- How do I Register as a Self-Employed Tutor?
- Are Tutoring Jobs Considered as Self-Employment?
- How Do I Complete a Self-Assessment Form?
- How Can I Keep Records of What I Earn from Tutoring Jobs?
- How to Calculate Estimated Taxes as a Private Tutor
- What Tax Do I Pay if I Become a Tutor?
- When Can You Record Your Income as a Private Tutor?
- How to Pay Tax as a Private Tutor
- What Will Happen If You Fail to Report Income from Tutoring Jobs?
It has been estimated that the number of private tutors in Canada has risen significantly in recent years – making tutoring jobs one of the most popular professions in the country. This is not surprising since the art of teaching is a highly valuable skill and always in high demand.
The demand for private tutors today is the highest it has ever been, with tutors available for all sorts of subjects and skills with varying qualifications and experience. Due to this rise in popularity, the home tutoring profession and private tutoring incomes are being monitored more closely than ever by the Canadian Revenue Agency (CRA).
In becoming a private tutor, chances are you may be classed as a self-employed sole trader. Working as a sole trader entails certain responsibilities, such as adhering to tax laws and reporting what you earn to the CRA without delay. This is called a tax return, and can be done online.
It is crucial that you record what you earn as a tutor as soon as possible once you have started working. Failure to do so will entail a penalty fine from the tax office, so it's safest to sort your personal income reports out immediately.
Reporting your income is a straightforward process, it doesn't have to be complicated or confusing. This guide will give tax tips, answer the questions that tutors frequently ask when starting their business, and show you everything you need to do to record your income and file a tax return in Canada.
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How do I Register as a Self-Employed Tutor?
You will need to fill out this form with CRA to make sure you pay the correct income tax.
As a sole trader you will have to complete a self-assessment tax return every year after 5th April, which you can do online. You must do this even if you are also employed elsewhere, as this can change how much you are taxed altogether across all of your employment.
Are Tutoring Jobs Considered as Self-Employment?
Many private tutors ask this question, and sadly, many get unsatisfactory answers. But here is a solution you can count on anytime. Whether you should consider tutoring jobs as self-employment or not depends because, in the eyes of the law, tutoring takes different forms. And each has a specific arrangement. As a tutor, you could either be an employee, independent or a contractor.
How do you know whether the type the tutoring job you offer fall within this category? If you are a tutor working for a company, chances are you aren’t self-employed but an employee. Now ask yourself, before you started work, did you fill out the necessary paperwork required of most employees in an organisation such as birth certificate, passport, driver’s license, etc.? If yes, then you are an employee, even though you are earning income as a private tutor.
Does a third-party client provide your tutoring job? If yes, then, you are a contractor. The easiest way to tell this is to take a look at your pay deductions. Is the FICA deduction included? If not, you are a worker/contractor working on a contract basis.
What if you are working directly with your students and they pay you without involving any third party? Then you are self-employed. The lack of a middle man or agent between you and your students is the essence of being self-employed.
Unlike when working for an employer, the taxes of a self-employed tutor are not deductible by the employer automatically from earned income. As a self-employed tutor, you should understand that there are three components to your taxable income:
- FICA tax
- Federal income tax
- State income tax (if any)
Some tutoring companies operate Pay as You Earn (PAYE), working as a middleman between the tutor and the student. If you work for an agency with PAYE, your work will likely be taxed at source, so there will be no paperwork for you to deal with. This will usually mean as well that you pay a small payroll fee.
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Some tutoring agencies, including Superprof, operate on the basis that all payment is to be managed solely between the tutor and the student.
This means that all payment and income records are your own responsibility, and you must therefore keep a detailed record of your earnings for CRA.
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How Do I Complete a Self-Assessment Form?
For a simple and easy self-assessment process, it’s important to have ready all the necessary information you need for your personal circumstances. In becoming a private tutor, you should be keeping records of your income and have all the relevant paperwork up to date to make this process as straightforward as possible.
For your self-assessment form you will need:
- Records of your income and expenses
- If you are also employed, your PAYE earnings
- Any ‘other income’ records, such as pensions, savings or investments
- A cheque book and paying-in book
- Your P60
- Your bank statements or online banking access
There are supplementary pages of the self-assessment form to fill out if you have more than one self-employed job. These will give you the opportunity to declare any earnings from other jobs that you have as a sole trader.
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This can be filled out by hand and posted, or filled out and submitted online. CRA can send you the relevant forms for your circumstances and the guidance notes to help you fill them out. They can also be downloaded from their website.
When you're all set up and ready to start tutoring read up on how to motivate your students and improve their learning.
How Can I Keep Records of What I Earn from Tutoring Jobs?
As a self employed teacher, you are legally obliged to keep accurate and detailed records of what you earn. This is necessary so that CRA can calculate your taxes correctly. This will also help you keep your business organised and will make your tax return easier.
To keep on top of your records, you can organise your income into logs of income and allowable business expenditure, along with their relative dates.
It is important to keep records of everything that you earn. This can be done in a Word document, Excel spreadsheet or a notebook, for example. You can also keep a log of your expenses, which can include: travel, advertising, books, stationery, insurance and the business use of your home.
Keeping clear, detailed and dated logs of what you earn is the best way to keep on top of your business and will help you fill out your self-assessment forms quicker and more easily.
Make sure everything you record is honest and accurate, and take the time to double-check all the information you input into your books, documents or spreadsheets to make sure there are no typos or mistakes.
