In this world nothing can be said to be certain, except death and taxes. – Benjamin Franklin
A lot of online workers have been getting away with NOT paying taxes. I understand that many of us justify not giving our hard-earned money to corrupt government officials. Why pay taxes when you know most of what you’re paying will just line the pockets of greedy and corrupt politicians?
But paying taxes is each Filipino citizen’s obligation. Contrary to popular belief, taxes don’t just go to dirty politicians’ pockets. They also go to building schools, bridges and hospitals. Not paying taxes actually hurts the people who need it most– like students, patients, and farmers– more than it punishes corrupt officials.
With the recent barrage of high profile stories in the media about online workers earning millions, the BIR is looking for ways to catch and punish people who don’t pay taxes. It won’t be long before the BIR finds an online worker and makes an example of him.
Besides helping those who need it most and avoiding becoming a public example, paying your taxes also makes it easier for you to obtain a loan, credit card, passport or visa because these applications all require your tax documents.
Think about it this way– filing and paying your taxes NOW will protect you from the wrath of the BIR in the future.
As Easy As RFP?
The TV ads make it all look so easy. Just register, file and pay.
But the truth is the BIR is still working on how to categorize online workers. We’re not employees in a traditional sense. In some ways we are business owners but most of us don’t operate the same way most businesses do. It’s this limbo situation that complicates the tax system for online workers and discourages many from filing.
To make things easier, we consulted with a BIR certified accountant who has a lot of experience with online workers. Not only did he explain in great detail how online workers can register, file and pay, he also taught us how to compute taxes, so you only pay exactly what you owe; no more no less.
You must pay taxes. But there’s no law that says you gotta leave a tip.– Morgan Stanley advertisement
Disclaimer: The advice below is for people whose income is mainly from their online job. Those who have regular jobs or businesses in addition to their online job would fill out the following forms differently. We are not tax experts and the best person to talk to would be your bookkeeper or accountant.
Getting your Taxpayer Identification Number (TIN)
The first step to registering as an online worker is getting your tax identification number or TIN. If you already have a TIN, you’re good to go! You don’t need to get a new one.
If you don’t have a TIN yet, you can easily get one through the BIR e-registration system. Once you secure your TIN, you need to pay a Registration Fee of P500 to Authorized Agent Banks (AABs) within your tax area. You can also pay through the following BIR-accredited payment facilities:
Once you have the receipt, you can go to your local BIR office to obtain your TIN card.
With your TIN card in hand, you can begin the process of registering as a self employed individual.
Online Worker Registration
Below are the documents you need to prepare. To make things easier, we’ve put them into a checklist for you to use as you prepare your documents.
- NSO certified birth certificate,
- NSO certified marriage certificate (if married),
- community tax certificate (cedula)
- Certification from your barangay captain (to certify your address)
- BIR Form 1905 (for those who already have a TIN and used to work in an office, to change your Regional District Office)
- BIR Form 1901 (registration form page 1 and page 2)
- BIR payment form (Form 0605)
To better understand how things work, let’s follow Jose, an online worker, as he registers and pays his taxes.
Forms, Forms, Forms
The hardest thing in the world to understand is the income tax. –Albert Einstein
It’s understandable how a great mind like Albert Einstein found it hard to comprehend income tax. Quantum physics is easy compared to the mountain of paperwork we have to fill out just to register, file and pay our taxes.
Thankfully, our imaginary online worker, Jose, is going through the registration process and is kind enough to show us the ropes.
One of the things people find most challenging about the Filipino tax system is the complicated forms. Jose is making the process easier for us by filling out the form with his imaginary information in red ink, so we’ll have a good idea of how to fill out our own forms.
Certificate of Registration (Form 1901)
First thing Jose needs to fill out is Form 1901. When filled out, Jose’s form will look like this:
Since Jose earns exclusively through his online job, he’s considered a self-proprietor/independent contractor. These are the taxes that he has to declare:
As an independent contractor, Jose needs to issue receipts for any transaction over P25 and keep a disbursement book of his business expenses.
Jose is married and working. He needs to declare these as they impact his deductible. He and his wife will also be filing their annual income taxes jointly. If Jose were single, he could skip this part.
Jose and Maria have one child and they agreed that Jose should be the one to declare their son, Juan, as a dependent. Jose does this because parents are entitled to additional exemptions per child (up to 4 children.)
To pay for his Certificate of Registration (COR), he’ll have to fill out BIR form 0605 (a.k.a. Payment Form) in triplicate to pay for it. The COR costs P500. Jose will also have to pay an annual fee every January to renew his COR.
The Payment Form (Form 0605)
Filipinos who are used to paying their own taxes will be familiar with form 0605 because it’s the form you have to fill out to pay for almost every kind of tax. Basically it’s like an invoice from the BIR that you have to fill out yourself.
Below is how Jose fills out his 0605 as he pays for his COR.
Since he’s using the 0605 to pay for his COR, he only has to fill out the fields below.
As you can see, he’ll be using this form again in the following months to pay for his percentage and income taxes. But for now, this is all he needs to fill out on form 0605 (plus signature).
