Tax Planning When Income Increases: Understanding Two Tax Calculation Methods—Progressive vs. Flat 0.5% Before Filing Actual Tax

When income rises, especially for those with multiple sources such as salary, freelance work, rent, or independent professional income, a common question is: “How much additional tax must I pay, and which tax calculation method is most beneficial?”

This article by Thairath Money compiles and organizes information from official sources to help readers understand and practically apply tax filing, covering basic tax calculations and the key decision point between using the progressive method or the flat 0.5% method.

Understanding the tax formula before planning.

For personal income tax calculation, the basic formula is:

Tax payable = Net income × Tax rate

Where “net income” means total income throughout the year minus expenses and deductions allowed by law.

Net income = Total yearly income – Expenses – Deductions

This net income figure is then used to calculate tax by two methods, which taxpayers must compare.

Summary of tax deductions for the 2025 tax year.

How many ways can personal income tax be calculated?

The Revenue Department stipulates two main methods for personal income tax calculation:

1. Progressive tax calculation (based on net income).
2. Flat 0.5% tax calculation (based on non-salary assessable income).

The key rule is to calculate tax both ways and file using the method with the "higher tax payable" because these two methods use different tax bases.

• The progressive method uses net income after deducting expenses and allowances.
• The flat 0.5% method uses total other income without any deductions.

The law requires comparing both methods and choosing the one with the higher tax to prevent cases where high income is offset by large deductions, resulting in abnormally low net income and tax that doesn't reflect actual earnings.

A simple 3-step method to calculate tax.

1. Calculate tax using the progressive method.
2. Calculate tax using the flat 0.5% method.
3. Compare the results and choose the method with the higher tax payable.

Step 1: What is progressive tax calculation?

Progressive tax calculation is familiar to most people, especially salaried employees. The principle is that as net income increases, the tax rate increases in brackets. Once “net income” is determined, it is compared to personal income tax rates divided into brackets such as:

• Net income 0 – 150,000 baht: exempt from tax.
• 150,001 – 300,000 baht: taxed at 5%.
• 300,001 – 500,000 baht: taxed at 10%.
• 500,001 – 750,000 baht: taxed at 15%.
• 750,001 – 1,000,000 baht: taxed at 20%.
• 1,000,001 – 2,000,000 baht: taxed at 25%.
• 2,000,001 – 5,000,000 baht: taxed at 30%.
• Over 5,000,000 baht: taxed at 35%.

Advantages of the progressive tax method.

• Reflects tax burden based on the ability to pay.
• Allows full use of expense and deduction rights.

Cautions.

• If you have multiple income sources but claim many expenses and deductions, your net income may appear low and tax minimal, but you must still compare this with the flat method.

Step 2: When to use the flat 0.5% tax method?

The flat 0.5% tax applies when you have income other than salary, such as freelance work, rent, independent professional income, and

• other income (excluding salary) totaling 1,000,000 baht or more.

The formula: Flat tax = (all income types except salary) × 0.005

Simply put, 5,000 baht tax per 1 million baht of other income.

Cautions for the flat tax method.

• If the calculated tax is not more than 5,000 baht, you are exempt from paying tax under this method.
• You cannot apply deductions or expenses to reduce tax in this formula.

Step 3: Compare and choose the method with the higher tax payable.

After calculating both methods, the Revenue Department’s online system will automatically do the comparison. Taxpayers don’t choose manually. As stated, the method resulting in higher tax must be used for filing.

Examples comparing progressive vs. flat tax methods.

Example 1: High income but using flat expense deduction.

An independent professional earns 1,200,000 baht and opts for flat expense deduction with a personal allowance.

• Net income after expenses and deductions is about 450,000 baht.
• Using the progressive method, tax payable is 22,500 baht.
• Using the flat 0.5% method, tax payable is 6,000 baht.

Result: Must file using the progressive method because tax is higher.

Example 2: Very high actual expenses.

The taxpayer has the same income but claims large actual expenses.

• Net income decreases significantly.
• Progressive tax becomes minimal.
• However, the flat 0.5% tax is higher.

Result: Must file using the flat tax method.

What should you prepare before filing taxes?

1. Summarize all income for the tax year (salary, bonuses, freelance, rent, etc.).
2. Check income documents such as Form 50 ทวิ.
3. Gather all deduction entitlements available for the 2025 tax year.
4. Enter data into the online filing system and verify tax calculation under the “View calculation method” menu.

Which method saves more tax?

There is no definitive answer; it depends on individual income structure, expenses, and deductions.

• If you have multiple income sources but low actual expenses, the progressive method is often better.
• If you have high other income and large actual expenses, the flat method might result in higher tax.

The most important thing is to understand the system and fill in all information accurately. Ultimately, the system will select the correct method. Tax planning now not only helps reduce tax but also lets you manage increased income confidently without issues during next year’s tax filing.

Sources: Revenue Department, Krungsri Bank, edge by KKP.

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