What are the applicable tax rules for mixed income earners under the approved Tax Reform for Acceleration and Inclusion or TRAIN?
You can find the answer below.
(UPDATE): The BIR’s Revenue Regulations RR 8-2018 contains the implementing guidelines on how to compute income taxes for Mixed Income earners under the TRAIN law. View here sample computations: BIR Sample Computation: Income Tax for Mixed Income Earners under TRAIN
First, who are Mixed Income Earners?
Mixed income earners refer to individuals receiving income from various sources, including compensation as a salaried employee, income from business, or gross receipts from the practice of profession, among others.
For mixed income earners, the relevant provision in the TRAIN tax reform states that:
“Taxpayers earning both compensation income and income from business or practice of profession shall be subject to the following taxes:
- All Income from Compensation – The rates prescribed under Subsection (A)(2)(a) of this Section.
- All Income from Business or Practice of Profession
(a) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Do Not Exceed the VAT Threshold as Provided in Section 109(BB) of this Code – The rates prescribed under Subsection (A)(2)(a) of this Section on taxable income, or eight percent (8%) income tax based on gross sales or gross receipts and other non-operating income in lieu of the graduated income tax rates under Subsection (A)(2)(a) of this Section and the percentage tax under Section 116 of this Code.
(b) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Exceeds the VAT Threshold as Provided in Section 109(BB) of this Code – The rates prescribed under Subsection (A)(2)(a) of this Section.”
Tax Rules for Mixed Income Earners
Simply speaking, mixed income earners will be taxed this way:
1. For the compensation they receive as a salaried employee, the gross amount will be taxed using the graduated Personal Income Tax Rates and Tax Tables. We summarize below the TRAIN-mandated BIR personal income tax tables effective January 1, 2018.
BIR Income Tax Table (for the years 2018-2022)
| Taxable Income per Year | Income Tax Rate (Year 2018-2022) |
|---|---|
| P250,000 and below | 0% |
| Above P250,000 to P400,000 | 20% of the excess over P250,000 |
| Above P400,000 to P800,000 | P30,000 + 25% of the excess over P400,000 |
| Above P800,000 to P2,000,000 | P130,000 + 30% of the excess over P800,000 |
| Above P2,000,000 to P8,000,000 | P490,000 + 32% of the excess over P2,000,000 |
| Above P8,000,000 | P2,410,000 + 35% of the excess over P8,000,000 |
| Source: | BIR and PinoyMoneyTalk.com |
BIR Income Tax Table (from year 2023 onwards)
| Taxable Income per Year | Income Tax Rate (Year 2023 onwards) |
|---|---|
| P250,000 and below | 0% |
| Above P250,000 to P400,000 | 15% of the excess over P250,000 |
| Above P400,000 to P800,000 | P22,500 + 20% of the excess over P400,000 |
| Above P800,000 to P2,000,000 | P102,500 + 25% of the excess over P800,000 |
| Above P2,000,000 to P8,000,000 | P402,500 + 30% of the excess over P2,000,000 |
| Above P8,000,000 | P2,202,500 + 35% of the excess over P5,000,000 |
| Source: | BIR and PinoyMoneyTalk.com |
2. For the income they receive from business or practice of profession (example: consultants, freelancers, lecturers, part-timers, etc.), it will be taxed similar to the tax rate for self-employed and professionals.
That is, if the annual gross sales from business or income receipts from the practice of profession does not exceed the VAT threshold of P3 Million, the mixed income earner may choose one of these two tax rates:
A.) Eight percent (8%) of gross sales or receipts and other income, in excess of P250,000; OR
B.) Graduated personal income tax rates of 0% to 35% on net taxable income
However, if the income receipts from business or practice of profession exceed the P3 Million VAT threshold, the income will be automatically taxed using the graduated income tax tables. This means the mixed income earner does not have the option of paying the flat 8% rate.
(UPDATE): The BIR’s Revenue Regulations RR 8-2018 contains the implementing guidelines on how to compute income taxes for Mixed Income earners under the TRAIN law. View here sample computations: BIR Sample Computation: Income Tax for Mixed Income Earners under TRAIN
* * * For more UPDATED resources on the approved TRAIN Tax Reform, click below:
