The new administration introduced quite a few tax changes for this tax year.
And for many (maybe that’s you, too), reading and analyzing the tax code to figure out how those changes directly affect your financial situation can get confusing way fast.
Well, I’m here to take one less load from you…tackling teacher tax deductions (and other tax advantages for those in the field) for the 2018 tax year.
While the current tax code doesn’t have any major changes for teachers directly, it’s still good to refresh our brains about what deductions/credits we could potentially be eligible for when it comes to education-related stuff.
This post is meant to be a starting guide (or refresher) for PK-12 educators who want to know a little more about 2018 teacher tax deductions and other tax advantages for those who are self-employed, have dependents and/or are furthering their education.
Disclaimer: This post is for educational purposes only and should not be interpreted as legal/tax advice.
Seek an IRS Enrolled Agent, CPA, or other tax professional to guide you in understanding and applying deductions/credits for your unique tax situation.
Here’s a rundown of the contents for this post.
Educator Expense Deduction
Child and Dependent Care Credit
Lifetime Learning Credit
Taxes for Independent Contractors (e.g. Teaching English Online)
Taxes for Teachers Pay Teachers
Teachers Living Abroad
Let’s dig into each of these shall we…
Educator Expense Deduction
The first teacher tax deduction I’m mentioning was made especially for educators! ❤
Thankfully, the good ‘ole educator expense deduction is still around for 2018 (though an increase for inflation’s sake would be much appreciated, don’t ‘ya think?).
What Expenses Does the Educator Expense Deduction Cover?
Eligible educators can deduct unreimbursed supplies and other items for their classrooms or departments that they purchased with their own money.
These items and supplies must be identified as qualified expenses.
Qualified expenses: ordinary and necessary expenses paid for items used in the classroom such as supplies, books, and equipment (e.g. software, computer equipment).
Qualified expenses also include expenses incurred in professional development sessions related to the teacher’s subject area.
And as a side note, if you’re a p.e or health instructor, your qualified expenses only include those related directly to athletics.
Ordinary expense: an expense that is common and accepted in the educator’s educational field (e.g. a high school science teacher purchasing magnifying glasses).
Necessary expense: an expense that is appropriate and helpful for the educator’s profession.
Not everyone who identifies as an educator can take this teacher tax deduction.
Here’s how the IRS defines an eligible educator:
- K-12 teacher, instructor, counselor, principal, or aide who works in public/private school setting which is certified by the state
- Completed a minimum of 900 hours of work during the school year
How Much is the Deduction?:
Eligible educators can deduct up to $250 of eligible expenses.
A married couple filing jointly where both are eligible K-12 educators could potentially deduct up to $500 ($250 each maximum) of qualified expenses that were not reimbursed.
It’s a good idea to save receipts plus record when and why each expense was incurred.
What Else Do I Need to Know about the Educator Expense Deduction?:
- If you teach preschool (PK), unfortunately you’re not eligible for the educator expense deduction. But there could be some other teacher tax deductions you can take (keep reading 😛).
- The same goes for homeschool educators (if not recognized by your state as an educational institution) and postsecondary instructors.
- Before the 2018 tax year, if an eligible educator spent more than the $250 limit on education-related expenses, he or she could deduct the amount over that limit as a miscellaneous deduction by itemizing on Schedule A. This is currently no longer the case.
NOTE: The educator expense deduction can get a bit more complex depending on your unique tax situation.
Reach out to your tax professional to determine how exactly this teacher tax deduction may work for you.
Lifetime Learning Credit
This nonrefundable credit isn’t just for teachers, but educators as a professional group are very likely to benefit from it.
A significant number of K-12 educators go back to school at some point in their careers to obtain a Master’s degree and/or some type of specialized educational certificate.
So that makes the Lifetime Learning Credit (LLC) a great teacher tax deduction.
What Does the Lifetime Learning Credit Cover?
The Lifetime Learning Credit (LLC) helps pay for undergraduate, graduate, and professional degree courses.
The credit can be used for qualified tuition and related expenses paid for by eligible students who are enrolled in an eligible educational institution.
To claim the Lifetime Learning Credit as an educator, you must possess the following prerequisites:
- Pay qualified education expenses for higher education.
