Creditable withholding on professional fees.
Withholding tax
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Rate
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Net received
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Why your client keeps part of your fee
When a business pays a professional, it is required to hold back a slice of the fee and remit it to the BIR on your behalf. This is creditable withholding tax, often shortened to CWT or EWT. To a freelancer it can feel like a deduction from earnings, but it is closer to a prepayment of your own income tax, collected at the source before the money reaches you. This calculator works out how much your payor withholds and what lands in your account, so you can reconcile the net figure against your invoice and avoid the panic of an apparent shortfall.
5 percent or 10 percent: which rate applies
The withholding rate on professional fees depends on the payee's annual gross income. As modelled here, the rate is 5 percent if the professional's annual gross is at or below PHP 3,000,000, and 10 percent above that. The PHP 3,000,000 line is the same figure that governs VAT registration, which is no coincidence, it is a convenient bright line the system reuses. You typically signal your applicable rate to clients through a sworn declaration of your expected income, so the payor knows whether to apply 5 or 10 percent. These rate figures are what this calculator applies, so confirm the current rates and the declaration requirement with the Bureau of Internal Revenue.
Withholding on a 100,000 peso invoice
Suppose you bill a corporate client PHP 100,000 for a project and your annual gross is at or below PHP 3,000,000, so the 5 percent rate applies, which is the calculator's default. The client withholds 5 percent of PHP 100,000, which is PHP 5,000, and remits it to the BIR under your name. You receive PHP 95,000 net. Crucially, that PHP 5,000 is not lost. It is parked as a credit you will use when you file your annual income tax return. These figures use the rate this calculator applies.
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The chart breaks the PHP 100,000 fee into the cash you collect immediately and the small portion held back as a tax credit. The grey slice is not gone, it just arrives in the form of a lower tax bill later.
Getting the withheld tax back at filing
This is the part many freelancers underuse. The amounts withheld across the year are creditable, meaning they offset the income tax you actually owe. Your clients issue a BIR Form 2307, the certificate of creditable tax withheld, and you attach those to your annual return. If the total withheld exceeds your final tax due, you can carry it forward or, in some cases, claim a refund. The practical tip: collect every Form 2307 as you go, because a 2307 you forget to claim is tax you paid twice. It also matters whether you are taxed under the graduated rates or have elected the 8 percent flat option, since the credit applies against whichever income tax you owe.
What freelancers ask about CWT
Is withholding tax an extra cost on top of my income tax?
No. It is a prepayment, not an additional tax. The withheld amount is credited against your annual income tax due, so it reduces what you still have to pay at filing. Your total tax burden is the same whether or not it was withheld in advance, the timing just shifts earlier.
What if no tax was withheld from my fee?
Not every payor is obligated to withhold, and individual clients often do not. If nothing was withheld, you simply have no credit to claim for that payment and you settle the full income tax on it when you file. The income is still taxable either way, so report it.
Does the 10 percent rate mean I am taxed more overall?
No. The 10 percent applies to higher-earning professionals, but it is still creditable, not a final tax. A larger amount is prepaid, yet it all offsets your eventual income tax. The rate affects cash flow during the year, not the total tax you ultimately owe.