How to Pay Freelancer Tax and Be a Responsible Filipino

Do you need to pay freelancer tax? The answer is yes, but there is an exemption.

There is no reference to “freelancers” in the National Internal Revenue Code of 1997. In principle, though, the tax code states that all income derived by citizens is taxable. Regardless of the source – local or foreign – Filipinos residing in the Philippines need to pay taxes.

Is there a lawful way to avoid paying taxes?

Under the Tax Reform for Acceleration and Inclusion Law (TRAIN), there is an exemption. Individuals whose annual taxable income is P250,000 or less do not have to pay personal income tax (PIT).

The individuals, in this case, refer to:

    • Compensation income earners
    • Self-employed individuals
    • Professionals

Who Qualifies as a freelancer?

As alluded to, the tax code does not mention “freelancers” – not even once. But the nature of freelancing conforms to the general definition of self-employed individuals. They may also belong to mixed-income earners.

Self-employed Individuals

People who engage in trade or business without employing paid workers are self-employed. They may register as an entrepreneur or single proprietor.

Likewise, professionals are also self-employed. In some professions, a license from the Professional Regulation Commission (PRC) is necessary. Others, such as those who pursue arts and sports, do not need a PRC license.

Online freelancers fall under “professionals” and do not need a PRC license to work.

Freelancers are independent contractors who may work full-time or part-time. They may have a fixed or flexible working schedule. Moreover, their compensation can be commission-based, output-based, or project-based.

Mixed-income Earners

It is not uncommon for online freelancers to work part-time. Stay at home moms, for example, work online during their spare time to augment the family income. Others may work with two or more clients. In these cases, they only have one income source, making them self-employed freelancers.

Mixed-income earners are different in the sense that they have other income sources. For instance, they may have a small business or regular job. Freelancing, for them, is a sideline – a means to earn extra money.

Why Do Some Freelancers Refuse or Fail to Pay Taxes?

The estimated number of freelancers in the Philippines ranges from 1.3 to 1.5 million (Piad). Most, unfortunately, do not pay taxes on their freelance earnings.

Even if the annual amount earned qualifies as taxable, there are still reasons not to pay taxes.

Some of the arguments include:

    • Not earning enough to support a family
    • Calculating tax payments is too complicated and confusing
    • Paying tax is a time-consuming process
    • Taxes go to the pockets of corrupt officials and politicians
    • Not aware freelance income is taxable

Regardless of the reasons (or excuses), there is only one root cause for not paying taxes. They – the tax evaders – do not think they could get caught and punished. Such an impression is likely due to the lack of capability on the part of the implementing bodies.

The Bureau of Internal Revenue (BIR), for instance, always goes after large taxpayers. Freelancers are too small and a “waste” of their time.

What Happens to Freelancers Found Guilty of Tax Evasion?

Tax avoidance and tax evasion are not the same.

Tax avoidance is the act of increasing income by using lawful means to reduce tax liability. A hypothetical example would be to keep the total annual revenue below P250,000. In this case, the freelancer does not have to pay taxes, and there are no legal implications.

Tax evasion is failing to pay or underpaying taxes and thus has a criminal nature. The penalties for evading tax have always been severe. But it is worse since the BIR made updates on the TRAIN Law through Revenue Regulations (RR) 13-2021 (de Vera).

If found guilty as a tax evader, the possible consequences are:

    • Imprisonment of at least six years but not exceeding ten years
    • A fine of at least P500,000 but not exceeding P10 million
    • Publishing name of guilty tax evader on BIR website, newspapers, and other media

Besides imprisonment and fine, the BIR may also impose more sanctions. For example, they could set a 50% surcharge on the final assessment amount. Furthermore, they may also charge 12% interest compounded daily.

Do You Need to Pay Freelance Tax Even After Paying Foreign Tax?

Double taxation is legal in the Philippines. It means that even after paying tax in a foreign country, you still need to pay tax here.

The BIR, though, is not going to bleed you dry. You can reduce the effects of double taxation by filing for either one of these two:

    • Tax exemption
    • Preferential tax rate

Foreign tax credits, in essence, exempt you from paying taxes in a foreign country. But this option is only possible if your client is in a country with a Double Taxation Agreement (DTA) with the Philippines. How much tax relief you can get vary by country.

