Online businesses have been increasing in recent years. More and more people are selling their goods or services online because of the pandemic and work-from-home setup. Freelancers and content creators are famous names.
Moreover, since they are stuck at home, many people make online content for social media sites such as YouTube, Facebook, Instagram, Twitter, TikTok, etc. These social media influencers, as they are generally referred to, earn revenues, either cash or kind, through advertisements placed on their social media accounts.
Under Revenue Memorandum Circular (RMC) 97-2021, all persons conducting business transactions electronically or digitally must register with the Bureau of Internal Revenue (BIR). They must also keep their books of accounts, file tax returns and pay their taxes accordingly.
So, if you are a freelancer and a newly-registered taxpayer, it is essential to know how to record your transactions in the books of accounts, compute your taxes due, fill up the corresponding tax returns and pay your taxes correctly and promptly.
What are the tax obligations of a social media influencer?
As emphasized under Section 3 of the circular, social media influencers are required to pay the following taxes or as indicated on the copy of their BIR Form 2303 (Certificate of Registration):
- Income Tax – paid quarterly, every May 15, August 15 and November 15 for the first, second and third quarter, respectively. The annual Income Tax is paid on April 15 of the following year. BIR Forms 1701Qv2018 and 1701V2018 are used for this purpose.
- Percentage Tax (for Non-VAT taxpayers) – paid on the 25th of the month following the close of the taxable quarter, using BIR Form 2551Qv2018.
How to compute the social media influencer’s income and tax due?
Part of your duties as a responsible taxpayer is the maintenance of the books of accounts. You should see that all transactions are recorded in the books, and corresponding invoices/receipts are filed accordingly.
For every sales/income made, the influencer should issue an Official Receipt and record the transaction in the Sales Receipt Journal. To get the final figure, the taxpayer-influencer should determine the final amount on the last day of the reference period.
Graduated Rates VS 8% Gross Sales/Receipts
Another consideration in the filing of Income Tax is selection of the tax rate to be applied to the taxpayer’s income, either using the Graduated Rates or the 8% Gross Sales/Receipts.
Itemized Deduction VS Optional Standard Deduction
If the taxpayer selects the Graduated Tax Rates, he will also decide whether to use the itemized deduction or the Optional Standard Deduction (40% of Gross Sales/Receipts).
Under the itemized deduction, the taxpayer should present supporting documents approved by BIR, such as registered Official Receipts or Purchase Orders that correspond to the total deduction. For Optional Standard Deduction, the total deduction is equivalent to the taxpayer’s gross sales/receipts multiply by 40%.
Example Income Tax Computation
Assumption: The influencer has a total income for the quarter of P100,000.00. We will compute for his Income Tax due for the quarter. He uses the Graduated Rates and Optional Standard Deduction (OSD).
Total Income P100,000.00
Less: 40% OSD 40,000.00
Net Income 60,000.00
Total Tax Due: Based on the Graduated Tax Rate Table, the taxpayer has zero tax due.
Note: The taxpayer should still file the tax return even if he has no tax payment for the quarter.
What are the penalties for non-payment of tax dues?
Section 254 of the tax code punish tax violators with a fine of up to P10 million or imprisonment of not less than six years but not more than ten years.
Online workers, freelancers or influencers, whatever you call them, are now part of nation-building. Whatever they pay to the government will go a long way in ensuring that public service is not hampered.
Knowing the process of paying our taxes shows that we are responsible citizens of this country. And we can sleep soundly at night, confident that we have filed our taxes correctly.