Withholding tax


Fri, Apr 6, 2012 


hi Al! I thank you so much for your website. super nakakatuwa.
I'm a freelance artist based in Manila. okay lang po ba to ask questions? =)
kasi, I registered last Nov pa sa BIR as professional/self-employed artist.
They gave me 3 types of taxes to file:
1,Percentage
2.Income
3.Withholding tax
is withholding tax really a must for freelancers? Kasi based on what I read on your site you only pay income and percentage...
then, what is the difference of annual and quarterly tax?

I already deducted from my income the quarterly tax, and then i will AGAIN deduct it sa annual? hindi po ba doble na iyun?
thank you, and I hope you can help me with this. =)


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Sat, Apr 7, 2012


Hi Karlene, thank you for writing. :)

I thank you so much for your website. super nakakatuwa.

You're welcome. Thank you for dropping by the website. :)

I'm a freelance artist based in Manila. okay lang po ba to ask questions? =)

Welcome to the freelancing business. Sure, I'm glad to be of help. :)

Is withholding tax really a must for freelancers? Kasi based on what I read on your site you only pay income and percentage... 

Thank you for reading. :) That's correct. Besides paying for the annual registration fee, I pay for income (i.e., quarterly and/or annual) and percentage taxes. 'Yan e, kung may trabaho. :D Kaya salamat naman sa Lord sa mga trabahong pumapasok. :) 

Now, the answer to your question may either be yes or no--depending on the freelancer's situation. If, for instance, as a freelancer, you hire people to work for you, then yes, you might have to pay for withholding tax and also for the social benefits of your hired staff, as required by law. One's freelance business status will then determine the registered activities noted on his BIR Form 2303 or BIR Certificate of Registration. 

I'll give you an example for the "no" answer. Let's say a company hired you as their freelance artist. This may mean you don't report daily to their office, but you work from your home and deliver the work to them as agreed. In my understanding, the company that hires people and compensates them for their work or service is in effect defined as an employer. As an employer, the company is required by law to pay withholding tax. The company will then deduct a certain percentage (15%) from your fee. 

Now, did you just spend paying for withholding tax? Initially, a portion of your income was paid to the BIR, but then you can have that back in the form of "deduction" and so diminish the taxes you will have to pay later. 

(See BIR Form 1701Q of July 2008. Whichever is applicable, look for Creditable Tax Withheld for the Previous Quarter/s  or Creditable Tax Withheld per BIR Form No. 2307 for this Quarter under Less: Tax Credits/Payments.

BIR Form 2307 will be issued by the company or you may request them to issue one for you. You will attach this form to BIR Form 2551M or BIR Form 1701Q. 
 
Then, what is the difference of annual and quarterly tax? 

In my understanding, the annual income tax covers one's gross earnings and corresponding taxes in one year, including the 4th quarter. Quarterly income tax, on the other hand, covers only one's gross income every three months, except the last three months. We file for the first, second, and third quarters separately, but not the 4th quarter. One's gross quarterly income also determines when one will have to present a financial statement, especially if his gross quarterly earnings exceed PhP150,000.

I already deducted from my income the quarterly tax, and then i will AGAIN deduct it sa annual? hindi po ba doble na iyun?

Not at all. Deductions are only made once. For instance, in Form 1701Q, see #37 for Tax Due. Then see #38 for Less: Tax . . . /Payments, then #38C/D following. Sabihin nating may tax ka na PhP500 sa 3rd quarter, pero nagbayad ka ng PhP500 nung 2nd quarter, may babayaran ka pa ba sa 3rd quarter? Wala na. We don't deduct all quarterly taxes paid every time, just the one from the most recent quarter. 

With Form 1701 (the Nov. 2011 version), we take note of page 2, #33 for Less: Tax . . . /Payments, then #35C/D for Tax Payments for the First Three Quarters. So, let's say, your #33 is PhP500 and your #35C/D is also PhP500. Then, #36 or Net Tax Payable is zero.

E, 'di parang hindi tayo nagbayad ng tax? Nagbayad naman. Pero mapapansin natin, nabawasan `yung buwis na binayaran natin. What I understand from these computations is that our taxes are intentionally diminished so that we're not overburdened in paying for them, especially when we have faithfully paid our tax dues in the previous quarters. :)

Thank you, and I hope you can help me with this. =)

You're welcome, Karlene. I hope too that this helps. :)


Sincerely,
Al