- Be taking courses or enrolled at an eligible institution
- Be enrolled for at least one academic period
NOTE: This credit has income phase out amounts, so check the latest irs publications for the updated thresholds.
How Much is the Deduction?:
The Lifetime Learning Credit is worth up to $2,000 per tax return.
The way the credit is calculated is kind of interesting.
For the first $10,000 of qualified education expenses, you’ll get a 20% credit.
Based on the math, the maximum you can get per return is $2,000.
What Else Do I Need to Know?:
- You can use the Lifetime Learning Credit year after year without issue. Just meet all of its eligibility requirements.
- To claim the credit, you’ll need Form 1098-T (distributed to you by your eligible education institution) and Form 8863.
Child and Dependent Care Credit
No, this isn’t a teacher tax deduction per se.
But for people managing their budget on a teacher’s salary, this tax benefit is very much appreciated.
Let’s face it…
Childcare is expensive!
If your kids attend preschool, daycare, or stay with a babysitter while you and your spouse work, you might be eligible for the nonrefundable child and dependent care credit.
What Does the Child and Dependent Care Credit Cover?
This credit helps to cover expenses related to raising a child under the age of 13 or caring for a disabled dependent while you work.
- A single person (single, HOH) or couple (married filing jointly) with earned income
- Custodial parents or primary caretakers of the child
- Parents and/or caretakers working or looking for work
- No status of “Single Filing Separately”
- The child must be under 13 or physically/mentally incapable of caring for himself
- The person providing childcare cannot be your dependent, spouse, or the child’s parent
How Much is the Credit?:
If eligible, you may be able to get a tax credit up to 35 percent of qualifying expenses of $3,000 for one child or $6,000 for two or more children.
What Else Do I Need to Know?:
The child and dependent card credit has more layers to it.
Seek a tax professional to determine how this credit may benefit your unique tax situation.
As a side note, another great credit for teachers with kids is the Child Tax Credit.
For the 2019 tax season, the credit amount doubled (though personal exemptions are no more).
Make sure you take all of your child-related take credits if you’re eligible!
Taxes for Independent Contractors (Teaching English Online)
Do you teach English online with VipKid or one of the many other online ESL companies?
If you do, your tax situation just go a little bit more complicated.
But there are some business-related teacher tax deductions you might be able to claim.
Here’s the breakdown…
The government has a pay-as-you-go way of collecting taxes from the money we earn.
We’re not supposed to ignore our tax obligations while working throughout the year and then pay one big yearly tax bill after the fact during tax season.
So that’s why…
When you work for an employer (such as your school district), each time you receive a paycheck, the payroll department takes care of collecting social security and medicare taxes (FICA) plus income taxes on your behalf.
It’s all done for you.
The amount taken is referred to as your withholding.
Currently, the social security tax rate is 12.4%, and the Medicare tax rate is 2.9%.
As an employee, your employer pays half of each of these taxes for you!
That means that the portion you’re on the hook for ends up being 6.2% for social security and 1.45% for Medicare.
Those are the percentages you’ll see deducted from your paycheck (in addition to all the other stuff you get deducted from your salary!).
What’s left over after all your deductions have been taken out is your net income.
NOTE: Not all public school teachers pay into social security, but those teachers will still most likely have a deduction from each paycheck that goes towards some type of teacher pension account managed by the school district.
At the end of the tax year, you’ll then receive a form W-2 showing your total earnings for the entire year plus your cumulative social security, medicare, and income tax deductions that have been taken from your paycheck throughout the year.
The total earnings shown on that form W-2 are then recorded on your form 1040 tax return.
In this scenario, since you’ve been paying your taxes throughout the year through your employer, once you file your taxes, you most likely won’t have to worry about a tax bill as it relates to the form W-2.
Here’s where things get hairy…
As an independent contractor, you receive no form W-2.
Since you’re considered self-employed, you’ll get a 1099 MISC form from your independent contractor client (if you earned at least $600 during the tax year).
The form 1099 MISC shows the amount of money you earned from your client during the tax year.
If you earned less than $600 as an independent contractor, you probably won’t receive a 1099 MISC form.
As you’ve probably guessed, you’re still on the hook for reporting on your tax return the income that you earned from the client during the tax year.