Once he has his 1901, 0605 and other documents ready, Jose can go to his local BIR office and submit them.
The Run Around
After submitting the documents and forms listed above, Jose will have to attend a seminar conducted by the BIR examiner in order to get his COR. The seminar usually lasts from 1 to 2 hours. After the seminar, the BIR examiner will give Jose the date when he can claim his COR.
To be safe, Jose brought his book of accounts with him to the seminar so he could register it. He’ll be using that book of accounts to document his business expenses and earnings. He needs to register a new book for every fiscal year.
Once Jose receives his COR, he’ll bring a photocopy of the COR and form 0605 he filled out to pay for his COR to a BIR accredited printing press to have his receipts printed. (The local BIR branches have this list. You just have to ask for it). The printing press will give Jose 12 booklets (each containing 100 receipts) which will last him 5 years. On average, a printing press will charge between P1,000 to P1,500 for 12 booklets.
One of our commenters is nice enough to allow us to share more information here. Thank you Francis!
“As an online worker, I get a professional tax receipt (PTR) every year from my local municipality/city for Php300. A PTR allows me to practice my online profession anywhere in the Philippines, unlike a business permit that’s costly and limits you only to your registered place of business.
Register at your nearest BIR office as a professional taxpayer using your PTR as one of the supporting documents.
I only declare what goes to my bank account as my gross sales/income when I file tax returns. My proof of sale/income is the official receipts (OR) I issue for BIR compliance. My foreign clients don’t need those receipts, so I just throw away the client’s copy of the OR. On the OR, I only write the amount that was actually credited in my bank account.
I don’t bother myself with deductions, I just choose the optional standard deduction (OSD) to avoid confusion and headaches in deducting expenses when filling income tax returns.”
Let’s Talk About Taxes, Baby!
Now that Jose has his COR, he is a registered taxpayer. As an online worker, these are the taxes he has to pay with the accompanying forms that he will need to fill out:
Monthly Percentage Tax (3% of gross revenue)
- Forms: 2551M and 0605
- Due Date: Every 20th of the month, pay at partner banks
Quarterly Income Tax (based on net income)
- Forms: 1701Q and 0605
- Due Date: April 15, Aug 15, and Nov 15
Yearly and Final Quarter Payment of Income Tax
- Forms: 1701 and 0605
- Due Date: April 15 the following year
Annual Registration Fee (COR Renewal)
- Forms: 0605
- Due Date: On or before January 30 every year
Let’s say Jose, an online worker, earns P10,000 per month. He just finished his registration in January and is going to start paying his taxes. Based on the table above he needs to pay a percentage tax every month and his income tax every quarter.
Your Monthly Taste of (Percentage) Tax
Online workers are exempt from VAT, which qualifies Jose for 3% percentage tax.
So each month, Jose has to pay the government 3% of his total earnings that month. That’s 3% of P10,000 which is equivalent to P300/month. He needs to pay this every month (on or before the 20th) and he can pay at the partner banks. (Listed with your local BIR office)
He’ll need his trusty 0605 to pay his percentage tax. It’s pretty much the same as the 0605 he filled out above but with some differences since he’s now paying for his percentage tax and not for his COR.
He’ll also need to fill out the BIR form 2551M every month. Below is what Jose’s 2551 looks like.
The calculated percentage tax will be reflected here:
Monthly Percentage Tax E- Update
BIR now has e-forms that would allow taxpayers to print pre-filled form containing their information, saving you time writing and computing it yourself. This blog post contains detailed information on how to install the software, use it, and have the forms printed.
Quarterly Income Tax Crisis?
To compute Jose’s quarterly tax, we first need to deduct Jose’s work expenses.
Since Jose earns P10,000 per month, this means he has a quarterly income of P30,000.
Deductibles can be declared in 2 ways: the optional standard deductible (OSD) and the itemized deductible.
For the optional standard deductible, you can automatically declare 40% of your gross as your deductible. The advantage of opting for OSD is you don’t have to itemize your expenses, the BIR doesn’t have to audit your expenses, and is easier to compute.
So if Jose chooses OSD, every quarter, he can automatically deduct P12,000 from his P30,000. This means for the next 3 quarters, his tax will be deducted from P18,000, not P30,000.
Jose can also choose to declare itemized deductibles. This can be cumbersome and requires you to keep receipts, so it’s best to consult with a bookkeeper/accountant if you decide to itemize. However, if you have a lot of deductibles, you can end up saving money using this option. Below are examples of Jose’s itemized deductibles:
- His percentage tax. Since he already paid it, we can deduct P1,200.
- If this is Jose’s 1st time paying taxes as a self employed individual, he can declare the expenses he incurred during registration. That’s P1,500 for the receipts, P500 for the annual registration, and let’s say P1,000 for the NSO certificates, forms, and registration books.
- His SSS, Philhealth and Pag-ibig for that month. Let’s say for SSS, it’s P1,500 for 3 months. For Philhealth and Pag-ibig, it’s P600 for 3 months.
- Whatever expenses he incurred in order to do his job. This includes his internet expenses. Let’s say he monthly internet bill is P1,500. He uses it mainly for work but shares it with his family. He estimates that 2/3 of his monthly internet usage is for work, so he declares a P3,000k.