What Taxes Do Freelancers Need to Pay?

Freelancers need to pay an annual registration tax (CoR) fee and three types of personal income taxes.

1. Quarterly Income Tax

Who Needs to File and Pay All self-employed and mixed-income individuals
Tax Rate Based on the graduated income tax rate table or the 8% preferential tax rate, whichever is applicable
BIR Form to File Quarterly Income Tax Return Form 1701Q
Filing Date On or before May 15 (1st quarter), August 15 (2nd quarter), and November 15 (3rd quarter)

2. Quarterly Percentage Tax

Who Needs to File and Pay Self-employed and mixed-income individuals under these criteria: Gross annual sales/receipts do not exceed P3 million; not VAT-registered; specifically required by the law
Tax Rate 2% to 30% of gross sales/receipts
BIR Form to File Quarterly Percentage Tax Return Form 2551Q
Filing Date On or before April 25 (1st quarter), July 25 (2nd quarter), October (3rd quarter), and January 25 (4th quarter)

3. Annual Income Tax

Who Needs to File and Pay All self-employed and mixed-income individuals
Tax Rate Based on the graduated income tax rate table or the 8% preferential tax rate, whichever is applicable
BIR Form to File (for individuals (including mixed-income earners), estates, and trusts) Annual Income Tax Return Form 1701
BIR Form to File (for or individuals earning income purely from business/profession) Annual Income Tax Return Form 1701A
Filing Date April 15 of the following year

How Do You Register as a Freelancer?

There is no specific category for freelancers in the National Internal Revenue Code. Even so, there is still a way to register.

As it is, the nature of freelance work is a mixture of business owners and employees. Freelancers can thus register as self-employed professionals.

Self-employed persons who can register are:

    • Professional Regulation Commission (PRC) licensed professionals. They include physicians, nurses, architects, certified public accountants, engineers, social workers, and more.
    • Freelancers. They include work from home or remote online workers. This stipulation allows anyone venturing into online freelancing to register.

1. Get or Update Taxpayer Identification Number (TIN)

Freelancers and everyone else required by law to pay taxes need to have TIN. Mainly, the BIR classifies taxpayers as either an individual or non-individual/corporate.

Self-employed Individuals

The BIR defines self-employed people as those who engage in trade or business or practice a profession. Hence, the choices are single proprietor, entrepreneur, or professional.

The most appropriate choice is professional for content writers, copywriters, graphics artists, digital and social media managers, virtual assistants, and others.

Mixed-income Earners

Most freelancers work part-time. While some are stay-at-home parents, others have traditional full-time jobs. For individuals who have two or more income sources, choose the mixed-income earner sub-category.

TIN ID Requirements

Registering for a TIN ID as an Online Freelancer

As alluded to earlier, one reason cited for non-payment of freelancer tax is that it is such a hassle. Getting a TIN ID is one example. The BIR eRegistration System is a step towards making it easier for new taxpayers. But only registered employers can use it to get TIN IDs for their employees.

For self-employed and mixed-income earners, there is only one way to register.

Go to the Revenue District Office (RDO).

Keep in mind that the BIR does not keep a centralized record of registrations. It means that taxpayers can only make transactions in the RDO where they registered. Hence, it is best to apply for a TIN ID at the RDO closest to where you live.

Here is the latest list of RDOs throughout the country.

Updating TIN from Employee to Freelancer

If you already have a TIN ID, there are instances in which you want to update your registration info.

    • Quit as an employee and transition to a full-time freelancer. In this case, you are changing your status from employed to self-employed.
    • Stay as an employee while adding freelancing as a new income source. In this case, you are declaring yourself as a mixed-income earner.

Besides changing your employment status, you can also use Form 1905, including:

    • Replacement or cancellation of Certificate of Registration
    • Replacement of lost or damaged TIN Card
    • Cancellation of registration or TIN
    • Change of registered address or activities
    • Chang of RDO

2. Pay the Annual Registration Fee

What do you do after filling up Form 1901 (or 1905)? It is time to pay the annual registration fee.

Requirements:

Start by downloading Form 0605 and printing three copies. Once you have filled them up, you can pay at your preferred RDO. A more convenient way is to pay through an authorized bank.

Here is an updated list of BIR’s Authorized Agent Banks (AAB) throughout the country.

