BIR Computations: TRAIN Tax for Self-Employed and Professionals



If you are a professional or self-employed individual receiving income purely from self-employment or your practice of profession, here are the updated BIR rules as regards your tax liability under the approved TRAIN law. The tax rules and sample computation are reiterated in Revenue Regulations of the Bureau of Internal Revenue RR 8-2018.

Tax Rules for Self-Employed and Professionals


(UPDATE): The BIR has released a new Revenue Memorandum Order covering the availment of 8% tax rate for self-employed and professionals. Read about it here: 8% BIR Tax Rule for Self-Employed and Professionals (RMO 23-2018)


Here are relevant items on taxation of Self-Employed and Professionals from BIR’s RR 8-2018:


“Individuals earning income purely from self-employment and/or practice of profession whose gross sales/receipts and other non-operating income does not exceed the value-added tax (VAT) threshold as provided under Section 109 (BB) of the Tax Code, as amended, shall have the option to avail of:

  1. The graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended; OR
  2. An eight percent (8%) tax on gross sales or receipts and other non-operating income in excess of two hundred fifty thousand pesos (P250,000.00) in lieu of the graduated income tax rates under Section 24(A) and the percentage tax under Section 1 16 all under the Tax Code, as amended.

Unless the taxpayer signifies the intention to elect the 8% income tax rate in the 1st Quarter Percentage and/or Income Tax Return, or on the initial quarter return of the taxable year after the commencement of a new business/practice of profession, the taxpayer shall be considered as having availed of the graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended. Such election shall be irrevocable and no amendment of option shall be made for the said taxable year.

The option to be taxed at 8% income tax rate is not available to a VAT-registered taxpayer, regardless of the amount of gross sales/receipts, and to a taxpayer who is subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except those subject under Section 116 of the same Title. Likewise, partners of a General Professional Partnership (GPP) by virtue of their distributive share from GPP which is already net of cost and expenses cannot avail of the 8% income tax rate option.

A taxpayer who signifies the intention to avail of the 8% income tax rate option, and is conclusively qualified for said option at the end of the taxable year [annual gross sales/receipts and other non-operating income did not exceed the VAT threshold (P3,000,000.00)] shall compute the final annual income tax due based on the actual annual gross sales/receipts and other non-operating income. The said income tax due shall be in lieu of the graduated rates of income tax and the percentage tax under Sec. 116 of the Tax Code, as amended. The Financial Statements (FS) is not required to be attached in filing the final income tax return. However, existing rules and regulations on bookkeeping and invoicing/receipting shall still apply.

A taxpayer shall automatically be subject to the graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended, even if the flat 8% income tax rate option is initially selected, when taxpayer’s gross sales/receipts and other non operating income exceeded the VAT threshold during the taxable year. In such case, his income tax shall be computed under the graduated income tax rates and shall be allowed a tax credit for the previous quarter/s income tax payment/s under the 8% income tax rate option.

In addition, a taxpayer subject to the graduated income tax rates (either selected this as the income tax regime, or failed to signify chosen intention or failed to qualify to be taxed at the 8% income tax rate) is also subject to the applicable business tax, if any, subject to the provisions of Section 8 of these Regulations, an FS shall be required as an attachment to the annual income tax return even if the gross sales/receipts and other non-operating income is less than the VAT threshold. However, the annual income tax return of a taxpayer with gross sales/receipts and other non-operating income of more than the said VAT threshold shall be accompanied by an audited FS.

Taxable income for individuals earning income from self-employment/practice of profession shall be the net income, if taxpayer opted to be taxed at graduated rates or has failed to signify the chosen option. However, if the option availed is the 8% income tax rate, the taxable base is the gross sales/receipts and other non-operating income.”

* Click here to view a copy of BIR Revenue Regulations RR 8-2018.


How to Compute Taxes of Professionals and Self-Employed

Sample Computation: Illustration 1

Ms. Terry operates a convenience store while she offers bookkeeping services to her clients. In 2018, her gross sales amounted to P800,000.00, in addition to her receipts from bookkeeping services of P300,000.00. She already signified her intention to be taxed at 8% income tax rate in her 1st quarter return.

