How to Determine Your Income Tax Rate in the Philippines
Two people can earn the same amount and still owe very different income tax, because the Philippine Tax Code does not use one rate for everyone. The rate you use depends on when the income was earned, who you are for tax purposes, what kind of income it is and, for the self-employed, what you elected at the start of the year. This guide walks through that decision step by step so you can name your rate and its legal basis before you compute anything.
Quick answer
Your Philippine income tax rate depends on four things, checked in order: the taxable year, your taxpayer class, the type of income, and whether you validly elected the 8% option. Compensation uses the graduated 0% to 35% table under Section 24(A) of the NIRC, while passive income and some capital gains carry their own final rates.
First action: list every income you received this year by type (salary, fees or sales, interest, dividends, property sales), then run each one through the four steps below.
What decides which income tax rate applies to you?
Section 24 of the National Internal Revenue Code (NIRC) imposes the individual rates, but it applies them differently depending on the taxpayer and the income. In practice, four questions settle the rate:
- Which taxable year? The TRAIN Law set one graduated schedule for 2018 to 2022 and a lower one from January 1, 2023 onward.
- Which taxpayer class? Residency and citizenship decide what income is taxed and, for some nonresident aliens, replace the graduated table with a flat final tax (Sections 22, 23 and 25).
- Which type of income? Compensation, business or professional income, passive income and capital gains each follow their own rule.
- Did you elect 8%? Qualified self-employed individuals and professionals may choose 8% instead of the graduated rates, but only by electing it on time each year.
This page is about choosing the right rate. For the full rate tables themselves, see Philippine individual income tax rates explained.
Step 1: Which taxable year is the income for?
Section 24(A)(2)(a), as amended by Section 5 of RA 10963 (TRAIN Law), contains two schedules. Income earned from January 1, 2018 to December 31, 2022 uses the first; income earned from January 1, 2023 onward uses the second, with lower rates in every band between ₱250,000 and ₱8,000,000. Both keep the first ₱250,000 of taxable income at 0% and the top rate at 35%.
The year that counts is the year the income was earned, not the year you file. An amended 2022 return or a BIR assessment covering 2021 still uses the 2018 to 2022 schedule, even if you deal with it today. Individuals are taxed on a calendar-year basis (Section 43, NIRC).
Step 2: Which taxpayer class are you?
Section 23 of the NIRC (RA 8424) sets what each class is taxed on, and Sections 24 and 25 set the rate. The table shows how class changes the answer.
| Taxpayer class | Income taxed in the Philippines | Rate rule | Legal basis |
|---|---|---|---|
| Resident citizen | Income from all sources, within and outside the Philippines | Section 24 rates (graduated, or 8% if qualified and elected) | Sec. 23(A); Sec. 24(A)(1)(a) |
| Nonresident citizen, including overseas contract workers and qualifying seafarers | Philippine-source income only | Section 24 rates on that income | Sec. 22(E); Sec. 23(B)–(C); Sec. 24(A)(1)(b) |
| Resident alien | Philippine-source income only | Section 24 rates on that income | Sec. 22(F); Sec. 23(D); Sec. 24(A)(1)(c) |
| Nonresident alien engaged in trade or business, or staying over 180 days in a calendar year | Philippine-source income only | Section 24 rates on taxable income | Sec. 25(A)(1), as amended by RA 12214 |
| Nonresident alien not engaged in trade or business | Philippine-source gross income | 25% final tax, generally withheld by the payor | Sec. 25(B), as amended by RA 12214 |
A nonresident citizen under Section 22(E) includes a Filipino whose work abroad requires physical presence there most of the taxable year, and someone who left during the year to live abroad as an immigrant or for permanent employment. If you are unsure of your class, settle it first: being classed as a resident citizen instead of a nonresident brings your foreign income into the tax base. The amended text of Section 25 is in RA 12214 (Capital Markets Efficiency Promotion Act).
A small group of alien employees of regional headquarters, offshore banking units and petroleum service contractors had a 15% preferential rate under Section 25(C) to (E). TRAIN closed it to entities registering with the SEC after January 1, 2018 (Section 25(F)), so check with your employer before assuming it applies.
Step 3: What kind of income is it?
