Taxes for Filipino Freelancers (and How to Compute Them)

Taxes for Filipino Freelancers (and How to Compute Them)

Before we dive in to the computation of taxes, I'd like to thank my fellow freelancers for the very nice comments on the Facebook group about my post Online Filipino Freelancers BIR Registration Guide. And because a lot of you requested to discuss the different tax types that a Filipino freelancer has to pay, I'm so overwhelmed right now that I'm more than willing to share more information with you. So please bear with me until the end.

Taxes for Filipino Freelancers

Monthly Percentage Tax Return

BIR Form 2551M [3 copies]

Due Date: Every 20th of the month

BIR alphanumeric tax code

Monthly Percentage Tax Return has the simplest computation of all. Online Filipino freelancers are under PT 010, which means we are exempted from VAT. So every month, we only have to pay 3% of our total monthly earnings.

Let's say for example, you earned PhP 40,000 for the whole month. 

To compute the 3% of PhP 40,000:

PhP 40,000 x 0.03 = PhP 1,200

Therefore, your monthly percentage tax return for that month is PhP 1,200.

For those freelancers who have fixed income, it's not hard to compute for their monthly percentage tax every time because it's just the same all throughout the year. But for the case of the majority of freelancers whose income varies (like me), we need to do this computation each month we will file our percentage tax. 

Take note of the due date. For January, filing is until February 20. For February, filing is until March 20, and so on. Make sure to pay your taxes on or before the due date because there are penalties. In the event that the due date falls on a weekend or a holiday, the deadline will be moved to the next working day.

BIR form 2551M

Quarterly Income Tax Return

BIR Form 1701Q [3 copies]

Period Covered

Applicable Month

Due Date

1st Quarter

January - March

April 15

2nd Quarter

April - June

August 15

3rd Quarter

July - September

November 15

Here comes the Quarterly Income Tax Return which is more complicated and higher than the Monthly Percentage Tax. Anyway, I will do my best to explain in an understandable manner. 

For Quarterly Income Tax Return, we can declare deductibles before we can get the taxable income. Deductibles can be declared in two ways: the OSD (Optional Standard Deductible), and Itemized Deductible.

Optional Standard Deductible - This is the easier way of declaring deductibles for the whole quarter because you'll just automatically deduct 40% from your quarterly income. The advantage of using OSD is that the BIR won't audit your expenses and it saves you time from itemizing your expenses and calculating them.

Itemized Deductible - From the term itself, you have to itemize all your expenses and it's important to keep the receipts. It's a big hassle if you're doing it yourself so it's best to have an accountant if you want to use this method.

But for freelancers like me, I suggest you use the Optional Standard Deductible.

1st Quarter Computation

Okay, let's move on to computing your Quarterly Income Tax Return. Let's still use the same example. Suppose you are earning PhP 40,000 per month, it means that you have an accumulated income of PhP 120,000 per quarter. 

Using the OSD way, deduct 40% from your gross income.

PhP 120,000 x 0.40 = PhP 48,000 --> This is the 40% of your gross income

PhP 120,000 - PhP 48,000 = PhP 72,000 --> This is your taxable income

quarterly tax table

Looking at the table above, your taxable income belongs to the one in red box.

Your tax due is computed this way: PhP 8,500 + 20% of the excess over PhP 70,000.

PhP 72,000 - PhP 70,000 = PhP 2,000 --> It is the excess so get the 20% of this

PhP 2,000 x 0.20 = PhP 400 --> This is the 20% of the excess

PhP 8,500 + PhP 400 = PhP 8,900

Therefore, your Quarterly Income Tax Return for that certain period is PhP 8,900. It's quite high, I know. That's the sad part. And you have to do this thrice a year!

BIR-form-1701Q 1st quarter

2nd Quarter Computation

For the second quarter, for example your gross income is still PhP 120,000. 

Using the OSD way, deduct 40% from your gross income.

PhP 120,000 x 0.40 = PhP 48,000 --> This is the 40% of your gross income

PhP 120,000 - PhP 48,000 = PhP 72,000 --> This is your taxable income for this quarter

NOW, here's how the computation differs from that of the first quarter. You need to add your taxable income from last quarter. 

PhP 72,000 + PhP 72,000 = PhP 144,000 --> This is your taxable income to date

Using the tax table above, you tax due is computed this way: PhP 22,500 + 25% of the excess over PhP 140,000.

PhP 144,000 - PhP 140,000 = PhP 4,000 --> It is the excess so get the 25% of this

PhP 4,000 x 0.25 = PhP 1,000 --> This is the 25% of the excess

PhP 22,500 + PhP 1,000 = PhP 23,500--> This is your tax due

BUT, since you've paid last quarter, you can deduct your tax payment from the previous quarter.

