How to Compute Your Taxes as a Freelancer (as of 2017)

February 8, 2018
by Holly Ocaya 
Holly started freelance writing in 2010. As someone who has not graduated from college, she is living proof that you don't need a degree, education, or experience to be a good freelancer. Nowadays, Holly provides support for aspiring freelancers and works on her own writing endeavors.

NOTE: I wrote this article to give freelancers an idea how much they should budget for taxes. The tax forms and computations on the examples are based on my tax filing for 2017 and does NOT reflect new forms (2551Q, etc.) and TRAIN updates for 2018.

During our taxation webinar last Sunday, I realized that many are still confused about paying taxes. It doesn’t help that the entire process seems painful and complicated.

If the government wants us to pay taxes, why don’t they simplify the procedure? - I have no idea.

But since the law says that we MUST pay and that it's a crime to do otherwise, then let's just be good citizens. Also, an Income Tax Return (ITR) is a powerful document required for visa/credit card/HMO/housing/car loan applications, so it comes in handy.

Here's a guide to show you how to fill out tax forms and how much you should expect to pay in taxes, as a freelancer.

Please note that I am NOT an accountant or a tax expert. Everything I've written here are based on how I filed my taxes last year, from my several kulit visits to BIR. (Yes, the BIR reps in my RDO were nice and patient enough to teach me.)

Since this will be based on last year's computations, the tax forms will NOT reflect the new TRAIN Law changes. I’ll be noting the new amounts at the end, just to give us an idea on what to expect. I'll update this post after I file my 2018 income taxes.

Now let me introduce you to my fictional friend, Maria. She is a Filipino freelancer whose:

  • source of income comes solely from online freelancing
  • clients are foreigners and are not residing in the Philippines
  • tax registration is NON-VAT

Being a NON-VAT business entity simply means that you are earning less than 1.9 Million pesos a year in gross sales (or less than 3 Million pesos as per the TRAIN Law).

If you aren’t a registered taxpayer yet, first read my step-by-step post on how I registered as a self-employed professional here.

As a registered taxpayer, BIR will give you a Certificate of Registration (COR) that looks like this. It will show you the tax forms you are expected to file.

As per Maria's COR, she is required to file and pay:

1.Registration Fee

She needs to fill out the BIR 0605 form and pay the P500 registration fee by January 31st of every year.

2. Percentage Tax - Monthly

She needs to fill out the 2551M form and pay 3% of her gross monthly sales by the 20th of every month. (Update: Percentage taxes are going to be filed quarterly using the form 2551Q for 2018.)

3. Income Tax

There are 2 income tax forms:

a. Form 1701Q is filled out every quarter. The tax dues must be paid by April 15 (for the 1st Quarter), August 15 (for the 2nd Quarter), and November 15 (for the 3rd Quarter). This is computed differently depending on your income bracket. I’ll explain more of this in the example.

b. Form 1701 is the annual income tax form due every April 15th of the next year. It’s actually just the summary of all your earnings for the year, so you fill this form instead of your 4th 1701Q.

Now, let me walk you through filling out and computing for each tax form.

For January 2017, let's say that Maria earned a total of P30,000 pesos from her freelancing clients.

Computation: P30,000 x 0.03 = P900

Her first 2551M form should look like this:

She has to file and pay this before February 20.

You may download and install the e-BIR forms from the BIR website which automatically computes your tax dues. It works well, although I've seen this app get cranky at times. So it always pays to double-check.

You’ll need to sign the form, make 3 copies and go to an accredited bank to pay your tax dues.

Another example:

For February 2017, Maria got more tasks and earned P40,000 pesos online.

Computation: P40,000 x 0.03 = P1200

Here’s how her 2551M form should look:

The computation here is totally the same - just 3% of your total earnings. Remember that this must be filed and paid before March 20 to avoid penalties!

Now, let’s say that in March 2017, Maria lost her internet connection 🙁 For some reasons, her ISP took the entire month to fix it!