Her income tax liability for the year will be computed as follows:

Gross Sales - Convenience StoreP800,000.00
Gross Receipts -
Bookkeeping
300,000.00
Total Sales/ReceiptsP1,100,000.00
Less: Amount allowed as deduction250,000.00
TAXABLE INCOMEP850,000.00
TAX DUE (8% of P850,000.00)P68,000.00

CONCLUSIONS:

  • The total of gross sales and gross receipts is below the VAT threshold of P3,000,000.00.
  • Taxpayer’s source of income is purely from self-employment, thus she is entitled to the amount allowed as deduction of P250,000.00 under Sec. 24(A)(2)(b) of the Tax Code, as amended.
  • Income tax imposed herein is based on the total of gross sales and gross receipts.
  • Income tax payment is in lieu of the graduated income tax rates under subsection (A) hereof and percentage tax due, by express provision of law.

Sample Computation: Illustration 2

Ms. Terry above, failed to signify her intention to be taxed at 8% income tax rate on gross sales in her initial Quarterly Income Tax Return, and she incurred cost of sales and operating expenses amounting to P600,000.00 and P200,000.00, respectively, or a total of P800,000.00, the income tax shall be
computed as follows:

Gross Sales/ReceiptsP1,100,000.00
Less: Cost of Sales600,000.00
Gross IncomeP500,000.00
Less: Operating Expenses200,000.00
TAXABLE INCOMEP300,000.00
TAX DUE: On excess (P300,000 - P250,000) x 20%)P10,000.00

CONCLUSION: Aside from the income tax due above, Ms. Terry is likewise liable to pay business tax.


Sample Computation: Illustration 3

Mr. Yoso signified his intention to be taxed at 8% income tax rate on gross sales in his 1st Quarter Income Tax Return. He has no other source of income, His total sales for the first three (3) quarters amounted to P3,000,000.00 with 4th quarter sales of P3,500,000.00.

1st Quarter2nd Quarter3rd Quarter4th Quarter
(8% Rate)(8% Rate)(8% Rate)
Total SalesP500,000.00P500,000.00P2,000,000.00P3,500,000.00
Less: Cost of Sales300,000.00300,000.001,200,000.001,200,000.00
Gross IncomeP200,000.00P200,000.00P800,000.00P2,300,000.00
Less: Operating Expenses120,000.00120,000.00480,000.00720,000.00
TAXABLE INCOMEP80,000.00P80,000.00P320,000.00P1,580,000.00

Computation of Tax Due:

Total SalesP6,500,000.00
Less: Cost of Sales3,000,000.00
Gross IncomeP3,500,000.00
Less: Operating Expenses1,440,000.00
TAXABLE INCOMEP2,060,000.00
INCOME TAX DUE:
Tax Due under Graduated RatesP509,200.00
Less: 8% income tax previously paid (Q1 to Q3)*220,000.00
ANNUAL INCOME TAX PAYABLEP289,200.00

* Computed as: (P3,000,000.00 – P250,000.00) x 8% = P220,000.00

CONCLUSIONS:

  • The gross receipts exceeded the VAT threshold of P3,000,000.00. Taxpayer shall be liable to pay income tax under graduated rates pursuant to Section 2(A)(2)(a) of the Tax Code, as amended.
  • Taxpayer shall be allowed an income tax credit of quarterly payments initially made under the 8% income tax option computed net of the allowable deduction of P250,000.00 granted for purely business income.
  • Taxpayer is likewise liable for business tax(es), in addition to income tax. For this purpose, the taxpayer is required to update his registration from non-VAT to VAT taxpayer. Percentage tax pursuant to Section 116 of the Tax Code, as amended, shall be imposed from the beginning of the year until taxpayer is liable to VAT. VAT shall be imposed prospectively.
  • Percentage tax due on the non-VAT portion of the sales/receipts shall be collected without penalty, if timely paid on the due date immediately following the month/quarter when taxpayer ceases to be a non-VAT.

Sample Computation: Illustration 4

Ms. RSVP is a prominent independent contractor who offers architectural and engineering services. Since her career flourished, her total gross receipts amounted to P4,250,000.00 for taxable year 2018. Her recorded cost of service and operating expenses were P2,150,000.00 and P1,000,000.00, respectively.

Her income tax liability will be computed as follows:

Gross ReceiptsP4,250,000.00
Less: Cost of Service2,150,000.00
Gross IncomeP2,100,000.00
Less: Operating Expenses1,000,000.00
TAXABLE INCOMEP1,100,000.00
INCOME TAX DUE:
On P800,000.00P130,000.00
On excess (P1,100,000.00 - P800,000.00) x 30%)90,000.00
INCOME TAX DUEP220,000.00

CONCLUSION: The gross receipts exceeded the VAT threshold of P3,000,000.00; subject to graduated income tax rates; liable for business tax – VAT, in addition to income tax.


