Mixed Income Earner
Updated June 13, 2026
Definition
A taxpayer who receives compensation income as an employee and also earns business or professional income during the same tax year, reported together on BIR Form 1701.
A Mixed Income Earner (MIE) has two kinds of income: compensation from employment, which the employer withholds tax on, and business or professional income. Compensation is always taxed at the graduated rates. For the business part, the MIE chooses between the graduated rates (with itemized deductions or the 40% optional standard deduction, plus percentage tax) and the 8% rate on gross sales or receipts. The 8% option requires business gross sales or receipts of ₱3,000,000 or less and no VAT registration; the size of the salary does not matter. Unlike purely self-employed individuals, MIEs do not get the ₱250,000 reduction on the business part under the 8% option (NIRC §24(A)(2)(c), RR 8-2018).
Why it matters
Your status as a mixed income earner determines how your income is computed, which forms you file and whether the 8% option saves money. The 8% rate on business gross sales can cost less than graduated rates that reach 35% on top of your salary. Getting the computation wrong can lead to a deficiency assessment with a 25% surcharge plus 12% interest a year.
How it works
Mixed income earners file BIR Form 1701 by April 15 of the following year. Compensation is taxed at the graduated rates, with the employer's withholding credited. The business part is taxed either at the graduated rates on net income (added to compensation) plus 3% percentage tax, or at 8% of gross sales or receipts and other non-operating income with no ₱250,000 reduction, in place of both. The 8% option needs business gross sales or receipts of ₱3,000,000 or less and no VAT registration, and is elected on the first quarter return. Business income is also reported quarterly on Form 1701Q. The business must be registered with the BIR, keep books of accounts and issue invoices.
Examples
Simple case
Maria works as a marketing assistant earning ₱200,000 a year and sells clothes online with ₱150,000 of gross sales. She is a mixed income earner. If she elects 8%, the tax on her business is 8% × ₱150,000 = ₱12,000; her salary is within the ₱250,000 zero bracket.
Employee context
John is a teacher earning ₱240,000 a year plus ₱80,000 from weekend tutoring. His salary stays under employer withholding, while his tutoring income can be taxed at 8% × ₱80,000 = ₱6,400 if he elects the 8% option.
Business context
Ana works part-time as a graphic designer (₱180,000 compensation) and runs a small catering business (₱300,000 gross sales). She files BIR Form 1701 as a mixed income earner; under the 8% option her business tax is ₱24,000.
Professional context
Dr. Santos works at a public hospital (₱250,000 salary) and has a private clinic (₱400,000 gross receipts). He can elect 8% on the clinic receipts, ₱32,000, because his receipts are under ₱3,000,000 and he is not VAT-registered.
Edge case
Lisa has ₱280,000 of taxable compensation plus ₱100,000 of business income. Her salary level does not affect the 8% option: she can pay 8% × ₱100,000 = ₱8,000 on the business. Her salary is taxed at 15% × ₱30,000 = ₱4,500.
Common misconceptions
- Myth: Only some employees with side businesses are Mixed Income Earners - Every employee who also earns business or professional income is one; the ₱3,000,000 limit only governs the 8% option
- Myth: The 8% rate applies to total income - It only applies to the business portion, not employment income
- Myth: You need a low salary to use the 8% rate - Your salary does not matter; only business gross sales or receipts of ₱3,000,000 or less and no VAT registration
- Myth: Mixed Income Earners don't need to issue invoices - Registered businesses issue invoices and keep records whatever tax option they choose
- Myth: Employment income affects the 8% rate calculation - The 8% is computed separately on gross business sales only
Questions people ask
What is a Mixed Income Earner in Philippine tax law?
A mixed income earner receives both compensation from employment and business or professional income in the same tax year. Compensation is taxed at the graduated rates; for the business part, the taxpayer may use the graduated rates or, if business gross sales or receipts are ₱3,000,000 or less and the taxpayer is not VAT-registered, 8% of gross sales or receipts.
How do I know if I qualify as a Mixed Income Earner for the 8% tax rate?
You can use the 8% rate on your business income if: (1) your business gross sales or receipts and other non-operating income do not exceed ₱3,000,000, (2) you are not VAT-registered, and (3) you elect it on your first quarter return. Your salary amount does not affect eligibility (RR 8-2018).
What's the difference between a Mixed Income Earner and a regular employee with side income?
An employee with a side business is a mixed income earner. The salary is taxed at the graduated rates in every case. The difference lies in the business part: graduated rates on net income plus percentage tax, or 8% of gross sales or receipts without the ₱250,000 reduction.
Which BIR form do Mixed Income Earners file?
Mixed income earners file BIR Form 1701 (Annual Income Tax Return for Individuals, including mixed income earners) by April 15 of the following year. It reports compensation and business income on one return.
Can I switch between Mixed Income Earner status and regular income tax computation?
The 8% election is made on the first quarter return and is irrevocable for that taxable year. You may choose differently for the following year.
Do Mixed Income Earners need to pay quarterly taxes?
Yes. You file Form 1701Q for the business income for each of the first three quarters, due May 15, August 15 and November 15 (NIRC §74). Under the 8% option, the quarterly tax is 8% of cumulative gross sales or receipts, less earlier quarterly payments. Your employer continues to withhold tax on your salary.
What happens if my business gross sales exceed ₱3,000,000?
You lose the 8% option and your business income is taxed at the graduated rates, and you become subject to VAT if you exceed the VAT threshold. You still file Form 1701 (RR 8-2018).
Are there penalties for misclassifying as a Mixed Income Earner?
Yes. Underpaying tax leads to a 25% surcharge plus interest at 12% a year. For example, on a ₱50,000 underpayment paid one year late: ₱12,500 surcharge plus ₱6,000 interest, ₱18,500 in total (NIRC §248, §249).
What records must Mixed Income Earners maintain?
Keep employment records (payslips, BIR Form 2316), business books of accounts, sales invoices, expense receipts, Forms 2307 and your quarterly returns. Business income needs the same records as any registered business, whichever tax option you choose.
Next steps
Learn more
Mixed Income Earner Tax Calculator
Compute your tax liability under MIE rules
BIR Form 1701 Guide
Step-by-step filing instructions for mixed income earners
8 Percent Tax Rate Calculator
Determine savings vs regular income tax
Employment vs Business Income Guide
Classify your income sources correctly
Quarterly Tax Calculator for Mixed Income Earners
Form 1701Q computation
Tax Registration Guide for Side Businesses
BIR requirements for mixed income
Annual Income Tax Filing Checklist
Documents needed for Form 1701
Related content
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Taxpayer guides
BIR forms
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Glossary
Sources & References (1)
Primary sources and the laws, regulations, and official issuances this page relies on. Links open the recorded source documents or references.
- LawPhil Project (Arellano Law Foundation). “NIRC §24(A)(2)(b) as amended by RA 10963 (mixed income rules): full text.” lawphil.net. Republic Act No. 10963 (TRAIN), amending NIRC Sec. 24(A)(2). Source checked .