Those earnings are then reported on tax form Schedule C when you file your tax return.
What’s really significant about form 1099 MISC compared to a form W-2 is that no taxes were subtracted from your earnings throughout the tax year.
There was no payroll department to automatically deduct those medicare, social security, and income taxes that you’re still obligated to pay.
You’re on the hook for taking care of those deductions all on your own.
So that then brings us to…
Estimated Tax Payments for Independent Contractors
When your earnings are not subject to withholding (as is the case with independent contractors), you pay tax through a method called estimated tax.
With the estimated tax method, you must make quarterly estimated tax payments throughout the year.
The net profit that you anticipate (earnings from form 1099 MISC) is used to calculate the amount of self-employment tax you’ll pay.
Schedule SE is used to help you figure this out.
NOTE: Estimated tax payments can get complex. If you work for an employer during the year and do independent contractor work on the side, you may not have to make quarterly estimated tax payments depending on how much tax is withheld from your other income sources (you’ll still owe tax but you just might not have to pay it quarterly).
As always, I strongly encourage you to seek guidance from your tax professional regarding your unique tax situation.
Read more about the nitty gritty of paying estimated tax payments.
Having to pay estimated tax payments and not doing so (or even being late with paying them) could cause you to be hit with a penalty.
So make sure you take note of the quarterly tax payments due dates and get those taxes paid on time!
If you’re in a position where you don’t have to make quarterly tax payments, great.
You’ve still got to set aside a percentage of your self-employed income each paycheck so that when tax time rolls around, you’re not scrambling to cough up money to pay your tax obligation.
Put it away in a special savings account and just leave it there until tax season.
If discipline is an issue for you, I suggest putting your savings on automatic pilot.
Form 1040-ES can help you calculate the percentage of self-employed income you should be setting aside each quarter.
But if you’d rather keep things a bit simpler, just put aside a set percentage (like 25% or 30%) of each self-employed paycheck.
That seems like a lot, but it’s better to take out a bit too much than too little.
No one likes to be surprised with a tax bill during tax season, no matter how small it seems.
What about Social Security and Medicare Taxes for Independent Contractors?
Maybe you’ve heard about the self-employment tax.
The self-employment tax is 15.3% and consists of the 12.4% social security tax rate and 2.9% Medicare tax rate.
Remember how earlier I mentioned how nice it was that employers pay half of this tax rate for its employees?
As an independent contractor, you’ve gotta pay the whole darn tax!
All 15.3% of it!
But here’s some good news.
Though your quarterly estimated tax payments (which you calculate using Form 1040-ES) will include your Medicare and Social Security obligations in addition to your estimated income tax bill, the IRS will allow you to deduct the employer portion of the self-employment tax.
That means you’ll get to deduct on your Form 1040 half of the social security and Medicare taxes you paid.
That’s 6.2% for social security tax and 1.45% for Medicare tax.
Not so bad!
Teacher Tax Deductions as An Independent Contractor
So when it comes to taxes, being an independent contractor doesn’t seem too sexy does it?
But there is light at the end of the tunnel!
And it shines brightly on BUSINESS EXPENSES!
As an independent contractor who teaches online (or maybe you tutor online), you’re eligible to deduct expenses incurred as part of your independent contractor business.
And if you work from home, depending on your situation, you may be able to take the home office deduction.
NOTE: If you’re unclear what exactly constitutes business expenses or not sure if you’re eligible for the home office deduction, I advise you to seek the guidance of a tax professional.
Keeping Track of Your Receipts
Taking advantage of your business-related teacher tax deductions and other tax benefits will be much easier if you keep track of your business receipts (apart from your personal receipts/bank accounts).
With technology today, you can do most (if not all) of your accounting and receipt management online.
A good online accounting software with a basic free option is Wave Financial.
With it, it’s super easy to upload receipts and keep track of transactions.
Taxes for Teachers Pay Teachers (TpT)
Teachers are killing it on Teachers Pay Teachers!
That also means a bit more complicated tax situation.
But all of the business-rleated teacher tax deductions that sellers can potentially deduct is worth the hassle!
Here’s the rundown…
I’m going to assume that you treat your TpT side hustle as a business (because if you operate it as a hobby, that’s a different conversation; speak with your tax professional about your unique tax situation if you’re not sure).