Sample Computation: Illustration 5

In 2018, Mr. Swabe owns a nightclub and videoke bar, with gross sales/receipts of P2,500,000.00. His cost of sales and operating expenses are P1,000,000.00 and P600,000.00, respectively, and with non-operating income of P100,000.00.

His tax due for 2018 shall be computed as follows:

TAXABLE INCOME FROM BUSINESS:
Gross ReceiptsP2,500,000.00
Less: Cost of Sales1,000,000.00
Gross IncomeP1,500,000.00
Less: Operating Expenses600,000.00
Net Income from OperationP900,000.00
Add: Non-operating Income100,000.00
TAXABLE INCOMEP1,000,000.00
INCOME TAX DUE:
On P800,000.00P130,000.00
On excess (P1,000,000.00 - P800,000.00) x 30%)60,000.00
TOTAL INCOME TAXP190,000.00

CONCLUSIONS:

  • The taxpayer has no option to avail of the 8% income tax rate on his income from business since his business income is subject to Other Percentage Tax under Section 125 of the Tax Code, as amended.
  • Aside from income tax, taxpayer is liable to pay the prescribed business tax, which in this case is percentage tax of 18% on the gross receipts as prescribed under Sec. 125 of the Tax Code, as amended.

Source: Bureau of Internal Revenue (BIR www.bir.gov.ph), Department of Finance (DOF www.dof.gov.ph) Philippines

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34 thoughts on “BIR Computations: TRAIN Tax for Self-Employed and Professionals”

  1. HOW SHALL THE QUARTERLY INCOME TAX RETURN (1701Q) BE FILED? CAN WE REDUCE THE ANNUAL INCOME OF 250,000.00 EXEMPT FROM TAX INTO FOUR QUARTERS, E.G. AT P 62.500.00 (P250,000.00/4) IFOR EACH OF THE FIRST THREE QUARTERS?

    Reply
    • TODAY IS THE LASTDAY OF FILING THE 1ST QUARTERLY INCOME TAX RETURN
      TAXPAYER IS A LESSOR AND HIS INCOME FROM JANUARY TO MARCH 2018 (1ST QUARTER) IS P200,000.00
      SAMPLE COMPUTATION:
      GROSS INCOME FROM JANUARY TO MARCH 2018 – P200,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME – (P50,000.00)
      TAX DUE = NONE
      CHECK THE 8% TAX UNDER TRAIN

      ANOTHER SAMPLE COMPUTATION:
      GROSS INCOME IS P500,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME 250,000.00
      TAX DUE IS P20K (8% OF 250K)

      Reply
  2. Good day! Just wanted to know. How about monthly incentives? I’m working in a BPO Company and getting incentives like 10k or more per mos. How are monthly incentives supposedly tax now since we have a new Tax Law? Thank you! Waiting for your response.

    Reply
  3. My client is a self employed professional and her net income does not exceed 250,000 how will the computation be if she signified to be taxed at 8%?

    Reply
    • TODAY IS THE LASTDAY OF FILING THE 1ST QUARTERLY INCOME TAX RETURN
      TAXPAYER IS A LESSOR AND HIS INCOME FROM JANUARY TO MARCH 2018 (1ST QUARTER) IS P200,000.00
      SAMPLE COMPUTATION:
      GROSS INCOME FROM JANUARY TO MARCH 2018 – P200,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME – (P50,000.00)
      TAX DUE = NONE
      CHECK THE 8% TAX UNDER TRAIN

      ANOTHER SAMPLE COMPUTATION:
      GROSS INCOME IS P500,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME 250,000.00
      TAX DUE IS P20K (8% OF 250K)

      Reply
  4. How do you compute for a quarterly income tax for self employed? Does it mean if your quarterly income did not reach 250K, you will not be paying any income tax for thee first quarter? I’m getting confused, all this computations are for the whole year.

    Reply
    • TODAY IS THE LASTDAY OF 1ST QUARTER INCOME TAX RETURN
      TAXPAYER IS A LESSOR AND HIS INCOME FROM JANUARY TO MARCH 2018 (1ST QUARTER) IS P200,000.00
      EXAMPLE:
      GROSS INCOME FROM JANUARY TO MARCH 2018 – P200,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME – (P50,000.00)
      TAX DUE = NONE
      CHECK THE 8% TAX UNDER TRAIN

      ANOTHER EXAMPLE IF GROSS INCOME IS P500,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME 250,000.00
      TAX DUE IS 8% OF 250K 20,000.00

      Reply
  5. How do you compute for a quarterly income tax for self employed? Does it mean if your quarterly income did not reach 250K, you will not be paying any income tax for thee first quarter? I’m getting confused, all this computations are for the whole year. Can you give us example computation for quarterly?