Once your class is settled, sort each income by type. The NIRC taxes some kinds of income inside the graduated table and pulls others out of it entirely. The rates below are for citizens and resident aliens.
| Type of income | Rate | Legal basis |
|---|---|---|
| Compensation from employment | Graduated 0% to 35%; minimum wage earners are exempt on their statutory minimum wage and holiday pay | Sec. 24(A)(2)(a) and proviso, as amended by RA 10963 |
| Business or professional income, gross within ₱3,000,000 and not VAT-registered | Graduated on net taxable income, or 8% on gross if elected | Sec. 24(A)(2)(b); RMO No. 23-2018 |
| Business or professional income over ₱3,000,000, or VAT-registered | Graduated on net taxable income only | Sec. 24(A)(2)(c)(2)(b); RMO No. 23-2018 |
| Interest on bank deposits and deposit substitutes; prizes over ₱10,000 | 20% final tax | Sec. 24(B)(1), as amended by RA 12214 |
| Cash or property dividends from a domestic corporation | 10% final tax | Sec. 24(B)(2), as amended by RA 12214 |
| Net capital gains on shares not traded on a stock exchange | 15% final tax | Sec. 24(B)(3), as amended by RA 12214 |
| Sale of Philippine real property held as a capital asset | 6% of the higher of gross selling price or fair market value | Sec. 24(D)(1), NIRC; placed in Sec. 24(B)(4) by RA 12214 |
Final taxes are withheld by the payor, such as the bank or the corporation paying the dividend, and the income is not added again to your taxable income in the annual return. Prizes of ₱10,000 or less go back into the graduated computation, and PCSO and Lotto winnings of ₱10,000 or less are exempt (Section 24(B)(1)). Under the graduated route, business and professional income is taxed on net income after itemized deductions or the 40% optional standard deduction (Section 34(L), as amended by RA 10963).
Before applying any rate, confirm that the receipt is taxable at all. Items excluded from gross income never reach this step; see what income is subject to Philippine income tax.
Step 4: If you are self-employed, did you elect 8%?
The 8% option replaces both the graduated income tax and the percentage tax under Section 116 (Section 24(A)(2)(b)). It is not automatic. BIR Revenue Memorandum Order No. 23-2018 sets these rules:
- Graduated is the default every year. All individuals start each taxable year under the graduated rates. An 8% election covers only the year it is made and must be repeated every year.
- How to elect. A new business registrant elects on BIR Form 1901 or on the first quarterly return after starting business. An existing taxpayer elects by filing BIR Form 1905 at the start of the year, or on the first quarterly percentage tax return (2551Q) or income tax return (1701Q).
- No changing your mind. Once made, the choice is irrevocable for that taxable year. Missing the first-quarter window means graduated rates for the year.
- Who cannot elect. Purely compensation earners, VAT-registered taxpayers regardless of income, taxpayers subject to other percentage taxes under Title V (except Section 116), partners of a general professional partnership, and individuals enjoying an income tax exemption such as a registered BMBE.
- Crossing ₱3,000,000. If gross sales or receipts exceed ₱3,000,000 at any time in the year, the graduated rates apply for the whole year, 8% payments are credited, VAT applies from the following month, and registration must be updated within the month after the threshold was breached.
- Mixed income earners. The 8% applies to gross sales or receipts and other non-operating income without the ₱250,000 reduction, because that amount is already built into the zero band of the graduated table used for compensation.
If you have not registered your business or profession yet, that comes first; see how to register on BIR ORUS and get your TIN.
Worked example: determining the rates for one taxpayer
Hypothetical example for illustration only. The person and figures are invented.
Ana is a resident citizen. For calendar year 2026 she has taxable compensation of ₱500,000 from one employer (after excluded benefits and her share of mandatory contributions). She also earns ₱600,000 in gross receipts from freelance design work, is not VAT-registered, and elected 8% on her first quarterly return. She received ₱10,000 of interest on a peso savings account opened in 2026.
- Step 1, year: 2026 income, so the January 1, 2023 onward schedule applies.
- Step 2, class: resident citizen, so all her income is in scope under Section 24(A).
- Step 3, salary: ₱500,000 falls in the band over ₱400,000 to ₱800,000: ₱22,500 + 20% × (₱500,000 − ₱400,000) = ₱22,500 + ₱20,000 = ₱42,500.
- Step 4, freelance income: she is a mixed income earner within ₱3,000,000 who elected on time, so 8% × ₱600,000 = ₱48,000, with no ₱250,000 reduction.
- Interest: 20% final tax × ₱10,000 = ₱2,000, withheld by the bank and not added to her return.
- Total income tax on her annual return: ₱42,500 + ₱48,000 = ₱90,500, before credits for tax withheld by her employer and clients. Amounts are in whole pesos; the BIR forms compute to centavos.