- And let’s say that for electricity and the depreciating value of his computer he declares a cost of P500 per month. So for 1 quarter, that’s P1,500/month.
When we total Jose’s itemized deductibles, we reach a total of P11,400.
Let’s use the OSD as Jose’s deductible because it’s higher and is a nice round number– P12,000.
Jose’s quarterly income – Jose’s OSD = Jose’s taxable income
P 30,000 — P 12,000 = P 18,000
Since Jose’s taxable income is P 18,000, this means he qualifies in the P 10,000 to P 30,000 category. To compute his taxes due, we’ll use the formula on the table below.
P 500 + 10%( P18,000 – P10,000) = P 1,300
So every quarter, Jose has to pay P1,300.
For the 1st quarter, he has to pay that amount on or before April 15.
For the 2nd quarter, he has to pay on or before Aug 15.
For the 3rd quarter, he has to pay on or before Nov 15.
And to pay this every quarter, he has to fill up and file BIR form 1701q
For simplicity, we’ll focus on Jose’s side and not include his wife’s quarterly income tax. Since Jose’s wife is employed, her boss will handle the processing and filing of her taxes. We will include her info only when it becomes relevant to Jose’s taxes.
And of course, he as to fill out a 0605 to pay for his quarterly tax. At the bottom of that table, he’ll put the amount and sign the form.
He’ll have to do this process 3 times a year. For the 4th quarter, he’ll be filing for yearly income tax which he will pay April the following year.
Who’s Afraid of the Big Bad (Annual Income) Tax?
Let’s say it’s now the following year and Jose has to pay his annual income tax. Here’s when the computation changes since the tax computation is now based on the yearly income. We now take into consideration Jose’s personal exemptions.
All Filipinos are entitled to a basic personal exemption and additional exemptions. Marital status no longer matters. Regardless of whether you are single, married or head of the family, you are entitled to a P50,000 deduction from your gross income yearly. And for every child (up to 4 children), there’s an additional P25,000 exemption.
Let’s say that Jose is a married man with 1 child. This qualifies him for a yearly personal exemption of P50,000 for his married status and P25,000 exemption for his child. This gives him a total personal exemption of P75,000 per year.
Since he earns P10,000, his yearly income totals at P120,000.
Take away the personal exemption of P75,000, he now has a taxable income of P45,000.
Take away his OSD (40% of P45,000) which is equivalent to P18,000, his taxable income is now P27,000.
This means Jose falls within the P10,000 to P 30,000 bracket. Now all we need to do is compute the taxes based on the table above.
P500 + (10% * (P27,000 – P10,000)) = P2,200
And since he’s paid for the past 3 quarters, P3,900. This means we can deduct those payments from his income tax.
P 2,200 – P3,900 = -P 1,700
As you can see, by paying taxes every quarter, the government now owes Jose P 1,700. He can actually have this surplus deducted from his income tax next year. He can also have his monthly percentage taxes deducted from his quarterly income taxes to reduce the amount he pays every month so he won’t be paying in excess.
When this happens, Jose will only be paying P400 per quarter. That means his annual income tax computation will look like this:
Tax Due = P 2,200 – P1,200 (his 3 quarterly income taxes – monthly percentage tax) – P900 (the monthly percentage tax for the last quarter)
Tax Due = P 100
Compared to the 1701q, the 1701 is longer and much more complicated so we won’t show a sample of Jose’s form here. Suffice to say that regardless of whether Jose chooses to take the itemized deduction or the standard optional deduction, he will need an accountant or bookkeeper to help fill out the form since the 1701 requires the signature of an accredited tax agent.
Tax Payment and Filing E- Update
Turns out that BIR now has an online filing and payment system. Once you have your COR, you can register here: BIR Electronic Filing and Payment System. Once your registration is approved, you have to go to your RDO to have it activated. Once you have an active account, you should be able to input your information in the appropriate forms and it also automatically computes for you. I’m in the process of having this done. Will provide more information on how it works as soon as I’m done with the registration itself. Thank you Mommy Azalea for the tip!
Here We Go Again! (COR Renewal)
Every year, Jose will need to register as an independent contractor/ self-employed worker. Luckily for him (and for us), he only needs one form for this– the 0605.
No need to re-fill another 1901. Jose just needs to bring his COR, 0605, and receipt to renew his tax payer status with the BIR.
Model Filipino Online Worker is a Tax Payer
And as you can see, paying taxes doesn’t have to be expensive.
It is a tedious, cumbersome, and at time complicated, but once you have everything in place, the process becomes easier. And with this guide, we hope we’ve helped demystify the process of registering, filing, and paying taxes as an online worker. If you don’t want to handle your taxes by yourself, you can always hire an accountant, bookkeeper, on retainer to do the bookkeeping for you.
Model citizens pay their taxes and there’s no reason why online workers can’t be model citizens too. Paying taxes allows us to do our share in helping to make our country a better place. Paying taxes also gives us the right to give corrupt politicians the finger the next time they spend OUR taxes.