This article is not financial advice and not a substitute for a professional opinion from an accountant. Please always consult your accountant when it comes to matters such as tax for the most up to date and relevant information for your location and situation.
If you’re an Online ESL Teacher you may not have considered what you’re supposed to be doing tax-wise. Do you pay tax? How much? How much can you earn before they start knocking on your door?
Finding your feet as a freelancer is difficult enough without being bombarded with legal jargon and drowning under Form ABC with sub-section XYZ…
But this helpful guide will walk you through the essentials, and hopefully take some of the weight off of your shoulders.
Paying tax as an online ESL teacher is a new experience for those who have no freelance experience other than online teaching through teach from home jobs.
So here is all the information that UK and USA self-employed teachers need to know about paying tax whilst earning online pay from platforms such as:
This article's structure (click to jump to the section that is appropriate for you):
Tax Returns as an Online ESL Teacher (UK Teacher Tax)
Pay As You Earn (PAYE)
Within the UK, if your income isn't taxed at source by your employer, then it must be declared via completing a tax return.
Being employed by a company in the UK generally equates to being paid through the pay as you earn (PAYE) scheme. This means that your employer is responsible for handling your tax and declaration of earnings.
How To Declare Your Earnings For Tax
You must register with HMRC as self-employed and complete a self-assessment tax return.
The UK Tax Year
This runs from 6th April – 5th April of the following year.
So for example – 6th April 2018 to 5th April 2019 is the current tax year at the time of writing this article.
So, when should I register as an online teacher?
It is requested that you register before the October after the end of the tax year. So to make it simple:
You start teaching online in April 2018, then you should register with HMRC by October 2019.
When should I submit the tax form after registering?
Your self-assessment form deadline is the following January. So…
…start teaching in April 2018, then you get your form submitted by January 2020.
Registering with HMRC
After registering, HMRC will give you all the information you need to log-in to your account. You will also receive a Unique Taxpayer Reference (UTR).
You could then decide to contact and register an accountant to complete your return for you…but to be honest, it's pretty straightforward…as long as you keep good records!
But an accountant is useful for ascertaining what to claim as a tax deductible expense as an online teacher.
Keeping Records and Tax Deductible Expenses
Logging every bit of online ESL income and other income from side hustles from home into a google sheets spreadsheet is a good idea. You may also choose to log your expenses as well.
Don't record it in Chinese Yuan or US Dollars or whatever currency you are paid in through online payment systems like Wise, Payoneer or PayPal, regardless of how you have gotten paid. Convert it and write it all down in pounds. But it might be a good idea to also keep a note of how much it was before the currency conversion.
What Counts as Tax Deductible Expenses in Online Teaching?
Things that are 100% related to the job can be claimed as an expense. For example, essential teaching items such as headsets and other online teaching tools can be claimed against your income. So make sure to log how much you paid and keep your receipts!
You can also claim things such as your internet cost…but only partially as it although it is essential to the job, it is most likely used for personal use as well (not 100% related to the job, as was mentioned previously).
This is where an accountant comes in handy as they can tell you from your records, logs and sheets what you can claim for.
How Much Tax Will I Have To Pay?
To work out how much you'll owe, follow this formula:
Total income – deductible expense = Profit
Now if your profit is below the personal allowance of £11,500 (this allowance changes yearly) then you won't have to pay a penny. If the profit is above this then you will pay a basic rate of 20%.
20% is the basic rate bracket of earnings under £46,350 (again, this also changes yearly).
Online Teaching Tax Example for Pay
Say you work 15 hours a week teaching, earning £15 per hour.
Let's pretend you pay £20 a month for props.
20 x 12 = 400
11,700 – 400 = 11,300
This is below personal allowance so you won't pay any tax.
However, let's say you didn't have any deductible expenses. So therefore you would pay tax on any income over the £11,500 allowance.
11,700 – 11,500 = 200
So in this case you would pay tax on £200
20% of £200 =
£40
And this is how much tax you would pay as an online teacher within this example.
National Insurance Contributions
These contributions are due when your income exceeds £6,205 within the year. These are voluntary payments but your contribution amounts dictate whether you eventually receive your state pension…so it's kind of voluntary but with a heavy arm-twist.
And that's all you need to know about paying tax in the UK as an online ESL teacher.
