You're on the 8% Rate and You Hired a Subcontractor: Do You Withhold Tax?

Choosing the 8% income tax rate changes how you compute tax on your own income — it says nothing about tax you owe on money you pay someone else. The moment a self-employed individual or professional hires a subcontractor, assistant, or another freelancer, the 8% election is irrelevant: withholding obligations attach to being an individual engaged in trade or business making a covered income payment, not to which income tax option the payor chose for their own return.

This post covers the payor side of the 8% rate — what you owe when you’re the one paying a subcontractor. For the mirror question, whether a client still withholds on your fee when you’re the one on the 8% rate, see Does a Client Still Withhold Tax on Your Fee If You Chose the 8% Income Tax Rate?.

Why the 8% election doesn’t touch your withholding duty as a payor #

The 8% income tax option and expanded withholding tax (EWT) come from two entirely different parts of the Tax Code, and nothing in the law creating the 8% option mentions withholding at all. NIRC Section 24(A)(2)(b), as amended by the TRAIN Law (Republic Act No. 10963), lets a qualifying self-employed individual or professional pay 8% of gross sales/receipts and other non-operating income in excess of ₱250,000 “in lieu of the graduated income tax rates… and the percentage tax under Section 116.” That list — graduated rates and Section 116 percentage tax — is exhaustive. It says nothing about Sections 57–58 of the Tax Code, which govern creditable withholding tax, or about Revenue Regulations No. 2-98, which designates who must withhold. Electing 8% changes the numerator and rate used to compute your own income tax; it does not touch the separate question of whether you must withhold on payments you make to others.

Who counts as a withholding agent — and is there a size threshold? #

Revenue Regulations No. 2-98 constitutes withholding agents by reference to trade-or-business activity, not by revenue size, and an individual is covered the moment a payment connects to that trade or business. Section 2.57.3 of RR No. 2-98 defines the persons required to deduct and withhold creditable taxes:

“(A) In general, any juridical person, whether or not engaged in trade or business; (B) An individual, with respect to payments made in connection with his trade or business.”

That’s the whole test for an individual payor: is the payment connected to a trade or business (or practice of a profession) the individual is conducting? A self-employed graphic designer, consultant, or freelance writer who subcontracts part of a paid engagement is, by definition, making a payment in connection with that trade or profession — Section 2.57.3(B) reaches it directly, with no floor on gross sales, receipts, or number of clients.

This is easy to confuse with a related but separate concept: Top Withholding Agent (TWA) status. A taxpayer only becomes a TWA once the BIR formally classifies it based on a ₱12,000,000 threshold in gross sales/receipts, purchases, or expenses, under RR No. 7-2019 — see Who Is a BIR Top Withholding Agent? for that separate rule. TWA status adds withholding on ordinary purchases of goods (1%) and services (2%) that wouldn’t otherwise be subject to EWT at all. But professional fees, talent fees, subcontracted services, and similar payments were already covered by the standard ATC list under RR No. 11-2018 long before TWA status enters the picture. A small, non-TWA freelancer on the 8% rate doesn’t need to hit ₱12 million in anything to owe withholding on a subcontractor’s professional fee — RR No. 2-98 Section 2.57.3(B) already put them there.

Worked example: an 8%-rate designer subcontracts a colorist #

A freelance graphic designer who elected the 8% income tax rate hires a colorist to finish part of a client project — the designer, as payor, withholds and issues BIR Form 2307 exactly as any other business would, regardless of the designer’s own 8% election.

Maria (fictional) is a freelance graphic designer who elected the 8% income tax rate for her own gross receipts, which stayed under ₱1,000,000 last year. For a book-cover project, she subcontracts a colorist, Ben (fictional), paying him a project fee of ₱30,000. Ben has submitted an Income Payee’s Sworn Declaration of Gross Receipts/Sales confirming he is non-VAT registered and his cumulative gross income for the year won’t exceed ₱3,000,000, along with a copy of his BIR Certificate of Registration.