PhP 23,500 - PhP 8,900 = PhP 14,600

Therefore, your total tax amount payable for this quarter is PhP 14,600.

Here's how you will fill-out your Form 1701Q for the second quarter.

BIR-form-1701Q 2nd quarter

3rd Quarter Computation

For the third quarter, for example your gross income is still PhP 120,000.

Using the OSD way, deduct 40% from your gross income.

PhP 120,000 x 0.40 = PhP 48,000 --> This is the 40% of your gross income

For the third quarter, for example your gross income is still PhP 120,000.

PhP 120,000 - PhP 48,000 = PhP 72,000 --> This is your taxable income for this quarter

Follow the same computation flow like what you did on the second quarter. Add your current taxable income to your taxable income from the last 2 quarters.

PhP 144,000 + PhP 72,000 = PhP 216,000 --> This is your taxable income to date

Using the tax table above, you tax due is computed this way: PhP 22,500 + 25% of the excess over PhP 140,000.

PhP 216,000 - PhP 140,000 = PhP 76,000 --> It is the excess so get the 25% of this

PhP 76,000 x 0.25 = PhP 19,000 --> This is the 25% of the excess

PhP 22,500 + PhP 19,000 = PhP 41,500--> This is your tax due

BUT THEN AGAIN, since you've paid the last two quarters, you can deduct your tax payment from the previous quarters.

PhP 41,500 - PhP 8,900 (1st) - PhP 14,600 (2nd) = PhP 18,000

Therefore, your total tax amount payable for the third quarter is PhP 18,000.

Oh my! Yes, if you are earning high, your tax is also high.

Here's how you will fill-out your Form 1701Q for the third quarter.

BIR-form-1701Q 3rd quarter

Annual Income Tax Return

BIR Form 1701 [3 copies]

Period Covered

Applicable Month

Due Date

Annual Return

January - December

April 15 of the
following year

Anyway, remember that all Filipinos are entitled to personal exemption of PhP 50,000 deduction from your annual gross income, regardless of your marital status. If you have children declared as dependent, there's an additional exemption of PhP 25,000 per child (but up to 4 children only).

Using same example, if you are earning PhP 40,000 per month, you have a gross income of PhP 480,000 per year.

Declaring deductibles is still applicable here. So using the OSD way, deduct 40%.

PhP 480,000 x 0.40 = PhP 192,000 --> This is your Optional Standard Deductible

PhP 480,000 - PhP 192,000 = PhP 288,000 --> This is your taxable income after deducting OSD

Let's say you have 1 child, now you can deduct a total of PhP 75,000 exemption from your gross income. However, you need a waiver if the wife is claiming the additional exemption. Otherwise, BIR won't allow such exemption.

PhP 288,000 - PhP 75,000 = PhP 213,000

annual ITR tax table

Looking at the table above, your taxable income belongs to the one in red box.

Your tax due is computed this way: PhP 22,500 + 25% of the excess over PhP 140,000.

PhP 213,000 - PhP 140,000 = PhP 73,000 --> It is the excess so get the 25% of this

PhP 73,000 x 0.25 = PhP 18,250 --> This is the 25% of the excess

PhP 22,500 + PhP 18,250 = PhP 40,750 --> This is your tax due

BUT, since you've paid for the last 3 quarters, you can deduct those on this amount.

Looking back, you have paid PhP 8,900 on the first quarter, PhP 14,600 on the second quarter, and PhP 18,000 on the third quarter.

PhP 8,900 + PhP 14,600 + PhP 18,000 = PhP 41,500 --> This is the total amount you've paid on the last 3 quarters. Deduct this on your tax due.

PhP 40,750 - PhP 41,500 = PhP -750

Therefore, your Annual Income Tax Return for that certain year is PhP -750! Yes, it's a negative. This means that you have an overpaid taxes. What will happen do this excess, you ask? Well, you can either choose 'to be refunded' or carried over as a tax credit for next year / quarter.

BIR Form 1701 has a lot of pages and more complicated so I'm only showing the first page and second page as sample.

BIR-form-1701 p1
BIR-form-1701 p2

Annual Registration Fee (COR Renewal)

BIR Form 0605 - Payment Form [3 copies]

Due Date: January 31

Remember paying this during the time when you're still on the registration process? You have to pay the annual registration fee every January. This is also called the COR renewal. After paying, bring your copy of payment form and the receipt from the bank to the BIR. Also bring your Certificate of Registration to get a new one. This time, you won't need the BIR Form 1901.