Sadly, Maria did not earn anything this month. Here’s how her 2551M form should look like:

Maria still has to file this 2551M form, even when her earnings are ZERO, before April 20.

We MUST remember this because, as freelancers, we don’t always get a steady flow of clients. But always remember to still file your tax forms and declare zero income to avoid getting penalized.

Now that Maria has her March earnings, it's now time for her to fill out the 1701Q form for the 1st quarter (January, February, March). This must be filed and paid before April 15, 2017.

For this form, she needs her total earnings for the quarter:

January – P30,000

February – P40,000

March – P 0

Gross Income for Q1: P70,000

Next, she also needs her total expenses because they are allowable tax deductions. For freelancers, our business expenses usually consist of paid apps, software, Upwork fees, courses, internet, electricity, and electronics.

Now, there are two ways to declare your expenses to BIR.

The first one is through Itemized Deductions. Personally, I don’t recommend this to online freelancers because of two reasons:

  1. It’s time-consuming to track every expense.
  2. BIR requires Official Receipts or other documentation for every item you list. Since most of our business-related transactions or purchases are done online, I think it’s a hassle getting and compiling all these.

I will be skipping how to declare Itemized Deductions step-by-step because I didn't choose this, and therefore, don’t have any experience doing this option.

Instead, I chose the 2nd method called the Optional Standard Deduction (OSD). According to BIR’s Guidelines and Instructions, taxpayers may declare “a maximum of 40% of their gross sales or gross receipts shall be allowed as deduction in lieu of the itemized deduction.”

See why I prefer this more?

If you choose OSD, your total expense is automatically 40% of your gross sales. No need for any Official Receipts or any records whatsoever! Easy-peasy!

Now back to our example, Maria chose OSD as her method of deduction (of course!). Since her total gross sales for Q1 is P70,000, her total business expenses is:

Computation for OSD: P70,000 * 0.40 = P28,000

So, deducting her expenses from her total sales, her taxable income is P42,000.

Filling out her 1701Q form, it should look like this:

The computation for income taxes depends on how much your taxable income is. Following BIR's old tax table:

Computation:

Since Maria's taxable income is P42,000, it falls under this bracket -> P 2,500 + 15 % of the excess over P 30,000

P2,500 + 0.15 (P42,000-30,000) = P4,300 -> tax due for 1st Quarter

There you go. You just filed your 1st Quarter Income Tax Form (1701Q). Remember that this must be filed by April 15 of the same year. (For TRAIN changes, this should significantly lower. I'll show the computation later.)

Don’t forget that you still need to file your Percentage Taxes (2551M) every month! The Percentage Taxes are completely separate from your Income Taxes, so there will be months you’ll have to prepare both forms. img class=

I won’t compute for the percentage taxes (2551M) of all the remaining months ‘coz they’re similar to the ones I’ve already shown. But let’s take a look at the remaining Income Tax Forms computation.

For simplicity, let’s just assume that Maria’s earnings for the rest of the year are at P30,000 monthly.

Maria’s Earnings:

April – P30,000

May – P30,000

June – P30,000

Gross Income for Q2: P90,000

                              Total Expenses through OSD: P90,000*0.40 = 36,000

 Taxable Income: P90,000 - 36,000 = P54,000

For the 2nd Quarter form, your tax due will be computed from your Taxable Income To Date (as shown in 36A). Your Taxable Income To Date is the sum of your current taxable income and the previous quarter's (as shown on 35A).

Taxable Income this Quarter: P54,000

Taxable Income last Quarter: P42,000

Taxable Income to Date: P96,000

Using the old tax table, P96,000 falls under this computation -> P8,500 + 20% of the excess of P70,000

So, P8,500 + 0.20 (P96,000-70,000) = P13,700

Then, deduct the amount you paid the previous quarter from the tax due (as shown in 38C).

