BIR 8% Income Tax Rate vs Percentage Tax: Do You Still File Quarterly? (Philippines)

Executive Summary

If you opt for the 8% income tax (in lieu of graduated income tax and percentage tax), you still file quarterly—but only Quarterly Income Tax (BIR Form 1701Q) and the Annual Income Tax Return (1701A or 1701). You do not file Quarterly Percentage Tax (2551Q).
If you don’t opt for 8% (i.e., you use graduated income tax), and you are non-VAT, you file both: 2551Q (percentage tax) each quarter and 1701Q (income tax) each quarter, plus the annual ITR.

Calendar-year taxpayers: • 1701Q due on or before May 15, Aug 15, Nov 15 (for Q1–Q3). • Annual ITR due on or before April 15 of the following year. • 2551Q due (if applicable) within 25 days after each quarter (Apr 25, Jul 25, Oct 25, Jan 25).

Legal Bases (high level)

National Internal Revenue Code (NIRC), as amended (notably by TRAIN).
Section 24(A) (individual income tax), Section 116 (percentage tax on non-VAT persons).
Implementing BIR Regulations/MCs on the 8% option, quarterly filings, and forms (e.g., 1701Q, 1701A, 2551Q).

Who Can Avail of the 8% Rate

Eligible

Individuals (self-employed sole proprietors and professionals) whose gross sales/receipts and other non-operating income do not exceed the VAT threshold (₱3,000,000) for the taxable year.
Purely self-employed individuals (no compensation income), and mixed-income earners (with compensation + business/professional income), subject to the special 250k rule below.

Not eligible

VAT-registered persons at any time during the year.
Corporations, partnerships, GPPs (and partners’ distributive shares).
Individuals whose annual gross exceeds the VAT threshold during the year (see “Exceeding the VAT threshold” below).
Income already subject to final tax (e.g., bank interest) is outside the 8% base.

What the 8% Is (and Is Not)

What it is: A final income tax of 8% on gross sales/receipts + other non-operating income, in excess of ₱250,000 (for purely self-employed individuals only), in lieu of:
1. the graduated income tax rates, and
2. the 3% percentage tax under Sec. 116 (non-VAT).
What it is not:
- It does not allow deductions (no itemized or OSD) because it’s on gross, not net.
- For mixed-income earners, the ₱250,000 reduction is not allowed against the 8% business base (the ₱250,000 is already “built into” compensation tax computation under the graduated table).

Opting In (and Out)

When to opt:
- At initial registration (e.g., BIR Form 1901), or
- On your first 1701Q for the taxable year.
Irrevocability for the year: Once you choose the 8% option for a taxable year, you generally cannot change it mid-year (but see threshold breach below).
Default if you do nothing: You remain under the graduated income tax regime; if you are non-VAT, you also owe percentage tax.

Filing Obligations at a Glance

| Regime | Quarterly Income Tax (1701Q) | Quarterly Percentage Tax (2551Q) | Annual ITR | |---|---|---:|---:|---| | 8% option | Yes (Q1–Q3) | No (8% is in lieu of percentage tax) | Yes (1701A for purely self-employed using 8% or OSD; 1701 for others) | | Graduated + non-VAT (Sec. 116) | Yes (Q1–Q3) | Yes | Yes (1701 or 1701A, depending on deductions) | | VAT-registered | Yes (Q1–Q3) | No (VAT replaces percentage tax) | Yes (annual ITR; plus VAT returns separately) |

No income in a quarter? File “no-payment” returns on time to avoid penalties.

Deadlines (Calendar-Year Taxpayers)

1701Q (Quarterly Income Tax): May 15, Aug 15, Nov 15.
Annual ITR: April 15 of the following year.
2551Q (Percentage Tax): within 25 days after quarter end (Apr 25, Jul 25, Oct 25, Jan 25).

Note: BIR may announce extensions during system downtimes or special instances, but never rely on this—file early.

Computation Mechanics

A. 8% Option (Purely Self-Employed)

Tax base = Gross sales/receipts + other non-operating income − ₱250,000 Tax due = 8% × Tax base (not below zero) Less: Creditable Withholding Tax (CWT) per BIR Form 2307, Less prior-quarter payments = Payable/Overpayment.

Example (Purely Self-Employed)

YTD gross receipts Q1: ₱400,000; Q2 adds ₱300,000 (YTD: ₱700,000).
Q2 computation (cumulative method typical for quarters):
- YTD base = ₱700,000 − ₱250,000 = ₱450,000
- YTD tax = 8% × ₱450,000 = ₱36,000
- Less tax paid in Q1 (say ₱12,000) = Q2 payable ₱24,000 (before CWT credits).

B. 8% Option (Mixed-Income)

No ₱250,000 reduction against the business base. Tax base = Gross business/professional receipts only Tax due = 8% × Tax base, minus CWT, minus prior-quarter payments. (Compensation is taxed separately under the graduated table via employer withholding/annualization.)

C. Graduated + Percentage Tax (Non-VAT)

Percentage tax each quarter: 3% × gross quarterly sales/receipts (rate historically returned to 3% after the temporary reduction period).
Income tax: Graduated rates on net taxable income (Gross − Allowable deductions (Itemized) or OSD (40% of gross)).
File and pay both (2551Q and 1701Q), crediting CWT where applicable.