The annual registration fee is P500. Upon making a payment, have three photocopies of the bank payment form and receipt.

In succeeding years, you need to pay the registration fee before January 31 of each year.

3. Pay Other Fees

Besides the registration fee, there are other fees to pay.

    • P15 for the certification fee
    • P15 for the documentary stamp tax

Collect all the receipts and verification slips as you go along.

4. Submit All Requirements and Forms to the RDO

Review the payments and documents required to register as a freelancer. These would include Form 0605, Form 1901 (or 1905), and proof of payments.

Although you can pay BIR fees through an authorized bank, you still have to walk into an RDO.

Ask and proceed to the New Business Registrant Counter and submit your documents.

5. Attend the Required Seminar

What comes next after submitting all documents required to register as a freelancer?

You may hate the thought of attending the Business Registration and Compliance Seminar. But you should. Not only is it required, but it is also to ensure you know your duties and responsibilities as a taxpayer.

6. Claim Certificate of Registration

A business day or two after, BIR Form 2303 (or the Certificate of Registration) should be available.

Along with the certificate are two other documents:

    • “Ask for Receipt” notice
    • Authority to Print (ATP)

7. Apply for Invoice or Official Receipt

You need to issue an invoice or official receipt when billing and receiving payments. It does not matter where the client is – in the Philippines or another country. Even if a client does not need one, you still need to issue a receipt for every collection.

Requirements:

Under no circumstances can you have receipts printed by any printer. The printing press needs to have accreditation from the BIR. As for the prices, that depends on the market rate, number of booklets, and other factors. At prices ranging from P800 to P1,500, and a minimum of ten booklets, receipts are costly. Regardless, you still need to comply.

8. Register Your Book of Accounts

Being a responsible taxpayer is your duty as a citizen of the republic. Hence, you need to familiarize yourself with the concept of managing your books.

Once you place an order with a printing press, it will take time before they can finish your receipts. During this time, familiarize yourself with some accounting skills.

At the very least, you should have these books to record your freelance activities.

    • Journal
    • Ledger
    • Subsidiary professional income book
    • Subsidiary purchases and expenses book

Remember to register your books of accounts by having them signed and stamped at the RDO.

Be diligent in keeping records. Although you do not need to file them, the BIR may need to inspect them as they deem necessary. At the very least, you should keep all books of accounts for at least three years.

What Are the Benefits of Being a Registered Freelancer and Paying Taxes?

Taxation may reduce the amount of money you could spend. But it also brings you several benefits.

    • Enhance your credibility. Being registered and issuing official receipts enhances your professional image. As a result, the clients are more likely to trust you.
    • Have more opportunities. Some companies, especially large-scale businesses, may need freelancers to issue receipts. Considering that many of your competitors are not paying taxes, you have the upper hand in this regard.
    • Income Tax Return (ITR). In the future, you may consider taking out housing or other types of loans. One of the required documents would be an ITR.
    • Avoid criminal liabilities. Tax evasion is a serious crime. Once caught and sentenced, the penalties include fines and imprisonment. You can avoid this by registering and paying taxes on time.
    • Contribute to the economy. As an individual, the taxes you pay may seem insignificant. But as a whole, the total revenue collected if most freelancers pay taxes can boost the economy.

Be a Proud Filipino Freelancer and Taxpayer

Paying taxes is the duty of every Filipino citizen who earns an income. Regardless of reasons and excuses not to pay, the law is unambiguous. Pay freelance income tax or face legal ramifications.

In all honesty, the chances of getting caught as a tax evader are slim. The BIR, with limited resources, can only go after large taxpayers. Small fishes like online freelancers, for example, are usually not on their radar.

If getting caught is unlikely, should you then opt not to register and pay freelance taxes?

It comes down to your morality, ethics, and sense of civic duty. Only you know the truth about who and what you are as a person and a citizen.

Bureau of Internal Revenue

de Vera, Ben O. “BIR Sets Tougher Fines, Penalties for Tax Evasion.” INQUIRER, 25 June 2021. Accessed 2 Nov. 2021.

‌Piad, Tyrone Jasper C. “Next Key Outsourcing Sector in PHL Is Online Creative Freelancing.” BusinessWorld, 28 June 2021. Accessed 2 Nov. 2021.

ROBERT LEE

I write articles that people actually read and Google loves.

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