BIR form 0605

Important Things to Remember

  • Pay your taxes before the due dates to avoid long lines in the bank. For other payment methods, you can use Gcash, eFPS, or Taxumo. (I will have a separate post for these options, so stay tuned!)
  • Remember that you can only pay at Authorized Agent Banks wherein your RDO has jurisdiction. Example, if your registered address is in Pasig, you can only pay at the authorized banks within that area. You can't pay on authorized banks of other RDO because there's a penalty.
  • Take note that the figures shown above are just a sample, so the amount may vary on your actual computation of your own taxes.
  • Do not skip filing you tax returns to avoid penalties.

That's it! Before I end this post, I have a confession to make. While writing this guide, I regret that I registered at the BIR. Seeing those figures to be paid to our corrupt government, I can't help but feel sad. Even so, paying taxes is a civic duty and we will also benefit from it. And for personal reasons, I really need an ITR so I have no choice but to pay taxes. I know many of you need an ITR as well. Unfortunately, we can't obtain one if we don't pay taxes.

Also, if you feel so confused about the computation of your tax due, worry not! There is a software from the BIR called eBIRForms where the forms are automatically filled up. And when you enter your earnings, it will automatically compute your tax due. Awesome, right? Here's a detailed post about using eBIRForms for filing tax return.

I would​ like to thank my accountant friend Narciso Pacamara, my fellow freelancers Allan Alcaparas (CPA), and Kate Villanueva (long-time taxpayer) for helping me make this ultimate guide more detailed and accurate.

About the Author Kaila Sharlene

I am a freelance web designer, web developer and SEO specialist – one of the “Top Rated” web designers on Upwork. Living a digital nomad lifestyle, our family loves to explore the outdoors together while doing some freelance jobs in between. Know more about our family adventures at wyattmaktrav.com – named after my son Wyatt Maktrav.

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  • Nah says:

    Hello Ms. Kaila. I just got my COR for my apartment business and now I’m trying to learn all the taxes I have to pay then I saw your article which I can say is very helpful especially for a newbie. I just wanna know if i can use the OSD way wherein 40% is automatically deducted from quarterly income? Can this be applied to all types of business?

    • Yes, this is applicable to any types of business. You can choose the 40% OSD since it’s the easiest method. But if you think that your expenses will be greater than 40%, go for itemized. However, you’ll have to bookkeep everything. So I suggest the OSD way. 🙂

  • Virgil says:

    Hi! What to do in case when filing for the annual income tax return, you overpayed. Do you still go to the authorized bank to submit the forms without something to pay?

  • Joie says:

    Hi,
    Can freelancers just file annual ITR for mixed income from compensation and freelancing without having to register to BIR (I mean without having the BIR Form 2303, not issue receipts) but voluntarily pay for annual tax?

    Thanks.

    • Hi Joie,
      If you want to file as a mixed-income earner, you still need to have everything that a self-employed has, including the receipt. The computation of taxes will be different from the sample forms above though.

  • Carlo says:

    Thanks for the fast response! I’m planning on going to my RDO next week and update my status but my problem is that I haven’t paid any taxes since I left my previous company (last Dec, 2016). The reason for that is because I’m really not aware about freelancer’s tax responsibilities and I’m a newbie when it comes to taxes. I just got curious with it when I saw a lot of my friend’s status in FB and they’re stressing about the deadline in filing of ITRs (last April 15).

    Am I going to be penalized or audited for what I have done?

    Btw, can I ask if what receipt are you using in your Upwork earnings?

    Thanks again!

    • No, you won’t be penalized because you haven’t updated your status yet. 🙂 Once you have updated your status and you’ve got your COR (Certificate of Registration), only then you are required to file and pay taxes.

      The receipt I’m referring to is the printed “Official Receipt”, with my name on it and TIN number and stamped by the BIR. I emailed you the picture of receipt I’m using. 🙂

  • Carlo says:

    Hi! When you’re filing your monthly percentage tax and quarterly ITRs, did they require you to submit certificate of earnings or pay slips from your client?

    And also since you’re an Upwork freelancer, did you use Upwork’s Certificate of Earnings when filing these tax returns?

    • Hi Carlo,

      The BIR doesn’t require freelancers to submit the certificate of earnings or payslips from clients. Since BIR doesn’t have proper rules for freelancers about paying taxes, it’s actually on freelancer’s discretion now. Also, my earnings aren’t from Upwork alone. I have earnings from my direct clients and from my blog so the COE shouldn’t be the basis. What I do is I bookkeep my earnings. I use the receipt and put whatever amount I received when converted to peso. Although we really don’t issue receipts to foreign clients, it’s part of the requirement for filing taxes. I just throw the original copy and keep the carbon copy of the receipt.

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