Because Ben’s fee is a professional fee, the standard rate table under RR No. 11-2018 applies — the same rates covered in BIR Form 2307 for Professional Fees:

Maria pays Ben ₱28,500 in cash, remits the ₱1,500 withheld through BIR Form 0619-E monthly and BIR Form 1601-EQ quarterly, and issues Ben a BIR Form 2307 showing ₱30,000 as the income payment, ATC WI010, and ₱1,500 withheld. Maria’s own 8% election has no bearing on any step of that computation — it only ever governed the tax she pays on the fees she receives from clients, not the tax she withholds on the fee she pays Ben. Ben then credits the ₱1,500 against his own income tax due, using the certificate the same way any payee would.

What if Maria skips withholding because she’s a small solo freelancer? #

Skipping withholding on the theory that a small, 8%-rate freelancer is “too small” to be a withholding agent is a common but incorrect assumption — RR No. 2-98 doesn’t carry a size exception, so the exposure is the same as it would be for any other withholding agent that fails to withhold. If Maria pays Ben the full ₱30,000 without withholding, she remains liable for the ₱1,500 that should have been withheld, plus surcharge and interest under the Tax Code, and risks having the subcontractor expense questioned if she’s ever assessed under itemized deductions rather than the 8% option. There is no carve-out in RR No. 2-98 for solo practitioners, side hustles, or payors who elected the 8% rate for their own return — the obligation is tied to the payment, not the payor’s size or tax regime.

Frequently asked questions #

If I’m on the 8% income tax rate, do I still have to withhold tax when I pay a subcontractor? #

Yes. The 8% income tax option under NIRC Section 24(A)(2)(b) only changes how your own business or professional income is taxed. It has no bearing on your separate duty, as an individual engaged in trade or business or the practice of a profession, to withhold expanded withholding tax on payments you make to a subcontractor, assistant, or another freelancer, under RR No. 2-98 Section 2.57.3(B).

Is there a minimum income or revenue threshold before a self-employed individual becomes a withholding agent? #

No minimum applies to the basic obligation. RR No. 2-98 Section 2.57.3(B) constitutes any individual a withholding agent “with respect to payments made in connection with his trade or business,” with no revenue floor. The separate ₱12,000,000 threshold under RR No. 7-2019 only governs Top Withholding Agent status, which adds withholding on ordinary purchases of goods and services that wouldn’t otherwise be covered — it does not gate the baseline duty to withhold on payments like professional or talent fees.

What withholding tax rate applies when a freelancer pays another freelancer a professional fee? #

The same expanded withholding tax rates that apply to any professional fee payment: 5% (ATC WI010) if the payee is an individual, non-VAT registered, and has submitted a sworn declaration confirming gross income for the year will not exceed ₱3,000,000, or 10% (ATC WI011) if the payee is VAT-registered, exceeds that threshold, or has not filed the declaration, under Revenue Regulations No. 11-2018.

Do I need to be a BIR Top Withholding Agent to be required to issue BIR Form 2307? #

No. Top Withholding Agent (TWA) status, granted only to taxpayers the BIR has classified under RR No. 7-2019, expands withholding to ordinary purchases of goods and services. An individual who is not a TWA still withholds and issues BIR Form 2307 on payments covered by the standard ATC list — such as professional, talent, or rental fees — simply by being engaged in trade or business, per RR No. 2-98.

What happens if an 8%-rate freelancer doesn’t withhold on a subcontractor’s fee? #

The same consequences that apply to any withholding agent that fails to withhold: liability for the tax that should have been withheld, plus surcharge, interest, and compromise penalties under the Tax Code, and disallowance of the corresponding expense as a deduction if the freelancer is later assessed under itemized deductions. The 8% election is not a defense to a failure-to-withhold assessment.

Summary #

The 8% income tax rate under NIRC Section 24(A)(2)(b) governs only how a self-employed individual or professional computes tax on their own gross sales, receipts, and other non-operating income — it replaces graduated rates and Section 116 percentage tax, nothing more. It has no effect on that same individual’s separate duty, as a payor, to withhold expanded withholding tax on payments made to a subcontractor, assistant, or another freelancer in connection with their trade or business. RR No. 2-98 Section 2.57.3(B) constitutes any individual a withholding agent on trade-or-business-connected payments with no minimum revenue threshold; only the separate, additional Top Withholding Agent designation under RR No. 7-2019 carries a ₱12,000,000 test, and that test governs an extra category of ordinary purchases, not standard professional or talent fees. An 8%-rate freelancer who hires help still withholds at the applicable rate and still issues BIR Form 2307 to the subcontractor, the same as any other payor.