Plenty of Filipinos have a regular job and a freelance side gig. The BIR calls you a mixed-income earner. Your salary is taxed through your employer, but your freelance income is your job to report.
A common myth is that mixed-income earners cannot use the 8% option. They can. The rules are just a little different.
How each type of income is taxed
Your salary (compensation income) is always taxed at graduated rates. Your employer withholds this tax from your pay.
Your freelance income (business income) is where you get a choice: 8% or graduated rates.
Mixed-income earners at a glance
| If you choose 8% | If you choose graduated | |
|---|---|---|
| Salary | Graduated table | Graduated table |
| Freelance income | 8% × gross (no ₱250,000 deduction) | Gross less OSD (40%) or itemized, added to salary and taxed on the table |
| 3% percentage tax | Not due | Due on freelance gross (if non-VAT) |
| Annual return | Form 1701 | Form 1701 |
Why there is no ₱250,000 deduction
Pure freelancers on 8% subtract ₱250,000 from their gross before applying the rate. Mixed-income earners do not.
The reason: the first ₱250,000 of income is already tax-free through the 0% bracket of the graduated table, and your salary uses that bracket. You only get it once.
So on 8%, your freelance tax is simply 8% of your gross sales or receipts plus other non-operating income.
Worked example: ₱600,000 salary + ₱500,000 freelance
Option A: 8% on freelance income
Say your taxable compensation for the year (after mandatory contributions and non-taxable benefits) is ₱600,000. You also earned ₱500,000 gross from freelancing and have few expenses.
We use the current graduated table: ₱22,500 + 20% of the excess over ₱400,000 for income between ₱400,000 and ₱800,000, and ₱102,500 + 25% of the excess over ₱800,000 for income between ₱800,000 and ₱2,000,000.
- Tax on salary: ₱22,500 + 20% × (₱600,000 − ₱400,000) = ₱62,500
- Tax on freelance: 8% × ₱500,000 = ₱40,000
- Percentage tax: none
- Total: ₱102,500
Option B: graduated with OSD
- Freelance taxable income: ₱500,000 × 60% = ₱300,000
- Combined taxable income: ₱600,000 + ₱300,000 = ₱900,000
- Income tax: ₱102,500 + 25% × (₱900,000 − ₱800,000) = ₱127,500
- Percentage tax: 3% × ₱500,000 = ₱15,000
- Total: ₱142,500
Result: 8% saves ₱40,000
Under 8%, your freelance income costs you ₱40,000 in tax. Under graduated + OSD, it pushes your salary into the 25% bracket and adds ₱65,000 of income tax plus ₱15,000 of percentage tax — ₱80,000 in total. The 8% option is ₱40,000 cheaper here.
When graduated might still win
Graduated rates can come out ahead if your freelance work has large, well-documented expenses and you use itemized deductions. They can also make sense if your salary is low enough that the combined income stays in the lower brackets.
Your employer has already withheld tax on your salary, so what you pay with your return is mostly the tax on your freelance income. Run both options with your own numbers before you decide.
How to elect 8% and what to file
You elect 8% on your first quarterly return of the year (Form 1701Q or 2551Q), or when you register your business. If you do nothing, you are on graduated rates for the year. The choice cannot be changed until the next year.
The 8% option is only for non-VAT taxpayers whose gross sales plus other non-operating income stay within ₱3,000,000.
- Register your business activity with the BIR (Form 1901, or Form 1905 to update an existing TIN record)
- File 1701Q each quarter for your freelance income: May 15, August 15, November 15
- If on graduated rates, also file 2551Q every quarter
- File Form 1701 (not 1701A) by April 15 of the following year
- Ask your employer for your certificate of withholding (Form 2316) — you need it for the annual return
You no longer qualify for substituted filing
Employees with one employer usually do not file their own annual return. Once you also have business income, you must file Form 1701 yourself, including your salary details.
Common questions
Do I tell my employer about my side income?
Your employer only handles tax on your salary. Your freelance income is reported on your own returns. Whether you need to tell your employer is a matter for your contract, not the BIR.
I have two employers and a side gig. Does this still work?
The same rules apply: all your compensation goes on the graduated table, and your business income follows the option you chose. You will need a Form 2316 from each employer for your annual return.
What if I start freelancing mid-year?
You can elect 8% on your first quarterly return after you start your business, or when you register. Register within the required period and mark your choice early so you are not placed on graduated rates by default.
Bottom line
Mixed-income earners can use 8% on freelance income. There is no ₱250,000 deduction, but for many people with a mid-level salary, 8% still beats graduated rates by a wide margin because it keeps freelance income out of your higher salary brackets.
Plug your own salary and freelance figures into the mixed-income calculator to see which option wins for you.