Many freelancers in the Philippines start their journey with a full-time job before shifting to freelancing or self-employment. If you were employed from Q1 to Q2, and then registered as self-employed from Q3 to Q4, you’re not alone. This transition is common—but it makes your Annual Income Tax Return (ITR) a little more complex.
This blog is your clear, simple guide to doing it right—without missing requirements or risking penalties.
What Is Employed to Self-Employed ITR?
Employed to self-employed ITR refers to your income tax filing when your status changed during the year. For the first half, you were a full-time employee. In the second half, you became a registered freelancer or business owner. Since you had two types of income, you must declare both in one annual return—Form 1701.
Even if your employer already filed your taxes during employment, you still need to combine both incomes when filing your personal ITR.
Why This Matters for Freelancers
Filing this correctly ensures:
- Full income is declared and reconciled properly
- You avoid BIR penalties for under-declaration
- You stay compliant as a registered freelancer
- You retain your eligibility for loans, visas, and business permits
How to File Your Employed to Self-Employed ITR
Here’s a clear step-by-step:
✅ 1. Get Your BIR Form 2316
This is the Certificate of Withholding from your employer. Request this when you resign. It shows your salary and taxes paid from Q1 to Q2.
✅ 2. Use BIR Form 1701
Since you had both compensation (employee) and business (self-employed) income, you must use Form 1701, not 1701A. This is the correct form for mixed-income earners.
✅ 3. Include Both Income Types
- Part I – Compensation Income: Encode details from your 2316.
- Part II – Business Income: Declare your freelancing income from Q3 and Q4, including any expenses if you opted for the graduated tax rate.
✅ 4. Choose Your Tax Regime for Business Income
If you’re self-employed and earning under ₱3M, you likely chose between:
- 8% tax rate (on gross income exceeding ₱250,000)
- Graduated tax rate with optional deductions
Make sure the correct choice reflects on your BIR registration and return.
✅ 5. File and Pay on Time
Annual ITR is due on April 15 of the following year. Use eBIRForms or file manually, then pay through online banking, GCash, or over-the-counter.
When and Who Should File This
You must file this if:
- You had compensation income during part of the year
- You registered as self-employed or freelancer afterward
- You earned above ₱250,000 total (combined) for the year
This applies to anyone who transitioned mid-year from employment to freelancing or business.
Practical Tips for Smooth Filing
- Secure your Form 2316 early to avoid delays
- Log all freelancing income from Q3–Q4
- If unsure, consult a tax pro to avoid BIR mistakes
- Use your books of accounts (or income tracker) to declare properly
- If you chose 8% income tax, make sure it’s applied only to business income, not salary
Switching from employee to self-employed status is exciting, but it comes with new tax duties. Your ITR must reflect your entire year’s income, even if it came from two sources. Use BIR Form 1701, combine both incomes accurately, and make sure your chosen tax rate is correctly applied.
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