Certain expenses are important to keep track of when completing your tax return, as you can deduct those costs from your taxable profits, which will reduce your tax bill.
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How to Calculate Estimated Taxes as a Private Tutor
Fortunately, you don’t have to be a tax professional to be able to calculate your taxable income or tax estimates as a private tutor. Many people with tutoring jobs in Canada use QuickBooks Self-Employed to keep track of their expenses, income, mileage as well as calculating their estimated taxes all year round.
The software does all the calculations for you. So you can easily report your income and meet up with Canada’s estimated tax deadline. After deriving your tax estimate, you can easily print out the payment vouchers and send them to the IRS.
Alternatively, you could make use of writing logs. But you must be careful with it because they are more vulnerable to damages. Many private tutors consider online spreadsheets as a better option than writing logs. This is because they are easy to share and file appropriately.
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What Tax Do I Pay if I Become a Tutor?
Being self-employed means you will pay National Insurance and Income Tax on your earnings that go above your personal allowance.
You will pay your own Class 2 National Insurance contribution. If you earn over a certain amount of money, you may also need to pay Class 4 National Insurance contributions.
Most home tutors work alongside another job. If private tutoring is a supplement to other employment that you have, this will have an effect on what you are taxed overall, as you are earning money from more than one job. Whatever you earn over your personal allowance is taxed, across all of your employment.
Many tutors also work alongside their university studies. This will usually mean that you are not earning as much as full-time tutors or tutors with other full-time employment, and you may not exceed your personal allowance. If this is the case, you will not pay any taxes on what you earn, but you must still declare what you earn to CRA.
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When Can You Record Your Income as a Private Tutor?
In Canada, there are thousands of people offering tutoring jobs in each province. For many, a teaching job is a side hustle while others consider it as full-time employment. In places like Toronto and Montreal, teaching jobs are a side hustle for many students in colleges and universities to earn extra income.
That said, the pay rate earned from each tutoring job may differ depending on your precise location in Canada, the academic level of the student, the subject or skill being taught and whether the lessons are taught via webcam or at home.
It’s mandatory to pay taxes as long as you earn income from tutoring. If you work for an employer as a tutor, your employer will deduct the taxes outlined above and remit them to the appropriate authorities before paying you your net income. However, if you are self-employed, you are mandated to pay taxes every quarter based on estimates. But if your income throughout the year is uneven and likely unknown until it is earned, you can leverage on the annualized installment method for paying income taxes.
Estimates taxes on any income earned by self-employed tutors are due at the end of the 1st, 2nd, 3rd and 4th quarter in each year. That said, keeping track of your teaching activities as a freelancer or a private tutor will make it easier to pay your taxes based on estimates. The fact that you are your one boss with full control of your time and schedule doesn’t mean you shouldn’t track your activities
How to Pay Tax as a Private Tutor
Now that you know when to calculate your estimated tax, it’s time to get your payments ready! As expected, you are not left without options.
With QuickBooks Self-Employed, private tutors can file their quarterly estimated tax electronically directly to the IRS. This method is faster and more accurate because you won’t have to re-enter any information.
The Electronic Federal Tax Payment System (EFTPS) allows you to pay your estimated taxes instantly, and it’s free to use too.
If the above options didn’t work for you, you could mail your payment directly to the IRS. They have several mailing addresses. Just choose any one that is closest to your location in Canada. Ensure you postmark all payment by the due date to avoid incurring penalties on overdue taxes.
Whichever method you choose for paying your tax as a tutor, you must not forget to be honest and only submit accurate information. Trying to cheat the authorities by providing inaccurate information and misleading claims can lead to severe penalties.
Are Tutoring Fees Claimable as an Expense On Income Tax?
The simple answer is YES, but certain conditions have to be met first. Following the Canadian Revenue Agency, any tutoring service offered to a person with a learning disability is considered as an eligible medical expense.
Medical expenses are legally used to reduce the amount of tax payable to the authorities. This is because they are non-refundable tax credits. Tutoring fees are to be included with other medical expenses such as vision care and other related medical expenses.
However, you must obtain a written letter from a medical practitioner in Canada, to certify that such service is required. This is not referring to just any medical practitioner. The law states explicitly the specific medical experts that are acceptable. See the full list by CRA.
Do You Need Any Evidence to Declare Tutoring Income?
As a private tutor in Canada, you might be wondering what evidence you should have to enable you to declare your income from tutoring jobs, whether online or offline. Can you make copies of paychecks you receive or even screenshots of electronic payments such as PayPal or Payoneer?
We would recommend that you make copies of payment received if possible. It doesn’t matter if you received it via paycheck or electronic payment. To ensure accuracy, you should also keep a note of the names of students, money received/ date received, and the type of tutoring service offered.
What Will Happen If You Fail to Report Income from Tutoring Jobs?
According to the Canadian Revenue Agency (CRA), there are specific penalties for failure to report a taxable income. The penalty is 20% of the unreported income as 10% represents federal penalty and provincial penalty, respectively.
And what if you consistently fail to report your income from teaching jobs? The penalties would become very severe. Following the CRA guideline, the penalty is triggered when the unreported income tax becomes equal to or higher than $500. The penalty is usually assessed on the most recent amount of unreported income, irrespective of the amount.
Now you have a complete understanding of how to report the income earned from tutoring, learn more about obtaining DBS checks, the legalities of giving home tuition and the types of insurance you could invest in.
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