Taxation of Freelance English Teacher Wages

46 posts in this topic

Posted

I have recently accepted at job to teach English freelance at a language school. I have learned that I must pay 19.5% pension tax on my wages. As a freelancer in Germany, it is my understanding that I must add 19% Umsatzsteuer to my invoices for services rendered. If the school is simply paying me the agreed upon hourly wage, and not the 19% tax in addition, does that mean I will have to deduct it from my wage? If so, it would seem that 40% of one's income as an English teacher is paid in taxes, and I wonder why anyone then would teach. Any help and advice would be greatly appreciated!

A second question I have is whether my income tax will be calculated after the pension tax is paid or still on my gross income.

Thank you.

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Posted

The 19.5% you have to pay is your pension contribution which is obligatory for freelance English trainers. The 19% Umsatzsteuer (VAT) which you add to your bill, is something you only need to charge when your earnings are over about 16,500 euro a year. I could be wrong on that figure, but I think it's around that amount.

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Posted

Agessner:this 19.5% or whatever teachers´pension nonsense is a relic from(I believe) around 1910-ish and is payable by freelance teachers and midwives(yes.).Around 10 years ago or so it became an issue here and led to teachers leaving the country.Some teachers changed from being teachers to being "communication consultants" and other weird and other exotic names(most of which escape me now).Then teachers had to show they were working for more than one employer to be classified as NOT "scheinselbstständig" (bogus self-employed).How to avoid that?If my memory serves right,Starshollow (often and rightly mentioned on these threads)knows someone who can get you exempt from this.Starshollow:are you around for the link?

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Posted

If it turns out you have to pay VAT, simply add that to your hourly wage (e.g., €15.00 + 19% = €17.85). It won't make a bit of difference to the school's accounts.

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Posted

When you say you "have learned you have to pay the 19.5% pension", from whom have you learned this? Some part of the government - a condition of your work permit or visa? Or just the internet grapevine?

I'm in the same state and absolutely nobody I know who in teaching pays that. That is purely my anecdotal experience (could be based on where I live, that none of them are on a work visa, that most do other things). Neither is "scheinselbstständig" an issue either. A lot of teachers have only one client, particularly those just doing a bit (but so do a lot of 100k a year consultants I know too).

Aside from the minimum amount for VAT, whether the service you provide has a VAT charge depends on what sort of service you provide. A lot of education does not attract a charge according to German law (as others here have quoted before which is how I know): §4, Abs. 21b of the Umsatzsteuergestz.

The main point to remember about VAT is that it is not a personal tax of course. If you have to charge it as a supplier, you collect it and pay it to the state, hence jeffz's point about it not mattering. The customer probably reclaims it from the state (at least in part). I see it as more like a suspense account, it's got absoltely nothing to do with my personal income / expenditure, I just collect it and pay it over, zero impact on me. Therefore, as above, if you have to charge it, add it on to the rate you charge - do not deduct it.

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Posted

Swimmer:actually,it happened to an old friend of mine (have last contact,though)..and it was about 10 years or ago or so.He´d been in the country for around five years and was hit for backpayments(sounds like the current health insurance issue..).He set a lawyer onto it and that went on for a couple of years.I´m afraid I don´t know what happened in the end.You´re right,though..since then it´s been mostly anecdotal

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Posted

Unfortunately, I know a number of teachers who have been caught by the Rentenversicherungsbund for the 19.5% pension contribution and have had to back it pay from either the time they started teaching, or from 2000 which is, I think, the year they started this witch-hunt.

There are ways around it, mainly by hiring someone and paying their social contributions.

Here in Frankfurt this has been a major discussion over the past years. Basically, this is the law and they are activly tracking people down, I can vouch for that.

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Posted

Sorry, I meant "pay it back" :)

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Posted

Right, john.g don't doubt your mate's experience for one moment. We also have to be careful in Germany because the federal nature means that states (and diferent parts of states) can apply rules in different ways. People do tend to assume the worst when they hear thse sorts of things but a lot of specific cases seem rather old now (like that one here last week that was considered reliable, on then to be citen in DM). Hessen is considered very relaxed (having the luxury of all but full employment) so I am surprised to see it here.

I also think the OP should talk about these matters to her co-workers and also her client. Go to the horses' mouth (assuming the employer is a reputable one working properly within the rules). They will tell you whether the authorities have any interest or not. That is usually a good bet.

