As the year draws to an end, everyone who earns income must face the inevitable…filing and paying for income taxes. As the popular adage goes, the only thing you can never escape in life is death and taxes. If you don’t want the BIR chief to come knocking at your door to conduct an extensive audit, you better get ready by knowing how much you need to pay for the specific year based on what you earned.
As stated verbatim from the Philippine Tax Code of 1997, income tax is defined as: “a tax on a person’s income, emoluments, profits arising from property, practice of the profession, conduct of trade, or on the pertinent items of gross income less the deductions if any, authorized for such types of income, by the Tax Code, as amended, or other special laws”. Now, the devil is in the details. Let’s get to it!
Who is Mandated by Law to File Income Tax Returns?
You will be expected to file your tax returns if you fall into the following categories below. Take a detailed look to see where you belong.
1. Individuals
- Resident citizens who receive income from inside and outside the Philippines. This is further delineated into several types.
- Those gainfully employed by two or more employers at any time during the calendar year
- An employee whose income tax during the year was not withheld correctly—if the tax due is not equal to the tax withheld resulting to a collectible or refundable return
- Self-employed professionals who receive remuneration from practicing their profession or engaging in trade.
- Individuals receiving a mixture of incomes (ex. Both compensation income and income from the conduct of trade or business and/or practice of profession)
- Individuals getting other non-business, non-professional related income apart from compensation income otherwise not subject to final tax (ex. Rental income)
- Non-resident citizens who receive income from sources within the Philippines.
- Resident or non-resident aliens who receive income from sources in the Philippines.
2. Non-Individuals
- Domestic Corporations
- Partnerships
- Foreign corporations deriving income from within the Philippines
- Estates and trusts that are engaged in trade or business
Who are not Required to File Income Tax Returns?
Tax returns need not be filed by the following:
- Those earning a purely compensation income with a taxable income not exceeding P250,000
- Minimum wage earners
- Those whose income is derived from a single employer and the income tax has been correctly withheld by the employer
- Those whose only income has been levied a final withholding tax like dividends, short term deposits, royalties, and the like
- Non-resident citizens and resident aliens whose income is derived solely from sources outside the Philippines
How to Compute for Taxable Income?
First, consider your gross income, which is the tax base. Gross income refers to all the income you receive that is not subject to exemptions of the Internal Revenue Code. Then to get your taxable income, subtract your deductible expenses, tax adjustments, and allowable exemptions from your gross income. Here’s a more detailed explanation on how to compute:
- Individuals
- Compensation Income Earner
- Gross income includes compensation, in whatever form like basic salary, overtime and holiday pay, commissions and incentives
- Exclusions from gross income are SSS, PHIC and HDMF contributions, de minimis benefits and 13th month pay and other benefits not exceeding P90,000
- Rate – 0% to 35% graduated income tax rates for individual based on taxable income
- Self-Employed
- Gross income is the income derived from the conduct of trade or business of the exercise of a profession
- Allowable deductions – you have the option of either using:
- Optional standard deduction which is 40% of the gross sales or receipts
- Itemized deductions which are actual business expenses that are properly supported with documents and is within the allowed deductions set by BIR.
- Rate
- 0% to 35% graduated income tax rates for individual based on taxable income
- 8% preferential rate on gross sales or gross receipts in excess of P250,000 as an option for self-employed individuals if the total gross sales/receipts do not exceed P3,000,000 threshold and is not VAT registered.
- Non-Individuals
- Gross income is the net amount of gross sales or receipts derived from the business after deducting sales returns, discounts and other allowance
- Allowable deductions – you have the option of either using:
- Optional standard deduction which is 40% of the gross income
- Itemized deductions which are actual business expenses that are properly supported with documents and is within the allowed deductions set by BIR.
- Rate
- 30% corporate income tax
- 2% of gross income (minimum corporate income tax) beginning on the 4th taxable year immediately following the year in which the Corporation commenced its operations, if it is higher than the 30% of net income (regular corporate income tax rate)
How to File and Pay the Income Tax?
There are three ways to get this done.
1. Manual Filing
These are the steps for manual filing, which entails going to a physical BIR district office and submitting forms.
Step 1: Download three copies of BIR Form from the site. Fill it up with your pen. One is for BIR, the bank, and you.
Step 2: Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished Form, together with the required attachments.
Step 3: If you are required to pay taxes, pay using an online payment portal or through an accredited agent authorized bank.
