Withholding Tax 101 (or, ‘Why Is My Pay Less Than What My Client Said It Would Be?’)

If you’re a freelancer with local clients, you must be familiar with withholding tax.
Simply put, it’s the amount of money that your client deducts from the amount you’re supposed to receive; so if you’re expecting, say, Php 3,000, you might end up getting Php 2,700 instead.
Where did that missing Php 300 go?
It went to your withholding tax.
What is withholding tax?
Withholding tax is an advance payment on income tax. In other words, withholding tax is income tax paid in advance.
The big difference between withholding tax and “regular” income tax is that, with the latter, we compute and file it ourselves.
Under withholding tax, your clients/payors are required by law to immediately take your taxes out of the income you earned from them, report that income, and remit the taxes to the BIR on your behalf. In other words, they become deputy tax collectors whether they like it or not every time they issue a payment to you.
Since your payor is declaring your income to the BIR for you, you cannot deny to the BIR that you earned that income, and you cannot get out of paying taxes on it.
As we would say in Filipino, “Wala kang kawala (There is no escape).”
Clever, isn’t it?
