What are the things Fresh Grads need to know about tax filing in the Philippines?
- Relevant Terms and Provisions on Tax Filing
- Process of Tax Filing in the Philippines
- Computing Taxes using a Tax Calculator
Fresh graduates always hear the phrase, “Welcome to the real world!” But what those people fail to mention is that the real world is made up of tons of responsibilities like the exhausting task of tax filing. In the Philippines, there are two classifications of taxpayers: corporate or individuals. Individual taxpayers are either employed or self-employed. As self-employed, you can either register as a single proprietor or entrepreneur, or as professionals.
These are just the basics of what you need to know about tax filing. There is still the matter of the process of filing and paying your taxes. Thankfully, there are tax calculators online that can help you with that. Before you do that, you have to possess the know-hows in doing your obligation as a taxpayer. Knowing your taxes and complying with the provisions is the primary task in tax filing but you also have to be knowledgeable with other information about tax filing.
Computing your taxes on a tax calculator will produce instant results but make sure that you still brush up on your tax knowledge and what it entails for you as a young professional. Here are the things you need to know about tax filing in the Philippines:
Relevant Terms and Provisions on Tax Filing
First and foremost, what are taxes and why do you have to pay them? Taxes are used by the government for the development of the country’s basic social services that are essential to the betterment of the lives of the citizens and the overall economic growth. Individuals and corporations pay taxes to the government, which are then used to finance expenditures. Revenues collected from taxes are used for additional expenses for the country.
This is collected through the income tax of professionals. According to the Bureau of Internal Revenue (BIR), an Income tax is a tax on a person’s income, earnings, profits from their estate, assets, or other pertinent items of gross income. A tax return is the excess taxes paid during a given tax year. The income tax return must be filed and paid annually by a company or an individual.
Income in the Philippines is divided into three categories which are taxed separately and they are as follows:
- Compensation Employment Income – this income is taxed at a progressive rate based on the gross income after a deduction from the personal and additional exemptions but without deductions for expenses.
- Passive Income – this income which includes dividends and interest, is subject to tax at 7.5%
- Business Income and Professional Income – this income is taxed based on progressive rates on net business income after deduction of certain specified expenses.
Process of Tax Filing in the Philippines
The next step to graduation is finding a job. You may opt to be employed in a company, start your own business, or be a freelancer, choosing any means you have to file your Income Tax Return (ITR). When you are deriving income from your job, you are required to file your ITR. Being part of a company means that they usually file your ITR for you, but if not, you will have to file them yourself.
It is also important to note that minimum wage earners.
You should have a checklist of the documents needed for filing taxes which are as follows:
- Three copies of BIR Form 1700
- Certificate of Income Tax Withheld on Compensation
- For self-employed individuals, individuals deriving mixed income, you will need to fill up three copies of BIR Form 1701
After making sure that you have the complete documents, you may now proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701, together with the required attachments and your payment. After that, you will now receive a copy of a stamped and validated form from the teller of the AAB or Revenue Collection Officer.
It is also important to note that pursuant to the TRAIN law, there are income earners who are exempted from filing their ITR which includes minimum wage earners, your gross income (total earned for the past year) does not exceed your total personal and additional exemptions or your income derived from a single employer does not exceed Php 60,000 and the income tax has been correctly withheld.
Understanding tax filing is one of the essential skills that a fresh graduate should have. If you are feeling a little stumped, you may ask help from your human resources or accounting personnel, or just research about it on the internet.
Computing Taxes using a Tax Calculator
There are plenty of tax calculator applications in the internet, even the BIR website has one. You only need to input your basic salary/statutory minimum wage earner and de minimis benefits (the facilities and privileges of relatively small value provided by an employer to employees, as means to promote their health, good will, contentment, or efficiency).
Then the tax calculator will give you the total cumulative average method. It actually withholds taxes, where the total supplementary compensation is equal or greater than the total regular compensation.
Key Takeaway
Being a newbie in the professional world can be tough what with all the things you need to know to get by. Knowing things about tax filing can be an edge in industries because it means you are aware of your financial capabilities.