TAX RATES OPTIONS FOR PROFESSIONALS, SELF-EMPLOYED AND MIXED-INCOME EARNERS UNDER THE TRAIN LAW

Tax rates available for individuals earning from self-employment/business and/or practice of profession under the TRAIN Law are those in graduated rates and 8%.

The BIR issued Revenue Memorandum Order (RMO) 23-2018 to prescribe policies, guidelines and procedures in availing of the eight percent (8%) income tax rate option of individuals earning from self-employment/business and/or practice of profession relative to the implementation of the Republic Act No. 10963.

In the form of policies and guidelines, the RMO 23-2018 provides that in general, income of self-employed individuals (includes Single Proprietors, Professionals and Mixed Income Earners) is subject to the graduated income tax rates as provided under Section 24 (A)(2)(a) of the NIRC, as amended.[1]

Based thereon, self-employed individuals earning income purely from self-employment/business and/or practice of profession whose gross sales and/or receipts and other non-operating income does not exceed the Value-Added Tax (VAT) threshold of Three Million Pesos (P3,000,000.00) shall have the option to avail of the following:

1. Graduated income tax rates as provided under Section 24 (A)(2)(a) of the NIRC, as amended; or
2. Eight percent (8%) tax on gross sales or receipts and other non-operating income in excess of Two Hundred Fifty Thousand Pesos (PhP250,000.00) in lieu of the graduated income tax rates and percentage tax under Section 116 under the NIRC, as amended.

HR Bundle Books (Dismissal, compensation, forms, policies and codes)

The BIR points out that in the case of a purely self-employed/professional individual taxpayer who opted for the 8% income tax is no longer required to file and pay the 3% percentage tax. The 8% income tax rate is in lieu of the graduated income tax rates and the percentage tax under Section 116 of the Tax Code.[2]

Tax Solutions on Employee Compensation and Benefits

Self-employed means a sole proprietor or an independent contractor who reports income earned from self-employment. He controls who he works for, how the work is done and when it is done. It includes those hired under a contract of service or job order, and professionals whose income is derived purely from the practice of profession and not under an employer-employee relationship.[3]

An individual under a contract of service or job order arrangement is considered self-employed.

[1] See Section II, 1, RMO 23-2018.

[2] A21, RMC 50-2018.

[3] Section 2, n, RR No. 8-2018.