Is Google AdSense Income Taxable?

Perhaps, Google AdSense is the most popular and the simplest way to earn money on websites and blogs. It is also free and could instantly be implemented on any site of all sizes once your AdSense account is approved by Google.

If you are already receiving cash from Google or you are just planning to build a website or a blog to earn income out of AdSense, you might be asking the following question:

Is income from Google AdSense taxable?

In the United States, where Google, Inc. is registered as a corporation, AdSense is basically taxable. AdSense, which becomes income on the part of website publishers, also becomes expense on the part of Google. This also means that when you are an AdSense earner, the income that Google is paying you is also the expense it is reporting to the IRS (Internal Revenue Services).

Google began collecting tax-related information from all AdSense publishers since November 13, 2003 in order to comply with tax laws in the US. During registration or creation of AdSense account, these 3 types of publishers are required to comply with the following:

1. U.S. Business (The payee is based in, and pays taxes in, the U.S.) – are required to submit Internal Revenue Service (IRS) form W-9, for which a U.S. tax I.D. such as a Taxpayer Identification Number (TIN) or Social Security Number (SSN) is needed.

2. Non U.S. Business and No U.S. Activities (The payee’s operations related to participation in AdSense are based entirely outside of the U.S., and payee does not pay taxes in the U.S.) – No tax forms are required, but is required confirm and sign a declaration of No US Activities.

3. Non U.S. Business with U.S. Activities (The payee is based outside of the U.S., but has equipment or employees in the U.S. that are involved with payee’s participation in AdSense) – are required with U.S. Taxpayer Identification Number (TIN) as part of the requirements of the Internal Revenue Service (IRS) forms.

Google holds payments to publishers until they receive their tax information and they can only collect all revenue due to the publishers once the tax information or requirements have been submitted.

The IRS Form W-9 is required to US Business or publishers based and pay taxes in the US to request for Taxpayer Identification Number and certification. You may check or download a form from the IRS website here.

Also, if you are in the first category of publishers (i.e., US business or resident), and if you earn more than $600 gross earning in AdSense for the tax year, Google will send you IRS Form 1099-MISC, reflecting the earnings it has paid you as an independent contractor. When you receive this form, this also means that Google has reported to the IRS the AdSense revenue you earned as their expense. If you receive this form, then you have to file and pay the applicable income tax to the government reflecting such amount. But this doesn’t mean that when you don’t receive IRS Form 1099-MISC from Google, you don’t already need to file income tax. If your AdSense earning for the year is not over than $600 and you did not receive IRS Form 1099-MISC from Google, you are still required to file and pay the tax applicable to your income.

To read more about tax information on Google AdSense from Google.com, please visit this page.  

Now, how about for Filipino website publishers?

Is Google AdSense Income taxable in the Philippines?

Filipino AdSense publishers, who are living in the Philippines, usually fall into the 2nd category of AdSense publishers (Non U.S. Business and No U.S. Activities), unless of course they have US activities. Filipinos who don’t have US activities are not required to submit tax forms and information to Google as a compliance with the U.S. IRS. Thus, it is somehow difficult for the Philippine government or BIR (Bureau of Internal Revenue) to trace AdSense income earned by Filipino publishers, unlike the US IRS which can simply look at Google’s list of expenses to trace AdSense income it pays to US publishers.

However, it doesn’t mean that because AdSense income is difficult to trace in the Philippines, Filipino publishers are already not required to pay the corresponding taxes.

Income from Google AdSense is generally considered taxable income, which might be subjected to income tax and business tax in the Philippines.

But is it really taxable considering that it is earned outside the Philippines?

Revenue or earnings from Google AdSense is considered income from sources outside the Philippines. And according to our Tax Code, resident citizens are required to file income tax return on their income from sources “within and/or outside the Philippines”. Hence, if you are a Filipino and living in the Philippines, you are taxable, not only on your income in the Philippines, but also on your income from outside the Philippines, including income from Google AdSense.

