It’s the most wonderful time of the year – tax season! Kidding.
Whether you are applying to teach ESL online or you are just wondering about what happens related to taxes as an independent contractor, you are in the right place.
Your VIPKid taxes, or Gogokid taxes or any online teaching company tax questions might be leaving you with some anxiety. However, it doesn’t have to be. If you are equipped with some knowledge and pre-planning strategies you should be able to navigate the tax season with confidence!
In this article, I will often reference VIPKid, but the information will be applicable to any online ESL company that you work for as an online ESL teacher.
Independent Contractor status as an Online ESL Teacher
When you work for a company as an online ESL teacher, you are classified as an Independent contractor, not an employee. This means, in short, that you are responsible for your own taxes. Companies like VIPKid, Magic Ears, Gogokid and the others are not going to take out taxes for you.
This is also why you are not guaranteed classes, oftentimes do not have to teach a certain amount of classes and the company you work for does not give you health insurance, a retirement plan, or any other added benefits!
You will have to file your taxes as you normally do. I am not a tax professional, so this information should then be cross-checked with your own individual situation. You should always consult a tax professional who is familiar with your situation so you can make sure you are doing things correctly and according to the laws of your country.
Filing your VIPKid taxes 101 as an American
When you are finished with the application process, but before you sign your contract, you will be issued with a W-9 Form to complete. This is basically a request from the company asking for your taxpayer identification number (TIN) because they are filing an information return to the IRS. VIPKid will issue this, but other companies like Gogokid, do not.
During tax season, it will be your responsibility to file your income from VIPKid to the IRS like you would for any other income that you received during the tax year.
In order to assist this process, VIPKid will provide you with a 1099 around the tax season. You will need to check with your individual company whether or not they issue 1099s. My experience with VIPKid has been that they inform their US teachers when this is coming so that you can plan ahead.
VIPKid Canadian taxes explained
What about taxes as a Canadian online ESL teacher? I am a Canadian and our situation is a little different than Americans.
VIPKid, and most other online ESL companies, will not issue Canadians with any tax slips. You are still responsible for reporting your income to the Canadian Revenue Agency (CRA). Do not avoid paying your VIPKid taxes as it will catch up to you eventually, especially if you are ever audited.
Since you will not get any tax slips, 1099s or anything from VIPKid as a Canadian, and because you get paid in USD but you are filing in CAD, here is what I suggest you do:
- Enter your teacher portal and take screenshots of all your paychecks for the tax year you are filing for.
*Important to note, your December pay will arrive in January, so do not count this paycheck in your total.
- Once you have your total in USD, head on over to Bank of Canada’s Average Annual Exchange Rate. Multiply this number by your total pay for the fiscal year. This is the amount you will pay taxes on
- The amount that you pay taxes on is going to vary from person to person. Aim to set aside about 20% of your income to be safe.
Tax deductions as an online ESL teacher
Yes, you can include deductions as an independent contractor working as an online ESL teacher! There are lots of things that you can claim as expenses. Here are just a few (save receipts!):
- Equipment (computer, mouse, office equipment, printer)
- Props and Rewards (anything that you purchase for use in your classroom)
- Office space (in sq footage) – determine the percentage of space you use to use against electricity, internet and utilities
- Journey Conference (for VIPKid teachers) – this is professional development!
- Online teaching service expenses (ie: FeedbackPanda, ManyCam, etc…)
For deductions, it is tempting to go overboard but be careful with how much you are claiming as expenses as you don’t want to be flagged!
Determine what is legitimately and clearly related to your online teaching position and make sure you have receipts in case you are audited or asked to prove expenses.
Taxes abroad (Digital Nomad Independent Contractor)
An increasing number of digital nomads or self-employed travelers are working as online ESL teachers as well as a lot of other online jobs.
Your tax situation is more than likely going to be the same and you will most likely be taxed on your world income, or whatever income you are making online. That being said, your situation might be different. For example, I am a non-resident of Canada for tax purposes. You might be liable to pay taxes in the country you are living in.
Your expenses might be different than if you were in your home country, so be sure to be diligent about keeping track of all expenses on a spreadsheet along with receipts so that you can prove what you have purchased.
Treat your online teaching as a business!
There are two options for filing here as an independent contractor. One, you can set up an LLC and file as a business or you can continue to file as an individual and, with proper planning, you will have less headaches around tax season.
Treating your online teaching as a business can help you prepare for tax season and ensure that you are maximizing your take-home income and minimizing your taxes owed.
Here are some helpful tips for treating your online teaching as a business.
- Create multiple bank accounts to keep your self employed income separate from other income sources.
- Pay yourself a percentage of your VIPKid salary as if you would be your employee so that you can keep the money for tax season, unexpected expenses (ie: needing a new computer), or other emergencies.
- Plan ahead!
By having multiple accounts, you can better keep track of the money you are receiving and ensure that you are paying yourself first, taking care of expenses and making sure that you have money in case of a rainy day or unforeseen expenses.
Online Teacher Taxes…in summary
Are you an independent contractor not paying taxes or unsure of what is expected? Don’t let the taxman find you unprepared. Hopefully, this article has helped to clarify your role and maybe some tips to help the process go smoothly for you.
Ultimately we want to pay less in taxes and not have any surprises and hopefully, you can maximize how to keep more of your money by educating yourself and making sure that you are getting the correct advice from your tax professional.