The Urban Roamer’s Taxation Guide for (Part-Time) Freelancers

The previous entry here on the Urban Roamer which talked about the BIR Registration Guide for (Part-Time) Freelancers was a such a well-received post that it warms my heart to see and read messages of appreciation for coming up with the piece, having helped to fill in the pieces that have been blank for a long while. To that I say thank you that somehow I was able to be of help in some way. I appreciate them a lot.

As comprehensive as the entry was, I have to admit it was not able to provide as much important details as possible about taxation for professionals, part-time ones especially. Thus the need for this companion piece which deals about the matters of taxation (part-time) professionals should know. As always, I do not claim to be a taxation expert but I strive to get as much as possible that I hope you’ll be able to learn as well. So feel free to read on below.

ABOUT YOUR TAXES

As was mentioned last time, professionals, even part-timers, are mandated to pay and file returns for two types of taxes regularly: the percentage tax which is filed monthly and the income tax which is filed every 1st to 3rd quarter and yearly as well. So we’ll discuss each one a bit in depth here.

The percentage tax is equivalent of the 3% of the total earnings made on a given month. So if for a certain month you earned P12,000, your percentage tax is P360 in which that amount you will pay to the government for that period. For this, you will file your percentage tax return with Form 2551M on or before the 20th of the month. To make things clearer here, the percentage tax for the month of January must be filed on or before February 20 and so forth.

The good thing is that the BIR now has electronic forms available that would compute the amount for you; you just need to fill out the necessary information and the eBIR form will take care of the rest.

Then there is the income tax that you need to file every 1st to 3rd quarter and every year. (April 15, Aug 15, and Nov 15 for the quarterly income filed with Form 1701Q tax and April 15 for the annual income tax filed with Form 1701) This means that if you registered this year like in my case, on or before April 15 next year, I will be filing 2 income tax returns: one for the annual return (for the year 2015) and another for the 1st quarter of 2016.

Let’s talk first the quarterly income tax. In filing for this tax, you have 2 options in which you can have your gross earnings deducted and not pay higher taxes in the process. One is the optimal standard deduction (OSD) in which 40% of your gross earnings are automatically deducted to cover whatever expenses incurred and especially the percentage tax paid during the period. The other one is the itemized deduction where you need to list down the particulars of the expenses you incurred during the period and requires a bit more auditing. As to which one should you choose in your income tax deductible, I would say it’s up to you and your earning/taxation circumstances as each one is applicable for certain situations. For instance, if you incur a lot of expenses in a given quarter, itemized deduction is the way to go, especially if those expenses are above the 40% OSD that was computed.

The annual income tax on the other hand has a different computation as it now takes into account your personal exemptions (single or married? number of dependents?) in addition to the aforementioned deductions that either of which you can avail. This requires more thorough auditing as you take into account as well not only the expenses but also the taxes you filed in the previous year.

Good thing though that the BIR now has electronic forms for both income tax returns which would handle the tax computation for you so all you need to bother is the accounting of the deductibles at least.

ABOUT THE TAXATION ON YOUR OTHER EMPLOYMENT, THE FULL-TIME ONE…

As part-time freelancers or professionals, you now have two streams of income: one from your freelance/part-time work and that from your regular full-time employment. One debacle that arises with such situation from time to time is about…you guessed it: taxes. As we all know, employees enjoy the benefit of having their company file their income taxes on their behalf (via Form 2316) so you don’t have to be part of the rush that comes on or before April 15.

Now that you are registered for your part-time profession or freelance work, the situation has now changed. While your employer will still file the taxes withheld from your full-time work’s income on your behalf, you would have to attach the 2316 and put in the data in that form in the Form 1701. In effect, the filled out Form 2316 will have data from both your part-time and full-time work taxation data.

1701 screenshot

For more information on the computation of taxes, do check out this excellent guide posted over at the site OnlineJobs.

CONVENIENCE CAN BE SUCH A HASSLE RIGHT NOW

As was mentioned previously, the BIR has been aggressive as of late in pushing for electronic transaction in filing taxes. Thus, the BIR hopes to rid the queues and file your returns online in a number of cases. Which is good and convenient if not for the fact that at this point though, everything is in transition. (i.e. the system is a mess and you can’t get much help on such matter at this point in time)

As far as professionals and freelancers are concerned (both full-time and part-time) from what I understand, BIR is mandating the use of the eBIRForms online system if filing for no returns. Otherwise, manual filing would be the way to go and we just need to print the applicable eBIRForm. I hope to gather more information about this for better understanding but for now, this FAQ link released by the BIR may be of help.

Let us all strive to be responsible taxpaying citizens as we hope the BIR finally finds a way for a better taxation system for all of us.

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