If Ana were purely self-employed with the same ₱600,000 and the 8% election, the ₱250,000 reduction would apply: 8% × (₱600,000 − ₱250,000) = ₱28,000. What would change her answer: missing the first-quarter election (graduated rates for 2026), registering for VAT, or freelance receipts passing ₱3,000,000 during the year.
Which rate applies? A quick decision table
Find the row closest to your situation, then check the item in the last column before relying on the rate.
| Your situation | Rate to use | Check first |
|---|---|---|
| Amended return or assessment for 2018 to 2022 | 2018 to 2022 graduated schedule | The year the income was earned, not the filing year |
| Employee, one employer, income from 2023 onward | 2023-onward graduated schedule | Taxable compensation on your BIR Form 2316 |
| Freelancer within ₱3,000,000, non-VAT, elected on time | 8% on gross over ₱250,000 | That the election was made for this year |
| Freelancer who did not elect 8% | Graduated on net taxable income | Itemized deductions or the 40% optional standard deduction |
| Employee with freelance side income | Graduated on salary; 8% or graduated on business income | No ₱250,000 reduction on the 8% side |
| Self-employed person whose receipts passed ₱3,000,000 | Graduated for the whole year; VAT from the next month | Update registration within the month after crossing |
| Nonresident alien not doing business here | 25% final tax on Philippine gross income | Total days in the Philippines during the year |
If several rows describe you, each income keeps its own rate. To see how these pieces fit into one computation, read how Philippine income tax works for individual taxpayers.
Your options and what to do next
If you earn only a salary
- Ask HR or payroll for your BIR Form 2316 and confirm the taxable compensation and tax withheld. Your employer computes your rate and makes the year-end adjustment.
- If you had one employer all year and the tax was correctly withheld, you need not file an annual return: the employer’s certificate stands as substituted filing (Section 51-A, as inserted by RA 10963).
- If you had two or more employers in the year, combine the taxable compensation, apply the table once, and file your own annual return.
If you are self-employed or a professional
- Before your first quarterly return of the year, compute your tax both ways on realistic receipts and expenses, because the choice locks for the year.
- Signify the 8% election on BIR Form 1905 at your Revenue District Office (RDO) early in the year, or by ticking the 8% option on your first 2551Q or 1701Q. New registrants elect on BIR Form 1901.
- Keep your Certificate of Registration, invoices, client withholding certificates (BIR Form 2307) and expense records. Track cumulative receipts so you know if you approach ₱3,000,000.
If you are a mixed income earner or a nonresident
- Mixed income earners: keep the salary computation and the business computation separate on the same annual return, and remember the ₱250,000 reduction does not apply on the 8% side.
- Overseas workers: keep proof that your work abroad required you to be there most of the year, since only Philippine-source income is taxed.
- Foreign nationals: count your days in the Philippines for the calendar year; over 180 days changes your class to doing business here.
Where to file and pay
The annual income tax return is filed on or before April 15 of the following year (Section 51(C)(1), NIRC). Filing and payment are separate: tax over ₱2,000 may be paid in two equal installments, the first when the return is filed and the second on or before October 15 (Section 56(A)(2), as amended by RA 10963). For calendar year 2025 returns, BIR RMC No. 20-2026 required electronic filing through eFPS for mandated or enrolled taxpayers, the Offline eBIRForms Package v7.9.5 for others including no-payment returns, or a BIR-certified tax software provider, with electronic payment and, in the cases it lists, over-the-counter payment at an authorized agent bank. Check the BIR’s circular for the current filing season before you file.
First action: write down your taxpayer class and each type of income you have this year, then note beside each one the rate and section from the tables above. If you are self-employed, do this before your first quarterly return.
Key takeaways
- Decide the rate in four steps: taxable year, taxpayer class, type of income, then any 8% election.
- Income earned in 2018 to 2022 uses the older TRAIN schedule; income from 2023 onward uses the lower one.
- Resident citizens are taxed on worldwide income; nonresident citizens, overseas contract workers and aliens only on Philippine-source income.
- Interest, dividends, prizes over ₱10,000 and certain capital gains have their own final tax rates.
- The 8% option must be elected at the start of every year, is irrevocable for that year and is lost once receipts pass ₱3,000,000.
- Mixed income earners get no ₱250,000 reduction on the 8% side.
Frequently asked questions
How do I know which income tax rate applies to me?
