The TRAIN law, or the Tax Reform for Acceleration and Inclusion, has brought about a lot of changes for taxpayers in the Philippines. One of the most notable changes is the introduction of the 8% income tax rate option for self-employed individuals. This option allows taxpayers to pay a flat 8% tax on their gross sales or receipts above PHP 250,000, instead of the graduated income tax rates. This new option has raised questions about how to compute and file quarterly income tax returns, particularly the 1701Q form.
The 1701Q form is a Quarterly Income Tax Return for individuals, estates, and trusts, including those with mixed income. It is used by the Bureau of Internal Revenue (BIR) to record the income tax liability of a taxpayer each quarter. The form must be filed on or before the 45th day following the close of each of the first three quarters of the taxable year.
To compute the quarterly income tax using the 1701Q form, taxpayers need to provide their basic details, contact information, and filing status. They also need to calculate their total tax payable for the quarter by subtracting allowable deductions and personal exemptions from their gross income and applying the relevant tax rate. The tax rate can be either the graduated income tax rate or the flat rate of 8%. Any tax withheld at source should also be mentioned.
For those availing of the 8% income tax rate option, the computation is straightforward. The tax due is simply 8% of the gross sales or receipts above PHP 250,000. This option is available to self-employed individuals whose gross sales/receipts do not exceed the value-added tax (VAT) threshold of PHP 3,000,000.
It is important to note that the 8% income tax rate option is not available to VAT-registered taxpayers or those subject to other percentage taxes, except for those under Section 116 of the Tax Code. Additionally, taxpayers must signify their intention to avail of this option in their initial quarterly income tax return for the year.
Overall, the introduction of the 8% income tax rate option under the TRAIN law provides a simpler and more attractive tax regime for self-employed individuals in the Philippines. However, it is crucial to carefully consider the applicable rules and regulations when computing and filing the 1701Q form to ensure compliance with the BIR requirements.
What You'll Learn
Who needs to file 1701Q?
BIR Form 1701Q, also known as the Quarterly Income Tax Return, is filed by taxpayers earning an income within the Philippines. This includes self-employed professionals and business owners, who must fill out the form every three months (or every quarter).
The following individuals are required to file a 1701Q:
- A resident citizen engaged in trade, business, or the practice of a profession within (or outside) the Philippines.
- A resident alien, non-resident citizen, or non-resident alien individual who is engaged in business within the Philippines.
- A trustee, guardian of a minor, administrator of an estate, or any individual(s) with fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or business.
In addition, employees with business, self-employment, freelancing, or the practice of a profession, also known as mixed-income earners, must file a 1701Q for their income that is not purely compensation.
The 1701Q form must be filed every first to third quarter of each year, regardless of income or operation, as long as the individual is actively registered as a taxpayer engaged in business, self-employment, freelancing, or the practice of a profession.
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How to file 1701Q manually?
To file the BIR Form 1701Q manually, taxpayers must first determine whether they need to file the form. The form is intended for professionals and self-employed individuals who are engaged in a sole proprietorship business. This includes resident citizens, resident aliens, non-resident citizens, and non-resident aliens.
The form must be filed every quarter, and the following deadlines apply:
1st quarter: On or before May 15 of the current taxable year
2nd quarter: On or before August 15 of the current taxable year
3rd quarter: On or before November 15 of the current taxable year
To manually file the BIR Form 1701Q, taxpayers must gather the necessary information and supporting documents, including their BIR Certificate of Registration (COR/Form 2303), income and expense information, and tax details. They must also calculate their tax dues accurately and select the appropriate tax rate and deduction method.
- Obtain a copy of the BIR Form 1701Q. The form can be downloaded from the BIR website or obtained from a local BIR office.
- Fill out the background information section based on your BIR Certificate of Registration (COR/Form 2303). This includes personal information such as name, address, and taxpayer identification number.
- If you are single, skip the Background Information (Spouse) section. If you are married, fill out this section with your spouse's details.
- Input your tax details in the appropriate schedule:
- Schedule 1: If using the Graduated IT Rate
- Schedule 2: If using the 8% IT Rate
- Schedule 3: For Tax Credits/Payments
- Schedule 4: For Penalties
- Calculate your taxable income for the quarter. This is typically calculated by subtracting allowable deductions from your gross income.
- Determine your income tax due based on the applicable tax rates and brackets.
- Fill out the Summary of Tax Due section, ensuring that all information is accurate.
- Proceed to the payment stage by clicking the Filing Options button.
- Submit the completed form to the BIR by the applicable deadline.
It is important to note that manually filing the BIR Form 1701Q can be a complex and time-consuming process. Taxpayers are advised to carefully review the form and instructions to ensure accuracy and avoid penalties. Additionally, seeking professional assistance from a tax advisor or accountant can be beneficial to ensure compliance with all tax regulations.
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How to file 1701Q online?
The BIR Form 1701Q, or the Quarterly Income Tax Return, is a tax form for taxpayers in the Philippines who earn an income from business operations, the practice of profession, or mixed income sources. This form is to be filled out by self-employed professionals and business owners in the Philippines every quarter.
To file the 1701Q form, you can use online platforms such as Taxumo or JuanTax, which streamline the process of calculating and submitting the forms. These platforms allow taxpayers to fulfill their fiscal responsibilities efficiently while staying compliant with tax laws. Here is a general step-by-step guide on how to file the 1701Q form online:
- Sign up for an online platform that assists with tax filing, such as Taxumo or JuanTax.
- Set up your taxpayer profile and enter your income and expenses. The platform will then fill out the 1701Q form for you.
- Submit the form and any necessary attachments.
- Pay the estimated tax due to the Authorized Agent Bank (AAB) where the return is filed.