Heck even Finanzamt if needed! All of my EL invoices have no VAT because of the nature of teaching / training I deliver (and, as mentioned above, I am careful to call it "advice" but also make it clear it is language). Finanzamt have seem them (cos they tend to ask for them when you have a lot of turnover but little VAT as I do also because I do Eu stuff). I quoted that law. End.

Tap - Would I be right to think this is related somehow to work-permit or visa? So it tends to hit US teachers etc in the way EU or married people do not get? (Because the first group is fixed to one job / profession but the rest of us are not). ´Do you pay it for example (an EU citizen)? It'd be good if the OP could explain how this has happened.

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Posted

Tap and Swimmer!Thanks for both your posts!I remember getting a crappy letter from the authorities about this issue.Around 10-12 years ago I was an active TEFLer but already involved in the insurance business.I was able to show I had fingers in more than one pie,probably stayed sober and wrote the right thing...never heard from the b.... again..or I threw their answer in the bin! :D

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Posted

Swimmer, no, this is completely across the board, if they catch up with you, it doesn't matter where you're from or what your situation is, they want their 19.5%. I'm not trying to scare people, but everyone should be aware of this possibility.

Not everyone I know pays it and not everyone has been caught, but a number of teachers have and that's something to think about.

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Posted

John q., you're okay if you also do something else, even some translating helps, but if you only earn by teaching English, then you're on dangerous ground.

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Posted

you only pay vat to the government on classes for which you billed a company vat. Different clients fall under either the vat r vat-free classification.

So if you charged vat on your invoice, then you have to pay that exact amount to the govt. It's not considered income for you.

If you didn't charge vat, and you should have then it's your own problem and you have to deduct that 19% out of your fees and pay it to the govt (but not count it in your income).

If you didn't charge vat, and the client was vat-free then you don't worry about it, that's vat-free income.

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Posted

Tap:if you have the inclination,would you email me more on these experiences?I´m trying to update my insurance guide for expats (especially teachers).I would appreciate your input!

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Posted

Thank you everyone for your replies. I will clarify these questions with the school, but all the background material that you have given is very helpful.

I am curious to find out what the connection is between "scheinselbstständig" and the pension tax. In my case, I also freelance as an art conservator and language translator. From these three occupations I am cobbling together a living until I build a client base here. Does this mean that I am fully "selbständig" and therefore do not have to pay the pension tax, whereas people whose only freelance activity is teaching are somehow not validly "selbständig" even though they do not get any of the benefits that come with being "festangestellt"'?

Just curious if anyone knows the logic behind the pension tax for teachers.

Thanks again.

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Posted

Whoops,Tap!I DO do something else..thanks for the correct tip.

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Posted

But, can you cite real examples, tap? What is "if they catch up with you"? (And who is "they?" Finanzamt? The pension Department? If it is so common, surely it must be clear who "they" are). Plenty of my mates do just teaching (and I mean German as well as English). Have done for years (dec ades even). They submit tax returns. Finanzamt (which is basically an office round the corner) is well-aware what their profession is. It doesn't even have to "catch up with them" - the information is there on a plate (and the schools also provide it of course). "Nobody cares" is 100% the line here.

I do not doubt that it happens. But, whenever I ask for concrete examples given that what I see in real-life among 100 + teachers I know is so utterly 100% different, it is always "my mate, 10 years ago..." (er, sorry, john.g) or "I've heard..." or "I can assure you it is true (but not by giving actual examples...)".

Not having a go at anyone here personally but this seems to be an over-rated risk to me. Perhaps we need a poll here? Of all the many EL teachers on TT, how many are actually paying this 19.5% pension? I suspect not very many - or we'd have many more posts along agnes's lines! And even she is not direct (yet) about saying she has to pay it, she has "learned" she has to.

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Posted

Hi Swimmer, I absolutly accept your points as I was the same at the beginning. The point is, the Fianazamt cannot share their information with the Rentenversicherungsbund (DRB), which is why many more teachers have not had to pay this 19.5%.

The reason they started this up, I believe, is because they need the money and they don't want to be left supporting all these teachers who don't have a pension of their own, which many of them don't.

I don't know any other English teachers on TT, but I know many in and around Frankfurt and I know at least 6 who have ended up paying a lot of money back, some have given up teaching, others are coping with it. I know 6 isn't many, but others found a way around it, by hiring a spouse or having an income by some other means.

To be honest, most people don't want to talk about it for fear of getting caught themselves. In ELTAF, we have an elist, but whenever there's a question about this issue, everyone goes very quiet.

I'm just sending out a warning, it may never happen, but everyone should be aware that it could.