Check four things in order: the taxable year the income belongs to, your taxpayer class (resident citizen, nonresident citizen, resident alien or nonresident alien), the type of income, and, if you are self-employed, whether you validly elected the 8% option for that year. Each answer narrows the rate under Sections 23 to 25 of the NIRC.
Does being a resident or nonresident change my income tax rate?
It mainly changes what income is taxed. A resident citizen is taxed on income from all sources, while nonresident citizens, overseas contract workers and aliens are taxed only on Philippine-source income (Section 23, NIRC). A nonresident alien not engaged in business here pays a 25% final tax on Philippine gross income instead of the graduated rates (Section 25(B), as amended by RA 12214).
When must I elect the 8% income tax rate?
At the start of each taxable year. Under BIR RMO No. 23-2018, an existing business taxpayer signifies the election on the first quarterly percentage tax or income tax return, or by filing BIR Form 1905 early in the year. A new registrant elects on BIR Form 1901 or on the first quarterly return after starting business.
What happens if I do not choose 8% in my first quarterly return?
You are taxed at the graduated rates for the whole year. RMO No. 23-2018 states that every individual starts each year under the graduated rates, and the election, once made or missed, cannot be amended for that taxable year.
Can a VAT-registered freelancer use the 8% rate?
No. RMO No. 23-2018 lists VAT-registered taxpayers as not qualified, regardless of how small their gross sales or receipts are. A VAT-registered person whose receipts stayed within ₱3,000,000 for three consecutive years may update to non-VAT before the first quarter to qualify.
What rate applies if my gross receipts go over ₱3,000,000 during the year?
The graduated rates apply for the whole year, and you become liable to VAT from the first day of the month after you crossed the threshold. Quarterly payments already made under the 8% option are credited against the graduated tax, under RMO No. 23-2018.
Is a foreigner who stays in the Philippines for more than 180 days taxed like a citizen?
A nonresident alien who stays more than 180 days in total during a calendar year is deemed engaged in trade or business here and is taxed under Section 24 on Philippine-source income (Section 25(A)(1), as amended by RA 12214). That uses the same graduated schedule as citizens, but only on income from Philippine sources.
Pwede bang mag-8% ang empleyado na may sideline na freelance?
Oo, pero sa business o freelance income lang, kung hindi lalampas sa ₱3,000,000 ang gross receipts at hindi ka VAT-registered. Graduated rates pa rin ang sweldo mo. Tandaan: walang ₱250,000 na bawas sa 8% computation ng mixed income earner, ayon sa RMO No. 23-2018.
Kailangan ko bang mag-elect ng 8% ulit kada taon?
Oo. Ayon sa RMO No. 23-2018, babalik ka sa graduated rates tuwing simula ng taon. Kung gusto mo ulit ng 8%, piliin mo ito sa first quarter return o mag-file ng BIR Form 1905 sa simula ng taon.
May income tax ba ang sweldo ng OFW na galing abroad?
Ang overseas contract worker ay tinatax lang sa kita na galing sa Pilipinas, ayon sa Section 23(C) ng NIRC. Kaya ang sweldo para sa trabaho abroad ay hindi sakop ng Philippine income tax, pero ang kita dito sa bansa, tulad ng renta o negosyo, ay may tax pa rin.
Sources
- National Internal Revenue Code of 1997, RA 8424: Sections 22(E)–(G), 23, 24(D)(1), 43, 51(C)(1).
- RA 10963 (TRAIN Law): Section 5 amending Section 24(A) (rate schedules, minimum wage proviso, 8% option, mixed income), Section 6 amending Section 25(C)–(F), Section 11 amending Section 34(L), Section 14 inserting Section 51-A, Section 16 amending Section 56(A)(2), Section 34 amending Section 109(BB).
- RA 12214 (Capital Markets Efficiency Promotion Act, May 29, 2025): Section 4 amending Section 24(B), Section 5 amending Section 25(A) and (B).
- BIR Revenue Memorandum Order No. 23-2018 (June 20, 2018): policies and procedures for the 8% income tax rate option, via the Supreme Court E-Library.
- BIR Revenue Memorandum Circular No. 20-2026 (March 16, 2026): filing and payment of calendar year 2025 annual income tax returns.
This guide is general information about Philippine tax law, not tax or legal advice. For your specific facts, consult a CPA, a tax lawyer or your BIR Revenue District Office.
By the TaxCode.ph Editorial Team. Sources checked as of: November 13, 2026.
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