The Bureau of Internal Revenue’s RR No. 8-2018 consists of guidelines and provisions on how income taxes for mixed income earners are computed under the Republic Act (RA) No. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
What are mixed income earners?
A mixed income earner is an individual who earns income from multiple sources, such as profit from business, compensation as an employee, receipts from practicing a profession, and others.
Provision for mixed income earners under the TRAIN law
The most relevant provision that affects mixed income earners under the TRAIN law can be found in Section 3 (D) Individuals Earning Income Both from Compensation and from Self-employment (business or practice of profession).
This particular section contains the applicable income tax rates for mixed income earners, which are:
a.1 Graduated income tax rates prescribed under Section 24(A)(2)(a) of the Tax Code, as amended; OR
a.2 Eight percent (8%) income tax rate based on gross sales/receipts and other non-operating income in lieu of the graduated income tax rates and percentage tax under Section 116 of the Tax code, as amended.
You can view the full text of RR No. 8-2018 here.
8% tax rate
Like self-employed individuals/professionals, mixed income earners also have an option to avail of the 8% tax rate from gross sales or receipts on income from a business or the practice of a profession. The tax base however, must consist of the total gross sales/receipts without subtracting 250,000 PHP, since this amount is already incorporated in the first tier of the income tax rates on the compensation income provided to the mixed income earner.
Under Section 3 (D) of RR No. 8-2018, the total tax due shall be the sum of:
Taxpayers are required to apply for registration information update by submitting BIR Form 1905 to effectively cancel percentage tax as the registered tax type. This is not available to VAT-registered taxpayers, individuals subject to percentage taxes included in Title V of the Tax Code, and partners under a general professional partnership or GPP.
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