Freelancing has its perks, including flexible hours and the freedom to choose the projects you like. However, you're essentially running a one-man business. You must manage administrative and financial tasks yourself, including filing your freelance taxes.

If you’re new to freelancing, even the idea of applying for a new tax account can feel overwhelming. 

How do you register as a professional freelancer? How much do you need to pay? What documents do you need? 

This guide on how to pay taxes as a freelancer answers common questions about registering your business with the Bureau of Internal Revenue (BIR) and your tax obligations. 

Who should file freelance taxes? 

Freelancers are either self-employed individuals who earn money from professional activities or sole proprietors of a business. Examples include:

• Independent workers who are paid by the hour or day (tutors, fitness trainers, photographers or actors)
• Remote workers who are employed by clients or companies on a per-project basis (writers, graphic designers or website developers) 
• Licensed professionals who run their own clinic or consultancy (doctors, lawyers, or accountants)
• Owners of home-based or small businesses (e-commerce stores, caterers, or neighborhood salons or shops)

Why should you file your taxes?

Filing taxes is your duty as a citizen, and non-compliance can have heavy repercussions: fines from ₱500,000 to ₱10 million and up to 10 years of imprisonment. 

But aside from being required by law, paying freelance taxes benefits you and your business. 

• Establish your income history. Banks and credit card companies will ask for your income tax return whenever you apply for credit. If you plan to apply for a car or housing loan in the future, start establishing a history of paying your taxes as soon as you can.
• Comply with client requirements. Many companies require freelancers to submit their tax identification number (TIN) and issue a receipt. You may be asked to provide this information to qualify for a bid. That’s why it’s best to register your services under the Bureau of Internal Revenue (BIR) once you decide to become a full-time freelancer. Don’t wait until you have a “big account”. You don’t want to miss out on projects or encounter problems with collecting payments because you can’t submit the proper documents. 
• Boost business legitimacy. Registering your business with the BIR and issuing official receipts demonstrates that you comply with legal and regulatory requirements, which can build your customers’ trust. 
• Get government support. Registered freelancers and sole proprietors may be eligible for government services, including loans or assistance programs. 

How much do I have to pay in freelance taxes?

That depends on your income bracket. If your annual freelance income is less than ₱250,000 you don’t have to pay taxes but you still need to file an income tax return. 

If your annual income falls between ₱250,000 to ₱3,000,000, you have the option to pay the flat rate of 8% of your gross sales and other non-operating income or follow the graduated tax rates. 

How do I set up my tax account?

First, determine your business structure. Register as a professional if you are self-employed, like a graphic designer, model, etc. Register as a sole proprietorship if you run a business like a clinic, consulting firm or store. 

A sole proprietorship is an unincorporated business owned and controlled by only one person. It allows you to use your business name and secure a business permit. Visit the Department of Trade and Industry to find out more. 

Once you’ve established your business’ identity, you need a tax identification number (TIN). If you already have one, go to your Revenue District Office (RDO) to declare that you will be self-employed and update your information. 

You will need to do paperwork: Form 1901 to register, and Form 1906 to have authority to print receipts. If you don’t have a TIN yet, fill Form 1905. To save time, download the forms from the BIR website and prepare two copies each before you go to the RDO office.

After registration, you’re required to take a BIR seminar where you can raise all your questions about freelance taxes. The BIR speakers are the best resources for specific concerns like the type of taxes you need to pay (including VAT), exemptions, income tax brackets and more. This is your chance to get a free consultation so list down questions before the seminar, so you don’t forget.   

Do I need an accountant?

You can do your own freelance taxes, but in your first year you may want to hire an accountant just to get a clear idea of what you need to do. 

Your accountant can teach you efficient bookkeeping practices or explain details like deductible expenses or tax obligations related to your profession or business. 

As your business grows, or if you take on several different types of projects a year, an accountant can ensure accurate reporting, maximize deductions or give advice on tax planning. 

When do I need to file my taxes?

Mark these tax deadlines on your calendars. Ideally, pay your taxes earlier to avoid the rush. You can pay your freelance taxes through BIR partner banks like BPI. 

• Monthly taxes: 3% of your gross income, due on the 20th of each month
• Quarterly income taxes: based on your net income and your tax bracket, due on April 15, August 15, and November 15
• Annual income taxes: based on your net income, due on April 15 of the following year. 
• Renewal of registration: P500 renewal fee for your Certificate of Registration (CoR), due on January 30 every year 

What tools or resources can I use to manage my freelance taxes? 

Even if you know what to do, the biggest challenge of freelancers or business owners is managing the paperwork and meeting the tax deadlines. Try using apps that track expenses or receipts, budgeting or finance software or online tax services. These are cheaper than hiring an accountant and can automate or simplify some of the manual or repetitive tasks. 

You can try Taxumo, an accredited tax-filing platform in the Philippines or the BIR-accredited JuanTax.  

Tips for managing your freelancer finances 

Freelance taxes are just one part of running your business. When you’re self-employed, you must project your income and manage operating expenses. You also need to build a financial safety net for lulls between projects or when payments take longer than expected.

• Separate personal and professional expenses. This makes it easier to see your profits and expenses and simplifies bookkeeping and reporting. Use separate bank accounts or credit cards for business expenses. Create a filing system to organize physical or digital receipts. 
• Track operating expenses. Examples include communication expenses like internet or mobile subscriptions, office equipment, transportation costs, payment processing fees, etc. Save the receipts and talk to your accountant about which expenses can be tax-deductible. 
• Check your contracts. Before accepting a project, check your payment terms. Are the fees gross or net of taxes? When will you be paid? How long does it usually take to process or release a check after the project is completed? This reduces miscommunication and helps you maintain a steady cash flow.
• Build an emergency fund. Freelancing income is generally more volatile than a regular monthly paycheck. You may have slow months with less projects or customer purchases, or encounter situations where you need to invest in equipment or manpower before you’re paid. Emergency funds can help you cover unforeseen expenses or income gaps. Ideally, you should have enough to cover three to six months of personal expenses and your business’ operating expenses. 
• Avoid using cash for business expenses. Credit cards or other payment platforms generate a “digital trail” for business transactions. Just pay your credit card balances in full or allocate for payment charges in your professional fees so you don’t incur additional costs.

Protect your business’ most important asset 

As a freelancer or sole proprietor, you drive your income and your business’ success. You may even work harder and longer hours than when you were an employee, because you are personally invested in doing your job well. 

That’s why it’s so important to protect your health and well-being. Get proper rest, follow a healthy diet, exercise and find ways to manage your stress. If you feel sick, seek treatment and the best possible medical care. 

Health insurance can cover hospital bills or treatment costs, so you don’t have to use your personal savings or business funds. 

BPI AIA can help you out. We offer affordable health insurance plans, as well as full coverage plans that will protect both your health and financial security. Contact us or drop by a BPI branch to find out more.