P13,700 - 4,300 = P9,400  -> tax due for the 2nd Quarter 

(to be filed and paid before August 15)

Maria's Earnings for Q3:

July – P30,000

August – P30,000

September – P30,000

Gross Income for Q3: P90,000

  Total Expenses through OSD: P90,000*0.40 = 36,000

 Taxable Income: P90,000 - 36,000 = 54,000

For the 3rd Quarter form, you'll have to add all your taxable income in the previous quarters (as shown on 35A) to get your Taxable Income To Date.

Taxable Income for Quarter 1: P42,000

Taxable Income for Quarter 2: P54,000

Taxable Income for Quarter 3: P54,000

Taxable Income to Date: P150,000

Using the old tax table, P150,000 falls under this computation -> P22,500 + 25% of the excess of P140,000

So, P22,500 + 0.25 (P150,000-140,000) = P25000

Then, deduct the amount you paid in the previous quarters (as shown in 38C).

Tax Payment in Q1: P4,300

Tax Payment in Q2:  9,400

Total Tax Payments for Previous Quarters: P13,700

P25000-13700 = P11,300 -> tax due for Quarter 3

(to be filed and paid before November 15)

Now, for the 4th Quarter, you won't be filling out another quarterly form. Instead, we'll fill out an annual form, Form 1701, to summarize our yearly earnings. This needs to be submitted by April 15 of the next year.

To prepare her 1701 form, let's look at Maria's total earnings for the year 2017:

January – P30,000

February – P40,000

March – P 0

April – P30,000

May – P30,000

June – P30,000

July – P30,000

August – P30,000

September – P30,000

October – P30,000

November - P30,000

December – P30,000

Total Sales: 340,000

Total Expenses through OSD: 340,000 * 0.40 = P136,000

Taxable Income (before exemptions): P340,000 - 136,000 = P204,000

Because Maria is single and has zero dependents, she can claim for a personal exemption of P50,000. This can be deducted from her taxable income for the year.

So:

P204,000 - 50,000 = P154,000 -> Total Taxable Income

Using the old tax table, her taxable income bracket is within this computation: P 22,500 + 25 % of the excess over P 140,000

P22,500+ 0.25 (P154,000-140,000)= P26,000 -> Total Tax Due for the Year

But since she has already made payments 3 times in her quarterly forms, she can deduct the total from her tax dues:

Total Income Tax Payments:

P4,300 (Q1) + 9,400 (Q2)+ 11,300 (Q3) = P25,000

P26,000 - 25,000 = P1,000 -> Tax Due upon filing her 1701 form

In cases where the tax due is negative, you may apply for a tax refund or a tax credit which can be deducted on your next tax form (as highlighted on the form).

In summary:

If you're a freelancer earning around P30,000(ish) monthly, you'll pay around P26,000 for income taxes a year, plus the P900-P1500 monthly dues, and the yearly P500 registration fee.

Under the new TRAIN law, the income taxes will significantly lessen while the percentage taxes and registration fee remain the same. According to the new tax table released by BIR, if your gross monthly income is P20,833 or below (P250,000 a year), your income taxes should be ZERO.

Source: bir.gov.ph

In Maria's case above, since her total gross sales were P340,000, her tax due will be 0.0 + 20% of the excess over P250,000 which is roughly around P18,000 (still a lot less than the P26,000 tax due using the old table).

There you go! I hope you find this helpful, guys.

Also, if you think all these computations, deadlines, and different forms are too much to handle, you might consider passing on all the work to Taxumo.com. They help file your taxes for you. Seriously guys, spending around P800 a month is super worth it for the convenience you'll get.

Don't forget to type the Coupon Code: FLIP when you create an account to get 1 FREE Month and a P500 discount (if you get an annual tax filing plan).

See you around!

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by Holly Ocaya 
Holly started freelance writing in 2010. As someone who has not graduated from college, she is living proof that you don't need a degree, education, or experience to be a good freelancer. Nowadays, Holly provides support for aspiring freelancers and works on her own writing endeavors.

