How to Compute Quarterly Income Tax

Return: Philippines (1701Q)

How to compute quarterly income tax return in the Philippines for self-
employed individuals? If you are a professional who practice your profession
or a self-employed individual engaged in a sole proprietorship business, you
may be looking for a guide on how to prepare your BIR Form 1701Q. BIR
form 1701Q is filed quarterly for the first quarter, second quarter and third
quarter. For the annual income tax return, the BIR form 1701 is used. The
following are the steps, procedures, requirements, tips and other important
information you need to know in computing and preparing your quarterly
income tax returns.

What is the BIR form to be used?

The return we need to file is BIR Form No. 1701Q: Quarterly Income Tax
Return for Self-employed Individuals, Estates, and Trusts (Including Those
with both Business and Compensation Income)

The following are the documentary requirements that need to be attached with
the form, if applicable:

1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable

2. Certificate of Income Payments not Subjected to Withholding Tax (BIR
Form 2304) if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Previously filed return, if an amended return is filed for the same quarter

Who are required to file BIR Form 1701Q?

This return shall be filed in triplicate by the following individuals regardless of
amount of gross income:

1) A resident citizen engaged in trade, business, or practice of profession

within and without the Philippines.

2) A resident alien, non-resident citizen or non-resident alien individual

engaged in trade, business or practice of profession within the Philippines.

3) A trustee of a trust, guardian of a minor, executor/administrator of an

estate, or any person acting in any fiduciary capacity for any person, where
such trust, estate, minor, or person is engaged in trade or business.

When are the deadlines or due dates of

filing the return?
The following are the deadlines for manual filing of BIR Form 1701Q :
1st qtr: On or before April 15 of the current taxable year
2nd qtr: On or before August 15 of the current taxable year
3rd qtr: On or before November 15 of the current taxable year

How to compute and prepare the quarterly

income tax returns?
The following are the steps in the computation and preparation of your
quarterly income tax returns. You can also check the sample computation we
have provided below. For better understanding, please download BIR Form
1701Q here.

STEP 1: Fill up completely the Part 1 of BIR form 1701Q with the applicable
information, which include your Taxpayer Identification Number (TIN),
registered name, registered address, line of business or occupation, method
of deduction (itemized deduction or optional standard deduction), and other
information that are applicable. Also fill in the year, quarter, check if amended
or not, and the no. of sheet/s attached which can be found on the top of the
return.

STEP 2: Fill up Part 2 of the form, which is the computation of the quarterly
income tax. Refer to the form 1701Q to check the line items and their
corresponding reference numbers.
Step 2.1: Determine your [26] Sales/Revenues/Receipts/Fees. Add any [27]
Amount You Received as a Partner from General Professional
Partnership (except loans), if any, to arrived at [28] Total.

Step 2.2: Calculate your [30] Gross income from Operation by subtracting
your [29] Cost of Sales/Services to your [28] Total in Step 2.1. Costs of
services are the direct costs attributable to the rendering of your services,
such as the depreciation of the building for business engage in building rental,
internet cost for internet café business, salaries of janitors for business
engaged in janitorial services, and others.

Step 2.3: Compute your [32] Total Gross Income by adding [30] Gross
Income to your [31] Other Income, if any.

Step 2.4: Determine and compute your total allowable [33] Deductions for
the quarter. You can choose one from the two (2) methods of deduction: (a)
Itemized deduction or the (b) Optional Standard Deduction (OSD). Your
chosen method of deduction will be your method of deduction for the entire
taxable year. The following are the bases for computing the two methods:

Option 1: Optional Standard Deduction (OSD) – A maximum of 40% of

their gross sales or receipts shall be allowed as deduction in lieu of the
itemized deduction. This type of deduction shall not be allowed for non-
resident aliens engaged in trade or business. Example, if you have P100,000
gross sales or receipts for the quarter, you can claim an allowable deduction
(OSD) of P40,000 (P100,000 x 40%), if you choose OSD instead of Itemized
deduction.
Option 2: Itemized Deduction – There shall be allowed as deduction from
gross income all the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on or which are directly attributable to the
development, management, operation and/or conduct of the trade, business
or exercise of a profession including a reasonable allowance for salaries,
travel, rental and entertainment expenses. Examples of itemized deductions
are the following:

Step 2.5: Calculate your [34] Taxable Income this Quarter by deducting
your [33] Allowable Deduction computed in Step 2.4 to your [32] Total
Gross Income.

