Has it ever happened to you: You agreed on a price for your services, then you find out that your client needs to withhold. Your client then presents you with a computation and you just say, Ok. For some reason it’s less than you expected but, hey, at least they paid. Why do we just say OK? It’s because we don’t know how to compute the breakdown if your client needs to withhold at a certain rate because they’re a withholding agent.
Well, we have been there. Our goal with this article is to help you understand how the math behind all that works and how you should charge so you still receive the amount of cash you expected to receive. Note that most of what will be discussed here will be for individuals and not for corporations.
First of all, let’s talk about withholding tax (WHT). Most payors, when they engage with a professional for their services, will need to withhold a certain portion of the payment before they pay you. Very similar to how it works with employed people — when they receive their salary, the tax has already been taken out. The concept is similar but, the rates that are used are different. What determines the rate is your income for the year.
If you will be earning more than PHP 3 Million per year, then your client will withhold the “default” rate of 10%. If, however, you will be earning at or less than the threshold of PHP 3 Million, your client can withhold a lower rate of 5%. To be able to “avail” of that lower rate, however, you will need to provide a copy of your Certificate of Registration and a notarized sworn statement (you can find templates here: if you have multiple payors in the year, if you only have 1 payor in the year). Note that Certificate of Registration — that means you must be registered with the BIR so you can enjoy that lower rate.
When your client is a withholding agent, they must provide you with a Form 2307. The Form 2307 acts similar to a “gift certificate” that you can then use as tax credits when you pay your income tax.
My next advice is for you to provide the breakdown proactively. This removes any doubt from both parties and makes it clear how much you expect to be paid. To get the breakdown, you can use any of these 2 calculators:
This calculator computes based on the NET you want to receive (exclusive of VAT and less withholding taxes):
When you provide your costing to your client, show the base fee, the VAT (if you are a VAT taxpayer), the withholding tax (for which they should provide a Form 2307), and the net payable by your client. By doing this you make sure that you and your client are on the same page when it comes to what they should be paying you and you’re not surprised that it’s a little bit less.
Many professionals are not experts in all of this and, thus, usually just say OK when shown a breakdown by their client. Of course, the breakdown usually shows that you are now going to receive less. Let’s avoid this and take back control for our business finances.
If you are a professional and taxes is not your number one priority, then consider signing up for Taxumo! With Taxumo, you just enter your income & expenses. In 1 click, you can send your tax forms (including any needed attachments) to the BIR and you can also pay directly via whatever channel is easiest for you. Try it out now — sign up is free!