Two ways you may work at a studio are as an employee or an independent contractor. Both have their own quirks, especially when it comes to managing your finances. Today we dive into the wild world of 1099s and W2s and explore what you need to know about teaching Pilates and taxes. Tune in!
I want to hear from you! Share your thoughts and follow the podcast on Instagram and Facebook @pilatesteachersmanual. Full show notes, episode transcription, and chapter markers can be found on the podcast website here: http://bit.ly/pilatesteachersmanual. Be sure to subscribe to the podcast for updates, and rate and review wherever you listen! Episodes now available on YouTube: *https://bit.ly/YouTubePTM*
Email firstname.lastname@example.org with your feedback.
Support the podcast:
Visit https://links.oliviabioni.com/affiliates to take advantage of some sweet savings!
This episode uses NCS music in compliance with https://ncs.io/usage-policy
Track: Tobu - Good Times [NCS Release]
Music provided by NoCopyrightSounds.
Free Download / Stream: http://ncs.io/goodtimes
Track: Tobu & Itro - Sunburst [NCS Release]
Music provided by NoCopyrightSounds.
[00:00:00] Welcome to Pilates Teachers' Manual, your guide to becoming a great Pilates teacher. I'm Olivia, and I'll be your host. Join the conversation and the Pilates community on Instagram at @pilatesteachersmanual and visit buymeacoffee.com/OliviaPodcasts to support the show. Today's chapter starts now.
[00:00:56] Hello, hello everybody and welcome back to the podcast. [00:01:00] Today, we're going to be diving into the nitty gritty of working as an independent contractor or as an employee at your Pilates studio, gym, franchise, wherever you happen to be teaching. I have personal experience working as both an employee and as an independent contractor for other people and for myself, and I would love to share some tips and things that I learned kind of the hard way as I was filing my taxes and trying to figure out what I was supposed to be doing sometimes. A bit of a disclaimer, I am not a legal professional, and I'm not a financial advisor, but I can share with you what's worked for me. It is US focused because I have only worked in the United States as a Pilates teacher, but there will be a lot of similarities between the US and where you live if you do not live in the US. And you can [00:02:00] also just appreciate how wild the system is in the United States. Uh, it's complicated for sure.
[00:02:08] When you go and teach Pilates at a studio in someone's home, you can do it mainly two different ways. And the work is the same. The teaching Pilates part is the same, but you can be classified as either an employee in which you are employed by the studio or a place that you are teaching at, or you can be an independent contractor where you are also employed by wherever you're teaching at, but the classification is different. Teaching Pilates the same, but on the back end, it's a bit.
[00:02:44] You don't get to pick, I'd like to be an employee or I'd like to be an independent contractor. It's really whatever the studio has set in place for how they're employing their teachers. You could say, you know, I only want to work as an employee in which case you would only [00:03:00] work in studios that would employ you as an employee. But from my experience, you don't really get to negotiate whether you're an independent contractor or an employee. You got to go with the flow a bit on that.
[00:03:14] If you're hired by a studio and you're hired as an employee, you'll fill out a W4, which is a single sheet of paper that has your name, your address, your social security number, and also has a box where you can choose to have a more money withheld from your paycheck than what they're going to hold automatically. So you can put your deductions and you can put your, any other sort of tax circumstance that's going to change how you file your taxes, but you can also elect to have additional money taken out of your paycheck. That can be a really handy thing to do to make sure that you're setting aside enough money for taxes, [00:04:00] but you don't have to do that.
[00:04:01] When you fill out a W4 and you're going to be an independent contractor, the main difference between an employee and an independent contractor is that as an employee, there will be certain money withheld from your paycheck for federal income tax, for social security and Medicare. As an independent contractor, you will get the entire amount dispersed to you in your paycheck, but you will need to pay federal income tax and social security and Medicare, but you don't pay as you go. When you're an independent contractor, you have to pay a bit differently. So that's a teensy bit of a headache, and I will get a bit more into that.
[00:04:45] One of the things that is taken out of your paycheck when you're an employee is your federal income tax, but this is a really tricky thing and something that even if you're working as an employee, You really want to keep [00:05:00] an eye on because federal income tax only starts being withdrawn from your paycheck once you hit a certain amount of money, I'm not sure if it's $10,000 or $12,000, but there is a threshold that your employer, even when you're employed will not withdraw any money from your paycheck for federal income tax, until you hit that threshold.
[00:05:27] Something that's kind of difficult about teaching Pilates and makes taxes really fun and really complicated at the end of the year is that you might make, you know, $9,000 a year at one studio. And then in another studio, you only teach a couple classes and you made $3,000. And then at another studio you taught a lot and you made $15,000 or something like that.
[00:05:50] Individually, you may not have hit that threshold. And two of the places that you worked, right, if you were, if you made $2,000 in one place and nine or [00:06:00] eight or whatever, and another place, so that employer sees you as just working for them. And they're like, okay, then I won't withdraw any federal income tax for you. But then at the end of the year, when you say you made whatever the sum of those numbers, you will need to pay some federal income tax on that, usually more than what has been withdrawn from your paycheck. So you do want to keep an eye on that because when you go to file your taxes at the end, they'll be like, Hey, you did not pay enough federal income tax.