Step 2.6: Compute your [36] Taxable Income to Date by adding your [35]
“Taxable Income for the Previous Quarter/s” during the taxable year to
your [34] Taxable Income this Quarter. Take the following guides:

1. For the 1st quarter, you don’t have [35] Taxable Income for the
Previous Quarter/ssince it is the beginning quarter of the taxable year.
2. For the 2nd quarter, your [35] Taxable Income for the Previous
Quarter/s is equal to your [34] Taxable Income this Quarter in the 1st
quarter.
3. For the 3nd quarter, your [35] Taxable Income for the Previous
Quarter/s is equal to the “total of your taxable [34] Income this
Quarter in the 1st and 2nd quarters” or the “total [36] Taxable income
to Date of the 2nd quarter”.
4. There is no 1701Q filed and computed in the fourth quarter. Instead the
annual income tax return (BIR Form 1701) is filed and computed. To
learn how to compute annual income tax for self-employed please read
 our article on “How to compute income tax in the Philippines for self-
employed individuals”.

Step 2.7: Compute your [37] Tax Due using the Graduated Tax Table for
Individuals. You can jump below Step 2.9 to see tax rates table and our
sample computation.

Step 2.8: Compute your [39] Tax Payable by deducting to your [37] Tax
Due to your [38] total tax Credits/Payments for the Quarter, which include
[38A/B] Prior Year’s Excess Credits, [38C/D] Tax Payment(s) for the Previous
Quarter(s), [38E/F] Creditable Tax Withheld for the Previous Quarter(s),
[38G/H] Creditable Tax Withheld Per BIR Form 2307 for the Quarter, and
[38I/J] Tax Paid in Return Previously Filed (if you are filing an amended
return).

Step 2.9: Compute your [41] Total Amount Payable by adding any [40]
Penalties(surcharge, interest and compromise), if there is any. Penalty is
charged for late filing. To learn more about computing penalties, please check
our article “How to compute BIR penalties”.
Sample computation of quarterly income tax due and payable

Example: Let us assume the following financial information of J. Santos,

single and Filipino Citizen, for the 3rd Quarter of 2011. Santos has chosen to
claim itemized deduction, instead of Optional Standard Deduction (OSD). He
is also filing the return before the due date, which is also not an amended
return.

Gross sales: P300,000

Cost of Sales: P 180,000
Expenses (rent, depreciation, salaries, taxes and licenses): P 60,000
Other income: P 20,000
Total taxable income for the 1st and 2nd Quarters: P40,000
Income tax paid for the 1st and 2nd Quarters: P1,000
Creditable tax withheld for the previous quarters: P3,000
Creditable tax withheld per BIR form 2307 for this quarter: P2,000
What is your income tax due and payable for the 3rd quarter of 2011?

Answers and computation:

Gross Sales [26] P 300,000

Add: Share from Gen. Prof. Partnership [27] 0
Total [28] 300,000
Less: Cost of Sales [29] 180,000
Gross Income from Operation [30] 120,000
Add: Other Income [31] 20,000
Total Gross Income [32] 140,000
Less: Deductions [33] 60,000
Taxable Income This Quarter [34] 80,000
Add: Taxable Income for the Previous Qtrs [35] 40,000
Taxable Income to Date [36] 120,000
Tax Due [37] * 18,500
Less: Tax Credits/Payments: [38]
Tax Paid for the Previous Quarters 1,000
Creditable tax withheld for the previous quarters 3,000
Creditable tax withheld per BIR form 2307 for this qtr 2,000
Tax Payable [39] 12,500
Less Penalties [40] 0
Total Amount Payable [41] P 12,500
* Computation of tax due:

Since P120,000 is under the “over P70,000 but not over P140,000, your tax
due is equal to P8,500 + 20% of the Excess of 70,000.
Tax Due = P8,500 + 20% of the Excess over 70,000.
Tax Due = 8,500 + [20% (120,000 – 70,000)]
Tax Due = 8,500 + (20% x 50,000)
Tax Due = 8,500 + 10,000
Tax Due = P18,500

Notes:
1. The personal and additional exemptions of the taxpayer are only claimed
on the computation of annual income tax return..
2. Compensation income need not be reported in the Quarterly Income Tax
Return. The same shall be reported in the Annual Income Tax Return only.

Step 2.10. If you are filing consolidated income tax return with your spouse,
aggregate your income tax payable.

Step 2.11 Put your signature over your printed name. Also fill the
Title/Position of Signatory.

STEP 3: Fill out the details of payment in Part III

How to file the quarterly income tax

returns?
The following are the procedure in filing the quarterly income tax returns:

1. Fill-up BIR Form 1701Q in triplicate.

2. If there is payment:

 Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue

District Office where you registered and present the duly accomplished
BIR Form 1701 Q, together with the required attachments and your
payment.
  In places where there are no AABs, proceed to the Revenue Collection
Officer or duly Authorized City or Municipal Treasurer located within the
Revenue District Office where you are registered and present the duly
accomplished BIR Form 1701Q, together with the required attachments
and your payment.
 Receive your copy of the duly stamped and validated form from the teller
of the AABs/Revenue Collection Officer/duly Authorized City or Municipal
Treasurer.