    Reply
    • TODAY IS THE LASTDAY OF FILING THE 1ST QUARTERLY INCOME TAX RETURN
      TAXPAYER IS A LESSOR AND HIS INCOME FROM JANUARY TO MARCH 2018 (1ST QUARTER) IS P200,000.00
      SAMPLE COMPUTATION:
      GROSS INCOME FROM JANUARY TO MARCH 2018 – P200,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME – (P50,000.00)
      TAX DUE = NONE
      CHECK THE 8% TAX UNDER TRAIN

      ANOTHER SAMPLE COMPUTATION:
      GROSS INCOME IS P500,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME 250,000.00
      TAX DUE IS P20K (8% OF 250K)

      Reply
  6. How do you compute for a quarterly income tax for self employed when you opt to choose the 8% rate?
    Can you show us an example on computing quarterly income tax using 8%?

    Reply
    • TAXPAYER IS A LESSOR AND HIS INCOME FROM JANUARY TO MARCH 2018 (1ST QUARTER) IS P200,000.00
      SAMPLE COMPUTATION:
      GROSS INCOME FROM JANUARY TO MARCH 2018 – P200,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME – (P50,000.00)
      TAX DUE = NONE
      CHECK THE 8% TAX UNDER TRAIN

      IF YOUR GROSS INCOME EXCEEDS 250K:
      GROSS INCOME IS P500,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME 250,000.00
      TAX DUE IS P20K (8% OF 250K)

      Reply
  7. I have a small sari-sari store and how to compute quarterly income tax 1701Q the sample shows 250,000 whole year computation i need a quarterly computation if my sales/ revenues/receipts is 62,750.00 pls give me sample computation in quarterly more than or less than 250,000 thanks and more power

    Reply
    • GROSS INCOME FROM JANUARY TO MARCH 2018 – P250,000.00
      LESS: ALLOWABLE DEDUCTION 250,000.00
      TAXABLE INCOME – (ZERO)
      TAX DUE = NONE
      CHECK THE 8% TAX UNDER TRAIN

      SAMPLE COMPUTATION FOR THE NEXT QUARTER
      INCOME FOR THE 2ND QUARTER (APRIL, MAY AND JUNE 2018) – 250,000
      PLUS: INCOME PREVIOUS QTR – 250,000.00
      TOTAL INCOME – 500,000.00
      LESS: ALLOWABLE DEDUCTION – 250,000
      TAXABLE INCOME = 250,000.00
      MULTIPLY BY 8& (UNDER THE TRAIN LAW)
      TAX DUE IS P20,000.00
      LESS: EWT if there is any

      Reply
  8. ?????,, puzzled by the computation, sorry.php 250,000 is the annual tax exempt deduction and not qurterly, right?

    Reply
  9. I want to avail 8% of IT (as of today i didnt file the quarterly IT) but i filed the PT monthly on january february march… can i still opt to the 8% in my 1st qtr IT. How to deal with my monthly payments of PT. Thanks

    Reply
  10. As per explained by an RDO 40 staff, payment for monthly does not apply anymore ones you chose 8% law, you will only pay for the quarterly totalling your 3 months gross income and pay 8% of it (an advantage for a monthly non- appearance).For the second and the third quarter just deduct the tax amount you paid from the first and second quarter and in the remaining amount ,you then compute the 8%. 250K deduction only applies for the Annual income tax computation.Therefore if your gross annual income is 250k and below ,there will be NO payment for you to do. But then , you have to apply for the 8% train law before the first quarter payment deadline.

    Reply
  11. I downloaded EBIR V7.1 but it’s giving me the old form layout and doesn’t have the 8% option. I don’t know what seems to be the problem. Anyone else having the same issue?

    Reply
  12. good day po. i’m a tnc operator and i failed to pay the 1st quarter PT. as in this is just the 1st time i’ll be filing to bir. what if po ang sales is at 90,000 then expenses nasa 50K, how much po ang need ko bayaran for the july 25 filing??