If you are a nonresident citizen, you are only required to file income tax on your income from sources within the Philippines, unlike resident citizens who are required such on their income from sources within and outside the country. According to the Tax Code, a “nonresident citizen” means:

(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein.

(2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis.

(3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year.

(4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines.

(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.

Source: NIRC Chapter 1, Section 22 E 

Income from AdSense could be considered income arising from business or practice of profession. Bloggers and other website publishers are usually the ones who are earning from Google AdSense. They can be categorized into two: publishers (a) who perform those activities regularly and considered them their business or regular profession and those (b) who just perform them as hobby and only earn small amount of AdSense income.

Filipinos, who are regularly earning income from Google AdSense and are already considered doing it for business, are required by the BIR to register. They can either register themselves as self-employed individual taxpayers or their business as a single-proprietorship business, partnership, or corporation. Upon registration, the BIR will issue them with certificate of registration, where their taxability or the different tax returns they are required to file are stated.

Usually, income from AdSense is subject to income tax and business tax, which can be either VAT or Percentage Tax depending if the taxpayer is registered as VAT or a Non-VAT. Though, revenue from AdSense can be considered as zero-rated sale, which is subject to 0% VAT as it may fall under Section 108 (B) of the Tax Code as “Services other than those mentioned in Section 108 (A), the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)”. However, this might still be needed to be confirmed or be ruled out by the BIR to ensure that you can claim 0% VAT rate without having problems in the future.

Computing and filing of income tax on AdSense is usually just the same as other type of income. It can be classified and reported as income from blogging, website publishing, online advertising, or simply be called as income from Google AdSense. As a business or professional in practice, you can claim as deductions the expenses that are related in generating your income from AdSense, such as web hosting, domain registration and Internet expenses. For computing income tax, you may read the following guide in computing annual income tax for individual and corporate taxpayers.

How to compute annual income tax for self-employed individual?
How to compute annual income tax for partnerships and corporations?
Business registration and other tax guide in the Philippines

Now, how about if you are just earning a little amount of AdSense income from you hobby as a blogger or website publisher, is your AdSense income still taxable?

Actually, it doesn’t matter if your income is generated from a hobby or not. The Philippine Tax Code did not state that income from hobby isn’t taxable. The Tax Code defines Income Tax as “a tax on a person’s income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code, as amended, or other special laws.” Thus, AdSense income arising from a hobby can be taxable.

Individual taxpayers in the Philippines can claim personal deduction amounting to Php 50,000 (regardless if single, head of the family or married) and additional deduction of Php 25,000 for each of their qualified dependent up to a maximum of 4 qualified dependents. Thus, every Filipino taxpayer can at least claim a minimum of Php 50,000 personal deduction in a year against his taxable income for the year. And if he or she only earned Php 50,000 or less in AdSense for the year (or an average of Php4,167 per month) and he or she doesn’t have any other source of income for the year, he or she may not be required to file income tax return. According to the BIR website, individuals who are minimum wage earners and those whose gross income does not exceed his total personal and additional exemptions are not required to file income tax returns. 

For AdSense income earners, who also earn income from other sources, like income from employment, they should file income tax return, showing their mixed income (income from compensation and income from AdSense) and pay the tax computed therein.

For AdSense earners, who are regularly earning and have registered their business with the BIR, they have to file business and income tax returns as required, even if there is no tax payable based on their computation or when their total deductions or credits exceed their taxable revenue or income.

Now, to conclude and answer our question… Is Google AdSense income taxable?

The answer is generally yes, subject to allowable deductions.

 

Disclaimer: This article was written and published for informational use only. There may be other important information that we might have missed to discuss in relation to the topic discussed above. Furthermore, new and subsequent tax rulings, issuances and or laws in the future may render the whole or part of the article obsolete or inaccurate. Moreover, the content in this article is not provided to serve as legal, tax, or investment advice. Hence, we do not guarantee and is not liable for the accuracy or completeness of any information provided herein or in any outcome as a result for using this information.