Exceeding the VAT Threshold During the Year

Income tax: Exceeding ₱3,000,000 disqualifies you from the 8% option. You shift to graduated rates. Prior 8% payments are generally creditable against your computed income tax at year-end.
Business tax: You must register as VAT from the first day of the month following the month you exceeded the threshold. From that point, you file VAT returns (not percentage tax).
Filing impacts: Continue filing 1701Q; your annual return reconciles the shift (and credits prior 8% payments).

Forms to Know

BIR Form 1701Q – Quarterly Income Tax Return for individuals (Q1–Q3).
BIR Form 1701A – Annual ITR for individuals earning purely from business/profession under 8% or OSD.
BIR Form 1701 – Annual ITR for itemized deductions, mixed-income, or other cases not covered by 1701A.
BIR Form 2551Q – Quarterly Percentage Tax Return (non-VAT taxpayers not on 8%).
BIR Form 2307 – Certificate of Creditable Tax Withheld at Source (attach/encode as credits).

Common Scenarios (and Answers)

1) “I chose 8%. Do I still file quarterly?”

Yes. File 1701Q each quarter and 1701A/1701 annually. Do not file 2551Q.

2) “I didn’t opt in for 8%. I’m non-VAT.”

You are under graduated rates, and you owe percentage tax. File both 1701Q and 2551Q quarterly, plus the annual ITR.

3) “I have zero income this quarter.”

File no-payment 1701Q (and 2551Q if applicable). Avoid penalties by filing on time.

4) “I’m mixed-income. Can I use 8%?”

Yes—for your business/professional income only, and no ₱250,000 reduction on the 8% base. Compensation remains under the graduated rates via employer withholding.

5) “Can I switch from 8% to graduated mid-year by choice?”

Generally no (irrevocable for the year). But if you exceed ₱3,000,000, you must switch to graduated rates and register as VAT, with prior 8% payments credited at year-end.

6) “What if I under- or over-pay in the quarter?”

The cumulative quarterly method allows reconciliation each quarter and at year-end. Overpayments can be carried over to the next quarter or, at year-end, carried over or refunded (subject to rules).

Recordkeeping & Invoicing

Books of accounts (manual, loose-leaf, or computerized) must be registered and maintained regardless of 8% or graduated regime.
Official Receipts/Sales Invoices must be issued for each sale/service, and preserved with supporting documents (e.g., Form 2307 for CWT).
Keep working papers showing your quarterly cumulative computations and credits.

Penalties Snapshot

Late filing/payment: Surcharge (generally 25%) plus interest at the rate prescribed under the NIRC, and compromise penalties.
Wrong form/late attachments can also trigger penalties. Filing on time (even “no-payment”) is the safest approach.

Decision Guide

Choose 8% if you are an individual, under the VAT threshold, with low costs (few deductions), prefer simplicity, and want to avoid percentage tax and deduction tracking.

Choose graduated + percentage tax if you have material deductible expenses (itemized) or prefer OSD but expect it to be more favorable than 8% on gross, or you anticipate exceeding the VAT threshold.

Practical Checklist (Start of the Year or Registration)

Assess eligibility (individual, non-VAT, below ₱3M threshold expectation).
Elect 8% at registration or on your first 1701Q for the year.
Set reminders for 1701Q due dates (May 15 / Aug 15 / Nov 15) and Annual ITR (Apr 15).
If not on 8% and non-VAT, calendar 2551Q (Apr 25 / Jul 25 / Oct 25 / Jan 25).
Capture CWTs (2307) each quarter to credit against tax due.
Monitor gross year-to-date to avoid surprise VAT threshold breaches.

Worked Mini-Comparisons

Case 1: Purely self-employed; low expenses

Gross receipts (annual): ₱900,000; minimal CWT; few expenses.
8% route: Base = 900k − 250k = 650k → Tax ≈ ₱52,000 (less CWT).
Graduated + OSD: OSD = 40% of 900k = 360k; Net = 540k; Graduated tax on 540k (layered brackets) may exceed ₱52k; Plus percentage tax quarterly (3% of 900k = ₱27k).
Likely better: 8%.

Case 2: Purely self-employed; high expenses

Gross: ₱2,000,000; Actual expenses: ₱1,400,000.
8%: Base = 2,000,000 − 250,000 = 1,750,000 → Tax = ₱140,000.
Graduated + Itemized: Net = 600,000; apply graduated rates (which could be lower than ₱140k), but add percentage tax (3% × 2,000,000 = ₱60,000).
The combined outcome depends on the bracket math; in many high-expense scenarios, graduated + itemized may compete but percentage tax often tilts the math back toward 8% unless net income is low.

Key Takeaways

Yes, quarterly filing still applies under the 8% option—but it’s 1701Q only (no 2551Q).
If you don’t opt in and you’re non-VAT, you must file both 1701Q and 2551Q quarterly.
Track your gross against the ₱3M VAT threshold; crossing it forces a regime change.
Keep books, issue receipts/invoices, and retain 2307s for credits.
Run the numbers early each year; the “best” choice depends on your margins, CWT credits, and growth trajectory.

This article presents general rules and typical practice in the Philippines. Specific situations can differ; consider consulting a Philippine tax professional for tailored advice.