    Reply
  13. Can you help me compute my Income tax? Here is my status:

    I am a freelance online worker, I registered under Self-Employed: Professional and non-vat. I am required to pay for percentage tax and Income tax.

    Example: I earn monthly income of Php 40,000. How will it be computed for: Percentage tax and Income Tax for the following:

    1. Graduated Income Tax – OSD
    2. 8% tax on gross

    I really hope you can give me a clear computations under the new Train Law. Thank you.

    Reply
  14. Hello Nelia your tax due is zero for the quarter if you use the graduated rate u will be paying a tax if your net income will more than 25OK.

    Reply
  15. is quarterly percentage tax based on gross sales or gross income?…if its based on gross sales is there a special rule on low mark up sales due to prevailing prices?…I opened a small feeds store that averages a monthly gross sale of 120,000. It may look like a lot, but after deducting the purchase cost of the feeds 109,200 I am only left with 10,800 gross profit (the mark up is only up to 9% due to prevailing retail feeds price, add more and you will end up with no costumers).
    If the percentage tax is based on gross sales then my monthly percentage tax would be 3,600, which will leave me with a gross income after tax of 7,200 a month, less expenses of rent and utilities of 5,300, that will give me a net monthly income of only 1,900!!!…what confuses me is that a taxi business that nets a monthly income around 18,000 only pays 657 percentage tax…daily bandary 800 x 26 days of operation = 20,800 x 3% = 624, taxi minimum according to bir = 657.

    18,000 net income taxi business = 657 percentage tax
    1,900 net income feeds business = 3,600 percentage tax

    can someone please enlighten me…

    Reply
  16. Hi there! im Nyv. I would just like to ask if a sari sari store can opt to pay tax using graduated income tax rate which is 20% of the excess over 250,000, it would be based on the net profit generated from gross sales less cost of goods sold , tama po ba? For me, 8% of gross sales is just too much for the sari sari store store owners because they did not produce the products themselves. They are buying them in bulk from wholesalers so there should be deduction for the cost and expenses.

    Reply
  17. Hi, I currently have a restaurant business located in Manila and I wanted to start another business in Makati City which is a computer services shop. I went to the BIR and they told me to file the computer shop as a branch and my tin would be xxx-xxx-xxx-001. I am having difficulty figuring out whether I will need to file one income tax return for both businesses or two ITRs, one for each business. I asked around regarding this matter and some say that I will need to use one ITR for both and some two ITRs one for each business.
    Should I use one income tax for both businesses or two ITR’s one for each? If I will use one ITR for both businesses, I am worried that during business permit registration period, the Manila City Hall would include the sales of my computer shop located in Makati or the Makati City Hall would include the sales of my resto located in Manila for gross sales calculation. Furthermore, If one ITR is used how will I show that the businesses are located in different cities.
    Thank You Very Much.

    Reply
  18. HOW ABOUT I’M A CONTRACT OF SERVICE EMPLOYEE OF GOVERNMENT AGENCY (WITH JOB ORDER) MY SALARY IS 250K ABOVE ANNUALLY DO I HAVE TO APPLY FOR ATP & BOOKS? DO IHAVE TO FILE THE QRTRLY INCOME TAX AND CAN YOU CORRECT MY COMPUTATION:

    GROSS INCOME ANNUALLY- 303,480.00
    LESS: 250,000.00
    TOTAL 53,480.00
    LESS W/TAX 2% 6,069.60
    TAXABLE INCOME 47, 410.40
    X 8%
    TAX DUE 3792.83 TAX ANNUALLY

    DO I HAVE TO FILE A QRTRLY OR ANNUALLY OR BOTH FOR THIS YEAR 2019
    I AVAILED OF 8% TAX SWORN STATEMENT.

    HOPE SOMEONE WILL HELP ME REGARDING THIS

    Reply
  19. @Cynthia Daguman,

    Your company should give you the BIR Form 2307 since they are the one that files Creditable tax. They should have filed it Quarterly (total of 4 quarters). Accounting or HR office are usually the ones that distribute BIR 2307 every end of the quarter. Download eBIRforms application from BIR website to file your BIR Form 1701Q and BIR Form 1701 (Annual Income Tax Return). It is easier to file tax using eBIRforms application.

    Deadline of filing dates every quarter, use BIR 1701Q:
    1st qtr – On or before May 15 of the current taxable year
    2nd qtr – On or before August 15 of the current taxable year
    3rd qtr – On or before November 15 of the current taxable year
    Annual Income Tax – April 15

    Reply

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