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Posted

Thanks again everyone for your answers. Since I freelance in areas other than English teaching, I think I am ok, that is, I don't have to pay the pension tax. Also, the clarifications on VAT were helpful.

Cheers!

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Posted

agessner, selbständigkeit is a separate issue, this means getting all your income from one source. For example, if you only work for one language school, then you are selbständig and that has other rules.

Freelance should mean working for different schools or companies, but has nothing to do with the pension contribution. As you have other jobs, then you are exempt, the pension laws only apply to English teachers, midwives and I think taxi drivers.

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Posted

Agessener:hope you fill in the forms right and the Beamte leave you in peace!Peace!John

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Posted

I know I am asking a newbie question that has been answered before, but since this thread is active, I'll give it a shot. As a freelance teacher how and when do you remit your taxes to the government? Is your "employer" required to make deductions if you are working for a school? Do you have to make periodic payments like the quarterly estimated taxes in the US or do you send it all in when you file your returns? How about VAT if you are liable for them?

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Posted

I do all mine through a tax consultant, it got way too complicated for me. As a freelancer, you are responsible for your own tax returns. I pay mine quarterly and my consultant does the annual tax return at the beginning of each year. The VAT is paid monthly.

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Posted

Imforge:I agree with Tap.Let a tax advisor do the nonsense on your behalf.Only he/she can give you the right help:what can you deduct..travel expenses..books,newspaper receipts (for lessons),not up-to-date on this but -maybe -room in your flat for lesson planning,health insurance(definitely) etc..and the tax advisor costs are also tax-deductible.

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Posted

agessner, selbständigkeit is a separate issue, this means getting all your income from one source. For example, if you only work for one language school, then you are selbständig and that has other rules.

You really need to get your facts (or maybe words) straight. "Selbständigkeit " is quite simply freelancing or self employment. Most self employed ("Selbständig") people do not need to pay contributions to the government pension scheme, but there are some exceptions (detailed in §2 SGB VI). Exceptions include teachers, nurses, seamen and actors. These people need to make non-voluntary payments (19.3% of their net profits, i.e. earnings) which are made following registration with the Bundesversicherungsanstalt für Angestellte (BfA) via the Landesversicherungsanstalten (LVA). Under most circumstances the Finanzamt have no interest in the payment or avoidance of pension payments, but the BfA runs random checks on all self-employed people or companies, usually to check they are dealing with pension payments for possible employees correctly. Clearly such a check might highlight that as a member of the teaching profession they are themselves liable to payments. It might also be the case that in future years when actually making a check for final pension entitlement any anomalies would be identified. In such cases of violation full back payment may be demanded

Scheinselbständigkeit is something else. This is an illegal form of self-employment where somebody registered as such provides his services wholly or predominantly to the same customer, essentially and illegally avoiding true employment. There is no direct translation to English for "Scheinselbständigkeit" but the phrase "pseudo self employment" is often used. Where Scheinselbständigkeit is identified by the authorities, then both the "self employed" person and his/her client may be jointly accused of complicity in the offence as both are considered to be avoiding their social payment liabilities.

VAT is another and complicated issue for the freelance teaching profession. Under normal circumstances VAT registration is voluntary for any self-employed person with a turnover of less than €17,500 per year. Over that limit VAT registration is compulsory. However, if you are a full-time and self employed teacher, you may fall under the conditions dictated by §4 Nr 21 UStG which exempt the teaching professions from VAT, but only if the school, college or learning institution is itself exempt form VAT under the same §4 Nr. 21 UStG and can provide the necessary certification ("Bescheinigung"). If the teacher exceeds the €17,500 turnover limit and supplies any of his services to institutions or individuals which are not exempt under this regulation, then he must register for VAT and invoice it accordingly.

The advantage of an individual being registered for VAT is that any business related expenses qualify for the refund of the applied VAT (so they become around 19% cheaper). There are no disadvantages when invoicing similarly VAT registered clients (as they can claim it back), but non VAT-registered clients, e.g. private people, end up with 19% more on their invoice which they cannot recover (although in many cases they can offset 100% of further, or adult education expenses against their income tax)

VAT returns are normally made monthly, at least in the first year of your self employment status. If your total VAT payments are less than €6136 in one year then you may submit quarterly in subsequent years. If your payments are less than €512 then the return can be made annually.

You submit an income tax return annually. On the basis of the total annual income tax paid (or your estimate of income in your first year) then you must make quarterly payments of income tax in advance calculated as 25% of the tax paid in your previous year. The annual return will result in a final and detailed tax due and result in a refund or additional payment to be made

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