If you want to use something help you keep track of expanses, a great tool is Freshbooks. This is an accounting software to help you keep track of your finances…and make life so much easier. Here's a free trial if you want to check it out:
(Affiliate link)
Paying Tax in the USA for Online ESL Teachers (Freelancer Tax Returns)
This article is not financial advice and not a substitute for a professional opinion from an accountant. Please always consult your accountant when it comes to matters such as tax for the most up to date and relevant information for your location and situation.
This guide is for US citizens to help give an understanding of paying tax as an online teacher/freelancer. Please be aware that the figures may not be 100% accurate due to the ever-changing nature of tax figures. So always double-check with your accountant.
How much can I earn before I have to worry about tax?
United States tax law expects companies to tell the IRS how much they’ve paid you since the last time you were taxed.
If you earn in excess of $400 from your freelance income then you’ll need to file a tax return.
You’ll be required to fill these out either quarterly or annually. Each case is different, so it depends on your own personal financial situation.
What kind of forms are we talking about?
In a typical ‘nine-to-five’ job you’ll get a W-2 form from your employer. This tells you how much you’ve earned over the last year, and will give you some indication of what you should expect to be paying in tax.
As a freelancer you won’t receive a W-2. What you WILL get is a 1099 form.
The 1099 can come in two distinct ‘types’: the 1099-MISC and the 1099-K.
This is starting to get worrying, right?
Don’t panic. It’s actually much more simple than you probably think.
The 1099-MISC form is reserved for independent contractors. It needs to be filled out if you’re making more than $600 through being contracted over the last year.
As a freelance ESL teacher, you might be receiving your payments via services like Wise, PayPal or Payoneer. If this is the case, then you’ll need a 1099-K form.
The 1099-K form is for those who make above $20,000 over the year. It might sound like this doesn’t immediately apply to you, but in reality a great many companies are choosing to issue their freelancers with 1099-K forms regardless of how much they’ve earned.
Because of this, it’s in your best interests to keep EXACT records of how much you’ve earned, and where that money has come from.
How To Keep Records Easily
The best way to do this is either using spreadsheets on Google Sheets or using an accounting software such as Freshbooks. It's a great way to organise income and outgoings (which can get tedious to keep track of).
You can grab a 30 day free trial of Freshbooks below:
So is that it?
Well, not quite…
Self-employed and Freelance tax are split into two different taxes: ‘self-employed contributions tax’ and the typical ‘income tax’.
The self-employment contributions tax is made up of your Social Security and any Medicare payments. They can tax up to 15% of your freelance income through this method.
So, now are we done?
Nope, not quite. The last thing to consider is how your State treats taxes.
Some States employ a State or Local Income Tax on your earnings. You’ll need to look into the tax brackets for your state of residence.
An Online ESL Teacher based in Maryland might pay different taxes to someone in Texas, and those in Washington State might be taxed less than those in Michigan – don’t forget to check your own State.
Anything else to keep in mind?
Yes, and this last bit is perhaps the strangest detail of everything we’ve discussed so far.
Quite astonishingly, a large part of filling out your tax return is actually guess work…
You’ll be expected to estimate how much you think you’re going to earn in the coming year, which will then determine the tax you pay for that year.
In order to figure this out, you’ll want to have a look at the IRS Form 1040-ES. That’s the last form you’re going to see mentioned in this article, we promise.
The amount you owe to the IRS is a quarter of the amount you ‘estimate’ you’ll earn.
So what happens at the end of all of this?
In the final tax period of April 15th, you’ll be required to submit all the necessary forms.
The IRS will then determine whether you’ve overpaid or underpaid – beware, if you’ve underpaid then you ‘might’ have to pay a penalty. But let’s be honest – they’re going to make you pay the penalty. So do what you can to make sure you don’t underpay.
If you can’t pay what you owe by April 15th, they’ll encourage you to set up a ‘payment plan’. This will incur ‘late fees’ on each payment made after that date though.
Final Thoughts
Hopefully that wasn't too overwhelming and has helped set you on the path to getting financially organized. It's one of those things that you'll always wish you started doing earlier…especially if your online teaching job is a window into more freelance work in the future.
You never know how your online teaching or freelance career is going to evolve – so it's good to get some peace of mind early on!
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