3. For “No Payment” Returns including refundable/ creditable returns with

excess tax credit carry over and returns qualified for second installment:

 Proceed to the Revenue District Office where you are registered or to

any Tax Filing Center established by the BIR and present the duly
accomplished BIR Form 1701Q, together with the required attachments.
 Receive your copy of the duly stamped and validated form from the
RDO/Tax Filing Center representative.
How to Compute Income Tax in the
Philippines (Single Proprietorship)
How to compute annual income tax in the Philippines for self-employed
individuals, such as proprietors and professionals? Computing income tax
expense and payable is different for individuals and corporations. Taxable
corporations may be taxed using a fixed income tax rate. On the other hand, if
you are a self-employed professional or an owner of a single proprietorship
business, your income tax expense is computed using a graduated tax rate. It
is a progressive tax which the tax rate increases as the taxable base amount
increases. This means that the higher taxable income you have, the higher
your income tax expense is. The following are the requirements, instructions
and procedures to compute and file your income tax return.

The tax form you will use

For self-employed individuals such as proprietors, professionals and those
with both business and compensation income, you will use BIR Form
1701 (please click here to download form). It must be prepared in 3 copies
(one for BIR, one for the Authorized Agent Bank and one for your copy).
Documentary requirements
Below are the documentary requirements that should be attached with the
return, if applicable. For taxpayers earning both business income and
compensation income, BIR Form 2316 should be attached.

1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if

applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR
Form 2304) if applicable
3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
4. Waiver of the Husband’s right to claim additional exemption, if applicable
5. Duly approved Tax Debit Memo, if applicable
6. Proof of Foreign Tax Credits, if applicable
7. Income Tax Return previously filed and proof of payment, if filing an
amended return for the same year
8. Account Information Form (AIF) or the Certificate of the independent CPA
with Audited Financial Statements if the gross quarterly sales, earnings,
receipts or output exceed P 150,000.00
9. Proof of prior year’s excess tax credits, if applicable

Computation of Income Tax Due and

Payable
The following are simple steps to calculate your income tax payable.

1. Compute your taxable Compensation Income (positive) or excess of

Deductions over Taxable Compensation Income (negative). Here is how
you will compute it.

a. Determine your Gross Taxable Compensation Income. This is the income

you earn from your employer during the taxable year. If you are earning purely
from your business or you are not employed, then you can leave it blank.
b. Determine your premium paid on Health and or Hospitalization, which
should not exceed Php 2,400 per year. If none, then leave it blank. *
c. Determine your Personal and Additional Exemptions as follows:

Personal Exemptions:

For single individual or married individual judicially decreed as legally

separated with no qualified dependents………………………………………P
50,000.00
For head of family……………………………P 50,000.00
For each married individual *…………P 50,000.00

Note: In case of married individuals where only one of the spouses is

deriving gross income, only such spouse will be allowed to claim the
personal exemption.

Additional Exemptions:

* For each qualified dependent, a P25,000 additional exemption can be

claimed but only up to 4 qualified dependents
The additional exemption can be claimed by the following:
* The husband who is deemed the head of the family unless he explicitly
waives his right in favor of his wife
* The spouse who has custody of the child or children in case of legally
separated spouses. Provided, that the total amount of additional
exemptions that may be claimed by both shall not exceed the maximum
additional exemptions allowed by the Tax Code.
* The individuals considered as Head of the Family supporting a
qualified dependent

d. Add the amounts in (b) and (c), then deduct the total from the amount
in (a) to arrive at your taxable Compensation Income (positive) or excess
of Deductions over Taxable Compensation Income (negative).

2. Compute your gross taxable business or professional income. Here is

how you will calculate it.

a. Determine your sales, receipts or revenues for the taxable year.

b. Determine your cost of sales or cost of services.
c. (a) minus (b) will simply give you your gross taxable or professional income.

3. Compute your total taxable business or professional income by simply

adding result in (2) and your other taxable income.

4. Compute your Net Income. Your Net Income is equal to result in (3)
minus your allowable deductions. Your allowable deductions can be either:

a) Optional Standard Deduction – an amount not exceeding 40% of the net

sales for individuals and gross income for corporations; or
b) Itemized Deductions which include the following:

 Expenses
 Interest
 Taxes
 Losses
 Bad Debts
 Depreciation
 Depletion of Oil and Gas Wells and Mines
 Charitable Contributions and Other Contributions
 Research and Development
 Pension Trusts

Note: A taxpayer engaged in business or in the practice of profession

shall choose either the optional or itemized deduction (described
below). He shall indicate his choice by marking with “X” the appropriate
box, otherwise, he shall be deemed to have chosen itemized deduction.
The choice made in the return is irrevocable for the taxable year
covered.