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10 comments on “How to Compute Your Taxes as a Freelancer (as of 2017)”

  1. Hi, Ms. Holly! Thanks for this detailed instructions. I am soon to register as a self employed individual in BIR. I've been looking for a clear guide in computing my future taxes as it somewhat confused me, especially when I read other blogs regarding it. Thanks for the clear instructions! Looking forward to future updates in relation with now being implemented TRAIN Law.

  2. Panu ba nila malalaman kung magkano earnings natin as freelancer? Mag iinvistigate ba sila regarding sa bank account natin?

  3. Hi Holly!

    Umattend po ko ng seminar kanina, kakaregister ko lang po nung feb 19, mejo magulo ung seminar, ang nakalagay po s COR:
    Tax Type
    Income Tax
    Registration Fee Percentage Tax - Quarterly

    2551Q na raw po pra s percentage tax pero wla pang forms pati 1601EQ form...tapos wla kong narinig na 1701Q pra s quarterly income tax..wala rin computation na sinabi..ang options dw OSD, Itemized & 8%?? tapos pag may questions email n lng dw sila..

    1. Hi Ays, thanks for sharing. Yes, I heard nga din na quarterly na ang percentage tax under TRAIN so 2551Q na raw yung form.

      Mejo wala pa ngang sure answers kapag ng.iinquire ako about sa pag-file ng Income Taxes this year, lito pa din sila sa TRAIN changes heheh

      I'm filing through Taxumo this year para sure, until maayos na ung transition into the new tax law 🙂

      1. Meron pa rin bang Quarterly Income Tax? ang sabi po kasi sakin 2551Q Percentage Tax, Annual Income Tax & Reg Fee lng. Thank you.

        1. Meron last year, I'm not entirely sure this year (baka naging Annual nlng since ginawa ring Quarterly ung Monthly Percentage?)

          1. Hello Ms. Holly, I already registered as a freelancer and got my COR today. Kaso, sobrang lito ako sa explanation nung nagseminar, parang lito din sya sa case nating mga freelancers. I wanted to know sana which form should I use in filing my Income Tax, should it be filed monthly or quarterly or annual nalang? Because in my 1901, it was not even indicated by the BIR staff. I totally forgot to ask nadin about it during the time na nandun ako. Kasi kapag time ko na para bang lagi silang nagmamadali na matapos ung inquiry mo. hayyys. Anyways, I also asked and pumili sa officer of the day to ask that, he just direct me to the BIR website, basahin ko daw ung nandito sa file na ito https://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202018/RR%20No.%208-2018.pdf. Pero nalilito parin ako. I'm looking forward po sana sa blog nyo about the filing of tax for this year 2018. So far, I find your blog really easy to understand. Thank you po and looking forward to your reply.

          2. Hi Jiez, oo nga. Sad to say, but nung nag-seminar ako, they also had no idea para sa mga online freelancers.

            About the Income Tax, what does it say sa COR mo?

            Nabago na kasi ang filing this year dahil sa TRAIN. Yung Percentage Taxes (2551Q) are filed quarterly na and yung Income Tax - you have 2 options.

            One is to file Quarterly Income Tax (1701Q) or to pay 8% Flat Income Tax for Gross Annual Sales.

            Here's a good Taxumo article to figure out which option to take: https://blog.taxumo.com/tax-savings/new-options-tax-reform-train/

            I hope to update this blog for 2018 din soon. But I'm still about to file my Q1 taxes and see how it goes. =) Aja!

  4. Wow.

    Thank you for writing this. This is a really good guide for freelancers looking to do their part for the development of our country and their respective industry 🙂

    Looking forward for an update soon 🙂

  5. Hello Ms. Holly! This is by far the most informative post that I read about filing tax for freelancers. Do you already have the updated one which consist the topic about the new tax reform this year 2018? I'm planning to register this year kasi. Also, do you have the guide on how to register from being regular employee to becoming freelancer? Would appreciate your feedback. Thank you very much.

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