Step 4: Get your copy of the duly stamped and validated BIR form as proof of filing and payment.
2. EFPS or Electronic Filing and Payment System
This system’s inception was facilitated for easy electronic filing of tax returns, including attachments and payment. This EFPS is system is slated for the following:
- Taxpayer Account Management Program (TAMP) taxpayers
- Those with the BIR-ICC and BIR-BCC
- National Government Agencies
- Licensed Local Contractors
- Enterprises with fiscal incentives like PEZA, BOI, and the like
- Top 5,000 Individual Taxpayers
- Corporations with paid-up capital stock of P10 million and more
- Corporations with Computerized Accounting System (CAS)
- Procuring government agencies on withholding VAT and Percentage taxes
- Government bidders
- Large Taxpayers
- Top 20,000 Private Corporations
- Insurance companies and stockbrokers
Those mandated to do so must use the eFPS (with a few exceptions such as PWDs or seniors). Do note that ordinary taxpayers can apply with the BIR to use this platform. With this service, you can enjoy a true paperless experience when filing your taxes. These are the steps for eFPS filing:
Step 1: To access the eFPS site, you have to register.
Step 2: Answer the fields in the BIR Form
Step 3: Pay online by choosing “Proceed to Payment”
Step 4: Answer the required fields in the form then submit.
Step 5: Get a confirmation receipt from eFPS-AABs for successfully filing and paying online.
3. eBIR Forms
This method pertains to filing tax returns using the most updated offline tax software solution. Then, later on, the returns shall be submitted to an online facility. Here’s what you need to do:
Step 1: Visit the BIR website and click eServices.
Step 2: Download the latest Offline eBIRForms Package.
Step 3: Answer the applicable fields in the BIR form from the software.
Step 4: Save a copy of the filled-up ITR.
Step 5: Submit the completed form to the Online eBIRForms System.
Step 6: The BIR will send an email to confirm receipt of your ITR.
Step 7: Print the accomplished form, along with the BIR email confirmation.
Step 8: Go to the nearest authorized bank with your form, required attachments, and payment. Alternatively, you can pay using other online payment facilities like PayMaya and Gcash.
Step 9: Receive a copy of the validated form from where you paid.
What BIR Forms will be Used?
1. Individuals
- 1700 – Annual Income Tax Return for Individuals Earning Purely Compensation
Income (Including Non-Business/Non-Profession Income)
- 1701 – Annual Income Tax Return for Self-Employed Individuals, Estates, and
Trusts
- 1701A – Annual Income Tax Return for Individuals Earning Income PURELY from Business/Profession, for those under the graduated income tax rates with Optional Standard Deduction (OSD) as mode of deduction OR those who opted to avail of 8% flat income tax rate)
- 1701Q – Quarterly Income Tax Return for Individuals, Estates and Trusts
2. Non-Individuals
- 1702-EX – Annual Income Tax Return for Corporation, Partnership, and Other
Non-Individual Taxpayers EXEMPT Under the Tax Code, as Amended, {Sec. 30 and those exempted in Sec. 27(C)} and Other Special Laws, with NO Other
Taxable Income
- 1702-MX – Annual Income Tax Return for Corporation, Partnership and Other Non-Individual with MIXED Income Subject to Multiple Income Tax Rates or with Income Subject to SPECIAL/PREFERENTIAL RATE
- 1702-RT – Annual Income Tax Return for Corporation, Partnership and Other
Non-Individual Taxpayer Subject Only to REGULAR Income Tax Rate
- 1702Q – Quarterly Income Tax Return for Corporations and Partnerships
When is the Deadline of Submission?
The deadline for filing the ITR are as follows:
1. Individuals
- Annual – On or before the 15th day of April
- Quarterly
- May 15 of the current taxable year– for the first quarter
- August 15 of the current taxable year – for the second quarter
- November 15 of the current taxable year – for the third quarter
2. Non-Individuals
- Annual – On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year
- Quarterly – On or before the 60th day following the close of each of the quarters of the taxable year
Final Word
If you are feeling confused, know that you are not alone. A lot of taxpayers feel overwhelmed by the whole process. Should your personal situation be fraught with complexities, it would be best to consult a CPA to ensure you do not make any mistakes. The BIR is unforgiving when it comes to errors. To avoid penalties and an audit, reach out to a professional accountant. We’ll be glad to help you out!
Contact us now for a free 30-minute consultation!
