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New BIR Withholding Tax Rules for Professionals and Self-Employed (2018)




How much is the new withholding tax rate on incomes of self-employed and professionals and how to compute the income tax that they are supposed to pay?

We explain these in this easy-to-read guide below.

Under the TRAIN law or Republic Act (RA) No. 10963, self-employed individuals and professionals will be subjected to the following tax regulations:

If annual gross sales or income is P3 Million or below

Self-employed and professionals with annual gross sales or income receipts not exceeding the VAT threshold of P3 Million have the option to choose between these two tax rates:

  1. Eight percent (8%) of gross sales or receipts and other income, in excess of P250,000 instead of the graduated income tax rates and percentage tax (no option to register for VAT); OR
  2. Graduated income tax rates of 0% to 35% on net taxable income, plus 3% percentage tax (No change in computation of Net Taxable Business Income)

The graduated income tax rates are the same as the Personal Income Tax Rates and Tax Tables here and summarized below.

BIR Income Tax Table (for the years 2018-2022)

BracketGross Income per YearIncome Tax Rate
1P250,000 and below0%
2Above P250,000 to P400,00020% of the excess over P250,000
3Above P400,000 to P800,000P30,000 + 25% of the excess over P400,000
4Above P800,000 to P2,000,000P130,000 + 30% of the excess over P800,000
5Above P2,000,000 to P8,000,000P490,000 + 32% of the excess over P2,000,000
6Above P8,000,000P2,410,000 + 35% of the excess over P8,000,000
Source:www.pinoymoneytalk.com

BIR Income Tax Table (from year 2023 onwards)

BracketIncome per YearTax Rate
1P250,000 and below0%
2Above P250,000 to P400,00015% of the excess over P250,000
3Above P400,000 to P800,000P22,500 + 20% of the excess over P400,000
4Above P800,000 to P2,000,000P102,500 + 25% of the excess over P800,000
5Above P2,000,000 to P8,000,000P402,500 + 30% of the excess over P2,000,000
6Above P8,000,000P2,202,500 + 35% of the excess over P5,000,000
Source:www.pinoymoneytalk.com

8% Withholding Tax for Self-employed and Professionals

The 8% withholding tax rate replaces the two-tier rate of 10% (for self-employed and professionals earning less than P720,000 income every year) or 15% (for those earning more than P720,000 per year).

The 8% withholding rate is applied on the income, regardless of the amount, and is reiterated in BIR’s Revenue Memorandum Circular No. 1-2018 issued on January 4, 2018 which states that:

“Change in the Creditable Withholding Tax Rate on lncome Payments to Self-employed lndividuals or Professionals

The following lncome Payments to Self-employed lndividuals or Professionals shall be subject to Eight Percent (8%):

1. Professional fees, talent fees, commissions, etc. for services rendered by individuals;

2. lncome distribution to beneficiaries of Estates and Trusts;

3. lncome Payment to certain brokers and agents;

4. lncome Payments to partners of general professional partnership;

5. Professional fees paid to medical practitioners; and

6. Commission of independent and/or exclusive sales representatives, and marketing agents of companies.”

If annual gross sales or income is above P3 Million

However, the tax rule is simpler and more straightforward for self-employed and professionals receiving annual gross sales or receipts exceeding the P3 Million VAT threshold. If their gross income or sales receipts total more than P3 million, they do not have a choice and they must follow the graduated income tax rates (as shown above) on the net taxable income, plus VAT.

* * * For more UPDATED resources on the approved TRAIN Tax Reform, click below:



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9 thoughts on “New BIR Withholding Tax Rules for Professionals and Self-Employed (2018)”

  1. Anna says:

    What is the rule for mixed income earner? For example, combined compensation income and professional fees exceed Php3m. Will the 8% tax still apply if the professional fee portion does not exceed Php3m?

    1. PinoyMoneyTalk says:

      Hi Anna, we have a new article that talks about taxation for Mixed Income Earners. See it here: https://www.pinoymoneytalk.com/mixed-income-bir-train-tax-rate/

      Hope that helps! :)

  2. Jasper Timola says:

    Can you give us a sample computation for the Self-employed tax? Or if you could correct this example:
    Monthly earnings: 26,192php; For annual equivalent, this will be 26,192*12 = 314,304php
    The 314,304php is above the 250,000php, or 64,304 in excess.

    If there are two options of tax rates to choose from, how do they apply to the sample?
    1) Eight percent (8%) of gross sales or receipts and other income, in excess of P250,000 instead of the graduated income tax rates and percentage tax (no option to register for VAT)
    64,304*0.08 = 5,144.32php tax to pay for the year? or 428.69/month?
    OR
    2) Graduated income tax rates of 0% to 35% on net taxable income, plus 3% percentage tax (Above P250,000 to P400,000 = 20% of the excess over P250,000)
    64,304*0.2 = 12,860.80 + 1,929.12 = 14,789.92 (or simply 64304*0.23?) or 1232.49/moth?

    The latter is higher than the former by 9,645.6php/year or 803.80/month.

    1. Francis says:

      Hi Guys

      Can you correct my understanding here. so self employed tax payer will have an option to pay whether we choose option 1 (8%) or the option 2 which is Graduated Income Tax?

      So if I earn Php 75,000 a month.
      and I choose option 1
      Annual Income: Php 900,000.00 (75,000 * 12)
      Excess of 250,000: Php 650,000.00 (900,000 – 250,000)
      8% of Excess: Php 52,000.00 (650,000 * 0.08)

      so Php 52,000.00 will be my tax and that’s it? no more additional pay or something?

      Thanks

    2. Francis says:

      Sorry i posted it on your comment

  3. Francis says:

    Hi Guys

    Can you correct my understanding here. so self employed tax payer will have an option to pay whether we choose option 1 (8%) or the option 2 which is Graduated Income Tax?

    So if I earn Php 75,000 a month.
    and I choose option 1
    Annual Income: Php 900,000.00 (75,000 * 12)
    Excess of 250,000: Php 650,000.00 (900,000 – 250,000)
    8% of Excess: Php 52,000.00 (650,000 * 0.08)

    so Php 52,000.00 will be my tax and that’s it? no more additional pay or something?

    Thanks

    1. Rhon says:

      I attended the seminar of bir in Las Pinas. Yes you are correct and you do not pay percentage tax qrtrly. But you have to indicate the 8% option in the 1st qtr filing. There is no need also for financial statement. This is lower than the graduated rates plus the qrtly percentage tax.

  4. Anna Liza Velasco de Leon says:

    I also want to know if there is a need to file percentage or vat monthly or quarterly.

  5. Angie says:

    I observed that in the 2 Tables shown above, the middle column’s heading in the first table is “Gross income per year”, while it is “Income per year” in the second table. Shouldn’t it be “Net Taxable Income” or “Taxable Income”?

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