With Teachers Pay Teachers, you don’t receive a W-2 nor a form 1099 MISC.
If eligible, you’re instead going to receive an informational tax form called a 1099-K.
Form 1099-K, officially known as the Payment Card and Third Party Network Transactions, reports payments received via a third party.
But only TpT sellers who reached a certain level of gross sales and transactions will get this form.
Teachers Pay Teachers explains their requirements for Form 1099-K distribution depending on whether a seller meets the required threshold.
By the way…
You don’t have to include a copy of your 1099-K along with your FORM 1040 when you file your taxes.
It’s an informational form for you and your tax professional’s reference only.
If you don’t receive a form 1099-K, must you still report your Teachers Pay Teachers earnings?
Your Teachers Pay Teachers earnings are reported as self-employment income on Schedule C next to the line item labeled “gross receipts or sales”.
And similar to independent contractors, Schedule SE is used to calculate the amount of estimated tax you’ll be required to pay on your earnings.
Your business-related teacher tax deductions based from your Teachers Pay Teachers store are also allowed, as long as they’re ordinary and necessary.
That just means the business expenses must be related to your Teachers Pay Teachers business activities.
Some potential business expenses for TpT sellers…
- Fees paid for access to sell on the TpT platform
- Supplies used to create products (which includes digital supplies, too, like purchased clipart)
- Compensation paid to individuals who help you manage your TpT store
- Advertising for marketing your products on your blog or through social media
NOTE: Everyone’s tax situation is different, even when it comes to a TpT business. What goes as a business expense isn’t always black or white. Seek counsel from a tax professional if you want to be sure you’re getting all allowable business expenses used to maintain and operate your TpT store.
Teachers Pay Teachers Accounting Solutions
As you can imagine, listing those business deductions at tax time will be a chore for you (or your tax professional) if you don’t maintain organized receipts and records.
As mentioned before, Wave Financial, an online accounting software, is a decent app for keeping track of your TpT income and expense transactions.
This app easily allows you to separate business and personal accounts which is just about essential when conducting business.
Receipts and records are your documentation in the event that you’re ever audited (hopefully not).
But isn’t it better to be prepared and ready than not?
Receipts also help you stay organized and aware of what monies are flowing in and out of your TpT business.
As always, seek help from a tax professional if needed.
Teachers Living Abroad
Are you a U.S. citizen teaching abroad?
Really, I mean a bona fide expat?!
If so, you probably know that U.S. citizens and residents who work abroad must report and potentially pay tax on their worldwide earnings.
Though the requirement to pay U.S. taxes no matter where you’re located in the world sounds harsh to many, the IRS does have measures in place to help expats reduce their tax liability and/or avoid double taxation while living overseas.
In addition to some of the teacher tax deductions mentioned earlier, you’ve got some special tax rules made just for you!
If your tax home is outside of the U.S., you could be eligible to exclude up to $104,100 (for tax year 2018) of your earned income!
That means you’d potentially be off the hook for paying U.S. taxes up to that amount!
Can I get a hallelujah?!
Called the Foreign Earned Income Exclusion, this tax benefit reports on Form 2555.
There’s even an option to exclude or deduct part of your foreign housing costs.
The deal is pretty sweet.
Using this tax benefit for the 9 years I taught abroad really helped me to save some serious moolah!
If you’re eligible, it is very much worth it.
For those U.S. expats not eligible for the Foreign Earned Income Exclusion or who make more than the $104,100 income limit, there’s the foreign tax credit which reports on Form 1116.
Living the expat life can be financially sweet if done right.
NOTE: U.S. expat taxes can get quite complex~ and fast! If you’re a U.S. expat and need guidance with your U.S tax situation, I strongly encourage you to consult with a tax professional who specializes in U.S. expatriate taxes. This article is for educational purposes only.
I hope this list of teacher tax deductions and credits for 2018 was helpful and serves good use for you.
Though doing taxes can be a dreadful experience for many, being informed about all the credits and deductions you could potentially take advantage of should alleviate some of the stress.
In the meantime…
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Easily check off what credits and deductions you qualify for and know what forms you’ll need to file.
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April 15th comes quickly, so get working on those taxes.
Until next time…