Filipino Online Workers Guide To Paying

Taxes
October 30, 2014 By Julia Jasmine Sta Romana

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 youre paying will just line the pockets of greedy and corrupt
politicians?

But paying taxes is each Filipino citizens obligation. Contrary to popular belief, taxes dont 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 dont pay taxes. It wont 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. Were not
employees in a traditional sense. In some ways we are business owners but most of us dont
operate the same way most businesses do. Its 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 theres no law that says you gotta leave a tip. Morgan Stanley
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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, youre good to go! You dont need to get a new one.

If you dont 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:

eFPS

G-Cash

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, weve 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, lets 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

Its 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 well 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, Joses form will look like this:

Since Jose earns exclusively through his online job, hes 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), hell 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 its the
form you have to fill out to pay for almost every kind of tax. Basically its 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 hes using the 0605 to pay for his COR, he only has to fill out the fields below.

As you can see, hell 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.
Hell 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, hell 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.

Lets 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

Lets 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. Thats 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)
Hell need his trusty 0605 to pay his percentage tax. Its pretty much the same as the 0605 he
filled out above but with some differences since hes now paying for his percentage tax and not
for his COR.

Hell also need to fill out the BIR form 2551M every month. Below is what Joses 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 Joses quarterly tax, we first need to deduct Joses 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 dont have to itemize your expenses, the
BIR doesnt 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 its 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 Joses itemized deductibles:
1. His percentage tax. Since he already paid it, we can deduct P1,200.
2. If this is Joses 1st time paying taxes as a self employed individual, he can declare the
expenses he incurred during registration. Thats P1,500 for the receipts, P500 for the
annual registration, and lets say P1,000 for the NSO certificates, forms, and registration
books.

3. His SSS, Philhealth and Pag-ibig for that month. Lets say for SSS, its P1,500 for 3
months. For Philhealth and Pag-ibig, its P600 for 3 months.
4. Whatever expenses he incurred in order to do his job. This includes his internet expenses.
Lets 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.
5. And lets say that for electricity and the depreciating value of his computer he declares a
cost of P500 per month. So for 1 quarter, thats P1,500/month.
When we total Joses itemized deductibles, we reach a total of P11,400.
Lets use the OSD as Joses deductible because its higher and is a nice round number P12,000.
Joses quarterly income
P 30,000

Joses OSD
P 12,000

= Joses taxable income

=

P 18,000

Since Joses 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, well use the formula on the table below.

Tax Due:
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, well focus on Joses side and not include his wifes quarterly income tax. Since
Joses 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 Joses taxes.

And of course, he as to fill out a 0605 to pay for his quarterly tax. At the bottom of that table,
hell put the amount and sign the form.

Hell have to do this process 3 times a year. For the 4th quarter, hell be filing for yearly income
tax which he will pay April the following year.

Whos Afraid of the Big Bad (Annual Income) Tax?

Lets say its now the following year and Jose has to pay his annual income tax. Heres when the
computation changes since the tax computation is now based on the yearly income. We now take
into consideration Joses 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), theres an additional P25,000 exemption.
Lets 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 hes 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 wont 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 wont show a
sample of Joses 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. Im in the process of having this done. Will provide more information on how
it works as soon as Im 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 doesnt 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 weve helped demystify the process of
registering, filing, and paying taxes as an online worker. If you dont 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 theres no reason why online workers cant 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.