If you’re an American online teacher, understanding when and how to file your taxes can be confusing. Luckily, if you keep proper documentation, records of your income and work-related expenses, and know when and how to file your online teaching taxes, it’s a pretty straight forward process.
In this guide, we’ll focus on how to file earned income tax for teachers working online in the U.S., how you can reduce your tax burden, and what forms you need to make it all happen.
Let’s get started!
Important terms to know when filing your taxes
Nearly all online teachers are classified as independent contractors and therefore no taxes are taken out of their paychecks like they would be as normal employees. Broadly speaking, this means you’re in charge of filing your own taxes to the IRS (usually quarterly).
What’s an independent contractor?
This is a self-employed individual or entity contracted to perform work for or provide services to another entity as a non-employee. Independent contractors have to pay their own taxes, including Social Security, Medicare, and income.
Additionally, independent contractors who make more than $600 in one financial year are required to complete a 1099 form to report non-salary income to the IRS for federal tax purposes.
As an independent contractor, you’re required to file your taxes by April 15 every year unless you receive an extension.
What’s a 1099?
A 1099 is the tax form you should receive from your employer at the end of the year. It should include your personal information, their information, and how much you made with them over the past 12 months.
You will take some of the information from your 1099 and copy it into your final taxes that you submit in April.
What’s a 1040?
A 1040 is a tax form used for personal federal income tax returns filed annually by U.S. residents. This form has several sections where taxpayers report their income and deductions.
How filing your taxes works: a step-by-step guide for online teachers
Because online teachers are considered independent contractors, the way they’re supposed to file their taxes is quite different from everyone else. The requirements are slightly different for those working independently or in contracted positions for other online education-based companies in the United States.
To file your teaching taxes correctly, it’s crucial to know when to file your taxes, what forms you need, how much you need to pay, and different ways you can save by deducting your “business expenses.”
Who needs to pay?
In the U.S., if you’re an online teacher offering services independently or hired to do online teaching as a subcontractor, you’re supposed to pay your own taxes. Unlike in-office or full-time jobs in America, you’re solely in charge of paying your own earned income tax.
We recommend keeping an up-to-date spreadsheet of your earnings to make your work easier when filing online teaching taxes – this is doubly important in case you don’t receive a 1099.
What forms do you need?
As an online teacher, you won’t receive a W-2 form from your employer that tells you how much you earned in the last financial year. What you’ll get is a 1099 form that comes in two distinct types: the 1099-MISC and the 1099-K.
If you’re not sure about which one you should be filing, don’t worry.
- The 1099-MISC form is for independent contractors and needs to be filled out if you’re making over $600 through subcontracting work over the last financial year.
- The 1099-K form is for online teachers who might be receiving payments for their services through online payment options like PayPal, TransferWise, and Payoneer. This is specifically for online teachers who make $20,000 over the financial year.
Another form that you’ll need is Form 1040 – this is the main form you’ll submit to the IRS.
Again, it’s in your best interest to keep good records of how much you’ve earned and where that money came from to ensure a smooth tax filing process during tax season.
How much do you pay?
As independent contractors, online teachers are required to pay 15.3% in taxes on their yearly income. This amount includes 12.4% for social security and 2.9% for Medicare.
To be safe, make sure you set aside 15.3% from every paycheck you get into savings to avoid surprises during tax season. While these taxes may seem high for independent contractors, online teachers qualify for numerous tax deductions that reduce taxes paid, which we will discuss below.
In addition to self employment taxes, you’re also responsible for income tax, or taxes based on how much you made during the past year. For the tax year, top margin rate is 37% and the lowest is 10% – you can use this table by Nerdwallet to better understand which income bracket you’re in and how much to set aside.
To be safe – you should be setting aside 15.3% and whatever tax rate your income correlates to each month – this will ensure you have enough put away when it’s time to file taxes!
Where do you pay?
To pay your online teaching taxes, you have to file Form 1040 with the IRS (this is the same form that is usually due April 15). You can also use tax software to calculate your tax automatically.
Make sure to find out more on how the process works on the IRS website and learn about this tax, what it covers, and the specific steps on filing.
When do you pay?
By “when,” we mean tax season. But it’s important to know that the regulations are different for self-employed online teachers and contracted online teachers who expect to pay more than $1000 in taxes in a tax year after deducting their federal income tax.
For online teachers who receive form 1099, you’re required to pay quarterly taxes four times a year.
- 1st Quarter due April 15
- 2nd Quarter due June 15
- 3rd Quarter due Sept 15
- 4th Quarter due Jan 15
Paying your taxes on time is vital to avoid a 5% penalty for every month your payment is overdue. The good thing is, this penalty has a limit of 25% of the total taxes owed.
When do you not need to pay?
Online teachers who receive a W-2 form from their learning institution or university typically have their taxes withdrawn throughout the year by their employer. That means they don’t have to pay quarterly taxes or worry about saving a percentage to pay in April.
How to save money
As an online teacher, you are likely to accumulate expenses over time. These expenses pay off when it’s time to pay your online teaching taxes and it’s essential to keep records and receipts of your work-related expenses.
It’s helpful to take a quick photo of every work-related expense on your phone and then store the photos on Google Drive or a receipt tracking app for easy access when it’s tax time.
Typical expenses for online teachers include:
- Physical items needed for the online lessons
- Home-office supplies, space, and utilities
- Mileage, gas, and other traveling expenses, if any
- A portion of your rent/mortgage
- Utilities and internet costs related to your business
- Requirements for teaching online like props, laptop, and headset
Deducting these expenses helps you save more on taxes and is one of the best ways to minimize your tax burden as an independent contractor.
FEIE (Foreign Earned Income Exclusion)
The Foreign Earned Income Exclusion (FEIE) allows to prevent double taxation by excluding income earned in a country other than the U.S..
To be eligible for the FEIE you should:
- Have foreign earned income
- Have a foreign country as a tax home
- Meet either the bona fide residence test or physical presence test
- Make a valid election to exclude foreign earned income.
If you’re an American teacher who lives and works outside of the US, this is a great way to save on taxes if you meet the requirements. Note that you are still responsible for filing taxes even if you qualify!
A few thoughts for non-U.S. citizens
This guide was written as an overview for American teachers and non-Americans teaching online should consult their country’s tax laws for specific information.
A few places to start:
Teaching online and paying earned income tax for teachers shouldn’t be challenging. Equipping yourself with the right information ensures peace of mind while helping maximize earnings – starting your planning now will save you both time and money in the future!
Written by Veronica Rhodes from Taxes for Expats. TFX is a women-owned tax firm that offers all U.S. tax services — for both American citizens and non-citizens with U.S. tax filing requirements. From straightforward expat tax preparation to complex cases involving multiple factors — we’ve handled it all for over 25 years.