#AskTheTaxWhiz: Is it legal to deduct taxes from a contractual employee?

If so, how much is allowed to be withheld from my salary?

Mon Abrea

Published 2:47 PM, Dec 18, 2014

Updated 2:47 PM, Dec 18, 2014

I am currently working as a contractual Municipal Health Dentist in our town for 3 years now. My monthly salary is P19,000 ($424.93*), net of mandatory benefits. All of a sudden, they want to reduce it further by withholding taxes. Is it legal to deduct taxes for a contractual employee? If so how much is allowed to be withheld from my salary?

Yes. All gainfully employed individuals, whether full-time, part-time, or contractual are subject to withholding tax on compensation. As part-time or contractual, you are not allowed to claim personal or additional exemptions.

Using the revised withholding tax table, P3,708.25 ($82.93*) or at least 20% effective tax rate will be withheld from your monthly salary.

If I will be considered as self-employed, will I be subject to the bookkeeping requirements including the monthly Bureau of Internal Revenue (BIR) compliance? What happens if the deadline falls on a holiday?

Yes. You will be required to register with BIR and maintain the books of accounts, including subsidiary books and other accounting records.

Deadlines which fall on weekends, holidays, and non-working days shall automatically be moved to the next working day.

Are all taxpayers required to file annual income tax return? If I am a full-time employee but I registered a small business with BIR, do I need to file two separate income tax returns?

No. Only self-employed individuals, partnerships, and corporations are required to file annual income tax return. Employees are exempted from filing income tax returns.

No. For mixed income earners or those with compensation and business income combined, they need to consolidate their income and file one annual income tax return.

Got a question about taxes? #AskTheTaxWhiz! Tweet @rapplerdotcom or email us at business@rappler.com. – Rappler.com

Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon's tax handbook, Got a Question About Taxes? Ask the Tax Whiz! is now available in bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at consult@acg.ph.

$1 = P44.73