It is important to note that the deadline for electronically filing and paying taxes may differ from the standard due dates. The standard due dates for filing the 1701Q form are as follows:
1st quarter - On or before April 15 of the current taxable year
2nd quarter - On or before August 15 of the current taxable year
3rd quarter - On or before November 15 of the current taxable year
By filing the 1701Q form correctly and on time, taxpayers can maintain compliance with the Philippine tax regulations and avoid penalties for late submissions.
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How to compute 1701Q using graduated rates?
To compute 1701Q using graduated rates, you need to follow these steps:
Part I – Background Information
Provide your basic details, including your Taxpayer Identification Number (TIN), RDO Code, registered name, and main line of business.
Contact Information:
Include your telephone number, registered address, and email address.
Filing Status:
Indicate whether you’re filing for the first, second, or third quarter of the tax year.
Part II – Total Tax Payable
Compute your total tax payable for the quarter.
Taxable Income:
Subtract allowable deductions and personal exemptions from your gross income to determine your taxable income.
Tax Due:
Apply the relevant tax rate (graduated income tax rate or the flat rate of 8%) to your taxable income to calculate your tax due.
Creditable tax Withheld:
Mention any tax withheld at source.
Tax Payable (Overpayment):
Subtract the creditable tax withheld and tax paid in previous quarters from the tax due to compute your tax payable. If you’ve overpaid, it will be shown here.
Schedules
Provide a detailed income breakdown, deductions, and exemptions in the following schedules:
Schedule 1: Gross Income:
List all sources of income, such as sales revenue, service fees, etc. Ensure to include every single source of income.
Schedule 2: Deductions:
Mention all allowable deductions, such as necessary and ordinary trade, business, or professional expenses. You can choose between itemized deductions or standard deductions of 40% based on gross sales or receipts.
Schedule 3: Personal Exemptions:
Claim personal and additional exemptions as allowed by law. For example, individuals can claim a basic personal exemption of Php 250,000.
Deadlines and Penalties
The deadline for filing 1701Q is on or before the 45th day following the close of each of the first three quarters of the taxable year. For the first quarter, the deadline is May 15; for the second quarter, it's August 15; and for the third quarter, it's November 15. Late filing can result in penalties, including a 25% surcharge, a 20% interest per annum, and a compromise penalty. Additionally, if you neglect your tax due, there is a 50% penalty on your tax due.
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How to compute 1701Q using the 8% flat rate?
The 8% flat rate is a new option for non-VAT taxpayers in the Philippines, who can now choose between the good ol' Percentage Tax + Income Tax and the new 8% Gross Receipts Tax.
The computation for the 8% flat rate is very simple:
> (GROSS Income – P250,000) * 0.08 = Tax Due
So, if your gross income for the quarter is 300,000 PHP, your tax due will be:
> (300,000 – 250,000) * 0.08 = 4,000 PHP
This means that you will pay 4,000 PHP in taxes for that quarter.
It is important to note that you still need to file your quarterly income tax return (BIR Form 1701Q) on time, even if you don't have any tax due for the period. The deadline for filing the 1701Q form is usually on the 15th of May, August, and November for the first three quarters of the taxable year, and the fourth quarter is included in the Annual filing of the ITR, which is due the following year.
Late filing can result in penalties, including a 25% surcharge, a 20% interest per annum, and a compromise penalty. Additionally, if you neglect your tax due, there is a 50% penalty on your tax due.
To file the 1701Q form, you will need to provide your basic details such as your Taxpayer Identification Number (TIN), RDO Code, registered name, main line of business, contact information, and filing status (first, second, or third quarter of the tax year).
You will also need to calculate your total tax payable for the quarter by subtracting allowable deductions and personal exemptions from your gross income and applying the relevant tax rate (either the graduated income tax rate or the 8% flat rate). If you have had any tax withheld at source, you will need to mention that amount as well.
Finally, you will need to fill out the following schedules, which require a detailed income breakdown, deductions, and exemptions:
- Schedule 1: Gross Income - List down all your sources of income, such as sales revenue, service fees, etc. Make sure to include every single source of income.
- Schedule 2: Deductions - Mention all allowable deductions, such as necessary and ordinary trade, business, or professional expenses. You can choose either the itemized deductions or standard deductions of 40% based on gross sales or receipts.
- Schedule 3: Personal Exemptions - You can claim personal and additional exemptions as provided by law. For example, individuals can claim a basic personal exemption of 250,000 PHP.
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Frequently asked questions
The BIR Form 1701Q is a Quarterly Income Tax Return for individuals, estates, and trusts, including those with mixed-income (i.e., compensation and income from business/profession).
The following individuals file this return:
- Resident citizens engaged in trade/business or practice of profession within and without the Philippines.
- Resident aliens, non-resident citizens, and non-resident aliens engaged in trade/business or practice of profession within the Philippines only.
- Estates and trusts engaged in trade/business or practice of a profession.
- Employees with other sources of income like a business, self-employment, freelancing, or professional practice (known as mixed-income earners).
You can file it online using the BIR's Electronic Filing and Payment System (eFPS) or Electronic Bureau of Internal Revenue Forms (eBIRForms). You can also print 3 copies, then fill them up manually. Affix your signature. If with payment, file and pay in Accredited Agent Banks. If without payment, file in your respective RDOs.
This form should be filed on or before the 45th day following the close of each of the first three quarters of the taxable year. The first quarter is due on or before May 15, the second quarter is on or before August 15, and lastly, on or before November 15.
Your tax payable is calculated by taking your gross income, subtracting your allowable deductions and personal exemptions, and applying the appropriate tax rate. You can use offline or electronic filing, which automatically calculates your tax due.