources, including compensation as a salaried employee, income from business, or gross receipts from the practice of profession, among others.
For mixed income earners, the relevant provision in the TRAIN tax reform states that:
“Taxpayers earning both compensation income and income from business or practice of profession shall be subject to the following taxes:
- All Income from Compensation – The rates prescribed under Subsection (A)(2)(a) of this Section.
- All Income from Business or Practice of Profession
(a) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Do Not Exceed the VAT Threshold as Provided in Section 109(BB) of this Code – The rates prescribed under Subsection (A)(2)(a) of this Section on taxable income, or eight percent (8%) income tax based on gross sales or gross receipts and other non-operating income 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.
(b) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Exceeds the VAT Threshold as Provided in Section 109(BB) of this Code – The rates prescribed under Subsection (A)(2)(a) of this Section.”
Tax Rules for Mixed Income Earners
Simply speaking, mixed income earners will be taxed this way:
1. For the compensation they receive as a salaried employee, the gross amount will be taxed using the graduated Personal Income Tax Rates and Tax Tables. We summarize below the TRAIN-mandated BIR personal income tax tables effective January 1, 2018.
BIR Income Tax Table (for the years 2018-2022)
|Bracket||Gross Income per Year||Income Tax Rate|
|1||P250,000 and below||0%|
|2||Above P250,000 to P400,000||20% of the excess over P250,000|
|3||Above P400,000 to P800,000||P30,000 + 25% of the excess over P400,000|
|4||Above P800,000 to P2,000,000||P130,000 + 30% of the excess over P800,000|
|5||Above P2,000,000 to P8,000,000||P490,000 + 32% of the excess over P2,000,000|
|6||Above P8,000,000||P2,410,000 + 35% of the excess over P8,000,000|
BIR Income Tax Table (from year 2023 onwards)
|Bracket||Income per Year||Tax Rate|
|1||P250,000 and below||0%|
|2||Above P250,000 to P400,000||15% of the excess over P250,000|
|3||Above P400,000 to P800,000||P22,500 + 20% of the excess over P400,000|
|4||Above P800,000 to P2,000,000||P102,500 + 25% of the excess over P800,000|
|5||Above P2,000,000 to P8,000,000||P402,500 + 30% of the excess over P2,000,000|
|6||Above P8,000,000||P2,202,500 + 35% of the excess over P5,000,000|
2. For the income they receive from business or practice of profession (example: consultants, freelancers, lecturers, part-timers, etc.), it will be taxed similar to the tax rate for self-employed and professionals.
That is, if the annual gross sales from business or income receipts from the practice of profession does not exceed the VAT threshold of P3 Million, the mixed income earner may choose one of these two tax rates:
A.) Eight percent (8%) of gross sales or receipts and other income, in excess of P250,000; OR
B.) Graduated personal income tax rates of 0% to 35% on net taxable income
However, if the income receipts from business or practice of profession exceed the P3 Million VAT threshold, the income will be automatically taxed using the graduated income tax tables. This means the mixed income earner does not have the option of paying the flat 8% rate.
The Bureau of Internal Revenue (BIR) is yet to issue the final memorandum circular related to taxation for mixed income earners, so we don’t know yet if BIR Form 1701 will be revised or replaced. We invite you to like the PMT Facebook page so you can be updated when the BIR has released its revenue regulations.
* * * For more UPDATED resources on the approved TRAIN Tax Reform, click below:
- Here’s your new Take-Home Pay under 2018 Philippine Tax Reform
- What’s in the approved Philippine TRAIN Tax Reform?
- List of VAT-exempt items under new Tax Reform
- 10 TRAIN Tax Reform Items that You Probably Didn’t Know
- BIR Withholding Tax for Professionals and Self-Employed under TRAIN
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