How mixed income is taxed
- Your salary is always taxed at graduated rates (your employer withholds it).
- For your business income you can choose 8% of gross, or add the business net income to your salary and use graduated rates.
- Under 8%, mixed earners cannot deduct ₱250,000 — that zero bracket is already used by the salary.
Example: ₱360,000 taxable salary + ₱240,000 side income
Tax on the salary alone: ₱16,500.00. Under 8%, the business adds 8% × ₱240,000 = ₱19,200.00, for a total of ₱35,700.00.
Under graduated + OSD, 60% of ₱240,000 (₱144,000) is added to the salary: tax on ₱504,000 = ₱43,300.00, plus 3% percentage tax ₱7,200.00 = ₱50,500.00. The 8% option saves ₱14,800.00.
Extra tax from the side business (salary ₱360,000)
| Side business gross | Extra tax with 8% | Extra tax with OSD + 3% |
|---|---|---|
| ₱100,000 | ₱8,000.00 | ₱13,000.00 |
| ₱240,000 | ₱19,200.00 | ₱34,000.00 |
| ₱500,000 | ₱40,000.00 | ₱73,000.00 |
| ₱1,000,000 | ₱80,000.00 | ₱156,000.00 |
What to file
Register your business with BIR (Form 1901), issue invoices, file quarterly returns (1701Q) and an annual 1701 that combines your salary (from Form 2316) and business income. Even with a small side income, staying registered keeps you safe and makes loans and visas easier.
Common questions from employees with side income
- Do I need to tell my employer? Not for tax purposes — your employer only handles your salary. But check your contract for any conflict-of-interest rules.
- What about the ₱90,000 tax-free 13th month? It stays tax-free; it is part of your compensation, not your business income.
- My clients withheld tax. The tax withheld on your fees (Form 2307) is credited against your business tax in your quarterly and annual returns.
If your side business grows past ₱3,000,000 a year, you will need to register for VAT, and the 8% option will no longer be available.
FAQ
Can a mixed income earner use the 8% tax rate?
Yes, on the business income, if gross sales/receipts are not over ₱3,000,000. The ₱250,000 deduction does not apply.
How much tax on ₱240,000 side income if I am employed?
₱19,200.00 under the 8% option (8% × ₱240,000), on top of the tax already withheld from your salary.
Do I still file an annual return if my employer withholds tax?
Yes. Mixed income earners are not eligible for substituted filing, so you file BIR Form 1701 each year.
Sources (checked 5 November 2026): NIRC Sec. 24(A)(2) as amended by RA 10963 (TRAIN) — graduated income tax table effective 1 January 2023 and the 8% option on gross sales/receipts above ₱250,000 for taxpayers with gross receipts not over ₱3,000,000; Sec. 34(L) optional standard deduction of 40% of gross sales/receipts; Sec. 116 percentage tax of 3% (the 1% CREATE rate ended 30 June 2023); Revenue Regulations No. 8-2018 (election of the 8% option, mixed income earners); bir.gov.ph. No change to these rates had been announced for 2027.