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 and an auditor 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. We also took into consideration the impact of TRAIN and how new BIR regulations are going to affect workers. It’s still a bit complicated but the past few years some things have cleared up.
You must pay taxes. But there’s no law that says you gotta leave a tip.– Morgan Stanley advertisement
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 an online worker.
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)
For the purpose of this blog post, we’re going to focus national taxation (taxes you have to pay to the BIR). Different local government units might have their own taxation systems and rates which we will not discuss here. We also won’t be talking about how to register with the DTI because there are a lot of resources online you can use for that.
Forms, Forms, Forms
The hardest thing in the world to understand is the income tax. –Albert Einstein
The first thing you need to do is get ae BIR Certificate of Registration also known as Form 1901
The upper portion of page 1 of the form is where you would put your name and newly minted tax identification numbers (TIN). We used a fictional worker, Jose, as an example.
Under the TRAIN law, as an online worker you actually have two options on how to pay your taxes. You can pay the graduated income tax, which allows you to make deductions BUT you have to pay a quarterly percentage tax. OR you can pay 8% tax of your gross sales and you don’t need to pay a percentage tax.
Since Jose earns exclusively through his online job, he declares himself as ‘self-employed’ or as an independent contractor. In this case, Jose declares that he opts for the graduated income tax. If he chose the 8% gross tax, he doesn’t need to check the percentage tax. And when he renews his COR next year, he would have the option to change to 8% if he wishes. But for now, he is choosing the graduated income tax.
A Cash Receipt Book is a book where you record all the receipts that have been issued. All transactions over P25 must have a receipt.
A Cash Disbursement Book is where you record all your expenses in the business.
This might seem like an unnecessary hurdle but there’s actually a very good reason for this. This requirement is the BIR’s way of forcing people to get into the habit of record keeping. But if you prefer to submit Excel records instead, you can actually do so. There’s a separate form for it that you can inquire from your RDO.
Before the train law, there are exemptions for married couples and children. But under the new TRAIN law, there’s no need to declare these exemptions anymore. Now all they need to do is to pay for this Certificate of Registration (COR), by filling out BIR form 0605 (a.k.a. Payment Form) in triplicate to pay for it. The COR costs P500. This COR needs to be renewed every January.
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 to fill out the 0605 for the COR.
Since he using the 0605 to pay for her COR, he only has to fill out the fields below.
As you can see, Jose he’ll be using this form again in the following months to pay for percentage and income taxes.
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 them the date when they can claim their COR.
To be safe, Jose brought his book of accounts to the seminar so he could register it. A book of accounts is used to document 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.
Let’s Talk About Taxes, Baby!
Before we dive deeper into taxes, I need to put in another disclaimer here.
Local taxes are different from BIR taxes. Local taxes stay with your LGU and the taxes you pay with the BIR goes to the national government. To know more about the local taxes you need to pay (or don’t need to pay), it’s best to ask your LGU.
Let’s congratulate Jose now that he’s a registered taxpayer. This is where the TRAIN law would make the most impact as taxpayers. If he earns less than P250,000 per year, it’s basically tax free. No need to compute for exemptions. As long as you earn P20,000 or less, it’s tax exempt. BUT you would still need to file through the eFPS to declare it AND to get an ITR.
Now what would happen if you earn more than P250,000 per year. What if Jose earns P30,000 a month?
At this point, Jose would have two options. He can either choose to
- pay an 8% tax on their gross income or
- use the graduated income tax table plus 3% quarterly percentage tax.
How do both methods compare?
|8% Tax on Gross Sales||Graduated Income Tax|
|Advantages||No need to pay 3% quarterly percentage tax, just compute for 8%||You can declare deductions (itemized or optional standard)|
|Disadvantages||You can’t declare deductions||You have to compute for your income tax and percentage tax|
|Forms Needed||Quarterly Income Tax (based on gross income)
Yearly and Final Quarter Payment of Income Tax
Annual Registration Fee (COR Renewal)
|Quarterly Income Tax (based on income after deductions)
Quarterly Percentage Tax
Yearly and Final Quarter Payment of Income Tax
Annual Registration Fee (COR Renewal)
So what does this mean for Jose?
8% Tax On Gross Sales
If Jose opts for the 8% tax on gross receipts and he has an income of P30,000 per month, here’s how much he needs to pay per quarter:
P30,000 * 12 months = P360,000
P360,000 – P250,000 (non-taxable income) = P110,000 (taxable income)
P110,000 * 8% = P8,800 tax due for the year
P8,800 / 4 = P2,200 tax per quarter
Graduated Income Tax
Since Jose opted for the graduated income tax, he will need to pay quarterly income tax and the quarterly percentage tax
Percentage tax = P360,000 (yearly income) * 3%
= P10,800 percentage tax for the whole year
P10,800/4 = P2,700 percentage tax
For his income tax, we need to compute for his taxable income first by subtracting his deductions. He can have itemized deductions (his business expenses) and the optional standard deductions of 40%. (We won’t be discussing how to itemize your deductibles here because its beyond our scope. For more information about this, best consult an accountant or bookkeeper).
Jose can 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:
- Since 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 he is paying P500 per month for SSS, Philhealth and Pag-ibig, each
- 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 that is P1,000 per month.
- 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.
Then we compute for his total deductions for the year = P3,000 (#1) + (P1,500 * 12) (#2) + (P1,000 * 12) (#3) + (P1,500 *12) (#4)
When we total Jose’s itemized deductibles for the year, we reach a total of P51,000. We deduct this from his year income of P300,000
P360,000 – P51,000 = P309,000
Since his taxable income is beyond the P250,000, we’ll need to compute for his taxes using the tax calendar below
P309,000 – P250,000 = P59,000 (taxable income)
P59,000 * 20% (tax rate) = P11,800 (yearly tax)
P11,800/4 = P2,950 tax due per quarter
Optional Standard Deduction
Now let’s use the OSD as Jose’s deductible from his estimated years income, which is 40% of his gross income.
Jose’s yearly income – Jose’s OSD = Jose’s taxable income
P 360,000 — P 144,000 = P 216,000
Since Jose’s yearly taxable income is P 216,000, which is below the P250,000 mark, this means by using OSD he will exempt from paying income tax.
And to pay this every quarter, he has to fill up and file BIR form 1701q
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.
They’ll have to do this process 3 times a year. For the 4th quarter, they’ll be filing for yearly income tax which he will pay May the following year.
I know what you’re thinking, 8% is waaaay lower than 20% initial tax rate after P250,000. But the graduated income tax is more convenient to compute…. and it’s automatically set unless you register and declare that you wish to pay 8% on your gross sales. But there’s a limit. Once you cross the That’s why it’s important to register and declare early on.
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. Since we already know that his yearly tax (using 8% tax) is P8,800 and he already paid in the past 3 quarters P2,200 per quarter, he just needs to pay P2,200.
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 again as an independent contractor/ self-employed worker. Luckily this time he would need just one form for this– the 0605.
No need to re-fill another 1901. They just need to bring COR, 0605, and receipt to renew their 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.