Reminder: There are expenses that have ceilings or limits as deductibles to

your taxable income, such as interest expense, representation and
entertainment expense, etc. To learn more, please read our article “Deductible
Expenses (Allowable Deductions) in the Philippines”.

5. Compute you total taxable income by adding the result in #4 (Net

Income) to the result in #1 (taxable Compensation Income or excess of
Deductions over Taxable Compensation Income). If the result is negative or it
becomes a loss, then you will not have a tax due for the taxable year,
otherwise, continue to the next step.

6. Compute your Income Tax Due. This is also your income tax expense
incurred during the taxable year. Calculate your tax due for the taxable year
using the following tax rate table.

Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in
two equal installments, the first installment to be paid at the time the return is
filed and the second installment 15 of the same year at on or before July the
Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District
Office (RDO) where the taxpayer is registered.
7. Compute your Income Tax Payable. This is the tax you are still liable at
the end of the year. To calculate your income tax payable, deduct your
income tax due with the following tax credit/payments, if available.

-Prior Years’ Excess Credits

-Tax Payments for the First Three Quarters
-Creditable Tax Withheld for the First Three Quarters
-Creditable Tax Withheld Per BIR Form No. 2307 for the 4th Qtr.
-Tax Withheld Per BIR Form No. 2316
-Foreign Tax Credits
-Tax Paid in Return Previously Filed, if you have already file and this is your
Amended Return
-Other Payments made

8. Compute your Total Payable. If unfortunately, you fail to pay your income
tax on or before the due date, the following penalties will be imposed and will
be added to your total amount payable.

1. A surcharge of twenty five percent (25%) for each of the following

violations:
a) Failure to file any return and pay the amount of tax or installment due on or
before the due dates;
b) Filing a return with a person or office other than those with whom it is
required to be filed;
c) Failure to pay the full or part of the amount of tax shown on the return, or
the full amount of tax due for which no return is required to be filed, on or
before the due date;
d) Failure to pay the deficiency tax within the time prescribed for its payment
in the notice of Assessment (Delinquency Surcharge).
2. A surcharge of fifty percent (50%) of the tax or of the deficiency tax, in case
any payment has been made on the basis of such return before the discovery
of the falsity or fraud, for each of the following violations:
a) Willful neglect to file the return within the period prescribed by the Code or
by rules and regulations; or
b) In case a false or fraudulent return is willfully made.

3. Interest at the rate of twenty percent (20%) per annum, or such higher rate
as may be prescribed by rules and regulations, on any unpaid amount of tax,
from the date prescribed for the payment.

A simple illustration of computing total income tax payable is shown

below:

Gross Income (Gross business income, compensation income and other

income)
Less: Allowable Deductions (Itemized or Optional) (refer to # 4)
Equals: Net Income
Less: Personal & Additional Exemptions (see #1)
Equals: Net Taxable Income
Multiply by Tax Rate (5 to 32%) (refer to # 6)
Equals: Income Tax Due
Less: Tax credits & payments (refer to #7)
Equals: Income tax payable
Add: Penalties (Surcharge, interests & compromise) (refer to #8)
Equals: Total amount payable
Procedures for paying and filing
1. Fill-up BIR Form 1701 in triplicate copies.

2. If there is payment:
a. 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.
b. In places where there are no AABs, proceed to the Revenue Collection
Officer or duly Authorized City or Municipal Treasurer located within the
Revenue District Office where you are registered and present the duly
accomplished BIR Form 1701, together with the required attachments and
your payment.
c. Receive your copy of the duly stamped and validated form from the teller of
the AABs/Revenue Collection Officer/duly Authorized City or Municipal
Treasurer

3. For “No Payment” including refundable/ creditable returns, returns with

excess tax credit carry over, and returns qualified for second installment:
a. Proceed to the Revenue District Office where you are registered or to any
established Tax Filing Centers established by the BIR and present the duly
accomplished BIR Form 1701, together with the required attachments.
b. Receive your copy of the duly stamped and validated form from the
RDO/Tax Filing Center representative.

Deadline
Final Adjustment Return or Annual Income Tax Return – On or before the
15th day of April of each year covering income for the preceding year

For more information, such as who are the individuals exempt from income
tax and other tax related information, please visit this web page (Tax
Info) from the Bureau of Internal Revenue (BIR). Updates to this article will be
provided when necessary.

Update 1 (April 28, 2011)

For professionals and freelancers, such as online entrepreneurs, bloggers,
web designers, mixed income earners, etc., who keep on asking how to
register with the BIR and pay their income taxes, we have published an article
titled “How to Register with the BIR (for Professionals)” for your guide.