If you’re a freelancer earning ₱1.5 million annually, you’re not just making great money—you’re also entering a crucial tax zone. The 8% income tax rate and the graduated tax table are your two main choices. Choosing the wrong one could cost you thousands in taxes. This blog will help you pick the best and most strategic option for your earnings.
Understanding 8% vs. Graduated Income Tax
Under the TRAIN Law, freelancers can choose between:
✅ 8% Flat Income Tax
This option replaces both percentage tax and income tax. You pay 8% only on the amount above ₱250,000 of your gross income.
✅ Graduated Tax Table
This is the default option. Tax is computed based on net income (gross income minus allowable expenses), and the rates range from 0% to 35%.
Why This Choice Is Important at ₱1.5M Annual Income
Your annual income places you right at the VAT threshold (₱3 million), but still eligible for both tax options. The problem? Many freelancers choose based on what “sounds” easier—without doing the math.
Here’s why it matters:
- 8% sounds simple, but it taxes your gross income.
- Graduated tax is more work, but it may save you money if you have high expenses.
- This one choice can affect how much you actually take home.
8% vs. Graduated for ₱1.5M
Let’s break it down with numbers:
🔹 8% Option
- Income: ₱1,500,000
- Less: ₱250,000 exemption
- Taxable: ₱1,250,000
- Tax Due: ₱100,000
Easy, right? But now look at the graduated option.
🔹 Graduated Option (Sample)
Let’s say you can deduct ₱600,000 in legitimate business expenses.
- Net Income: ₱900,000
- Tax Due (based on BIR table):
- First ₱250,000: 0%
- Next ₱400,000 @ 20% = ₱80,000
- Next ₱250,000 @ 25% = ₱62,500
- Total Tax Due: ₱142,500
Result: In this example, 8% is better if you don’t have large deductible expenses. But if your expenses go beyond ₱750,000 or you use the Optional Standard Deduction (40%), the graduated rate might be more favorable.
When Should Freelancers Choose Each Option?
Choose 8% Tax if:
- You have low operating expenses.
- You want simple filing and don’t issue a lot of receipts.
- You earn under ₱3 million annually.
Choose Graduated Tax if:
- You have high business-related expenses.
- You want to maximize deductions.
- You want to invest in business growth (computers, tools, office, etc.).
Important: You must choose the 8% tax rate before your first quarterly filing—or you’ll automatically be under the graduated tax rate for the year.
Tips for ₱1.5M-Earning Freelancers
- Use a Freelancer Tax Calculator to simulate both options.
- Track all expenses monthly to see your true net income.
- Consult with a tax expert if your income is close to the VAT threshold.
- File BIR Form 1901 and 1905 properly to register or change your tax type.
- Review your Form 1701Q deadlines—especially in Q1 when tax type decisions lock in.
There’s no one-size-fits-all. But if your freelance income hits ₱1.5 million, your tax strategy matters now more than ever. Take time to compare, calculate, and choose wisely—because the right decision will mean more income left for you and less stress at tax time.
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