[00:06:32] So that is something that's kind of tricky as both an employee. You don't get to not think about it when you're an employee, unless you're like 30 plus hours a week employed at one studio. In which case it would be fine. But if you're teaching at multiple places, you as an individual need to keep track of the big picture because the studio is only keeping track of the small picture that involves them.
[00:06:55] As an independent contractor you are classified as self-employed. [00:07:00] So even if you do not have a business license, and even if you think of yourself as working at the studios that you work at, you're technically self-employed and that is how you would file your taxes. You would say you were employed by a company if you were receiving, uh, if you were an employee with that company, but as an independent contractor, you're technically self-employed. You are your own business.
[00:07:28] I ended up filing for an LLC and I do have a business license to teach Pilates in the city of Chicago, but because I'm a single member LLC, I'm treated the same way I would be treated if I didn't have an LLC. It's treated as what's called a disregarded entity. And I filed my taxes pretty much the same as an individual, but you do have to fill out your taxes in a little bit different way as a self-employed person.
[00:07:58] Now, when you're self-employed, as I [00:08:00] said, there's no money being withheld from your paycheck for tax purposes. So you really need to be on top of it as an independent contractor, because nothing gets taken out of your paycheck. And then you get what looks like a bigger paycheck, but it's not going to be entirely yours. Some of it is going to go to the federal and state government and what the tax rate is, is going to depend on your total income. It's going to depend on if you have a spouse and you're filing your taxes jointly, because then their income is going to get added to your income.
[00:08:34] In which case you will need to pay federal income tax on probably everything that you earned. Even if it wasn't taken out automatically as an employee, like that can still come back. And I do want to share something that kind of came back and bit me in the butt.
[00:08:52] Like when I tell you that I have done all of this, the hard way, I really have, I've learned a lot through late penalties [00:09:00] on certain things. When you are an independent contractor, there's something called schedule C and it's pretty much just filing your taxes quarterly. Instead of filing them once a year, it can be nicer to pay your estimated federal income tax, social security, and Medicare every three months instead of one big payment at the end of the year.
[00:09:29] But I do know that if you are making enough money as an independent contractor that you will need to make some estimated tax payments or at least one estimated tax payment in January to avoid paying a late fee when you file your taxes in April. Now, maybe you are not even remotely thinking about this because you have an accountant and you're just like, please take care of my taxes for me.
[00:09:59] I do my [00:10:00] taxes myself and by myself. I mean, I use TurboTax. It makes me a little bit sad that TurboTax continues to lobby to keep tax laws complicated so that they can then sell you something that makes taxes easy. Um, but I do overlook that at tax time because it definitely is a trick.
[00:10:19] At the end of the day, the government wants to get its cut of your paycheck. So I'm not too like bummed out about having to pay taxes, but the complex little bit of it is when you're filing schedule C and you're making estimated tax payments, estimated federal tax payment system, E F T P S, yes is a way to pay your taxes on line.
[00:10:46] And what I've learned thus far is if you pay your estimated due, which TurboTax self-employed calculates for me, by mid January, then you don't have to pay the late [00:11:00] fee, but you do need to pay before you file your taxes in April. And if that sounds confusing, um, it is. It definitely is.
[00:11:08] Coming up after the break. We'll dive a little bit more into those quarterly estimated tax payments, as well as when you're filing your taxes and get your W2's in January, what that's about as well as some things that you can do to maximize the money that you're setting aside for tax payments. It sounds like a plan. We'll talk about that next.
[00:11:36] Hi there. I hope you're enjoying today's chapter so far. There's great stuff coming up after the break, too. Be sure to subscribe wherever you're listening and visit buymeacoffee.com/OliviaPodcasts to support the show. There you can make a one-time donation or become a member for as little as $5 a month.
[00:11:55] Membership comes with some awesome perks, including a shout out in the next episode, a [00:12:00] monthly newsletter, a monthly zoom call with me and more. You can also visit links.OliviaBioni.com/affiliates to check out some sweet deals on products I use and love. Now back to the show.
[00:12:32] When I was first teaching yoga and then teaching Pilates and my dad who went to school to be an accountant, was like, oh, you're going to have to file a schedule C. I was like, I hope to God that I don't, but I do. And it's fine. It's actually okay. You kind of calculate based on how much you earn in your quarter, how much you're going to owe in taxes for your [00:13:00] income that quarter.
[00:13:01] And depending on how much you teach and how much money you're making that number of what you are estimated to owe is going to obviously be very different. TurboTax self-employed calculates it for me, which is one of the main reasons I continue to use it because I get to do less math, which I appreciate. And then you'll know about each quarter, how much money you have to set aside, because you will need to give that to the government at the end of the year. Right?
[00:13:31] You can pay that payment quarterly. That's fine. You can also pay it once kind of lump sum in January before you file your taxes in April. Right? One thing that I think we all know about filing taxes is if you file your taxes, sometimes you get a tax refund, right? And then you get a nice check in the mail and you're like, yay, tax refund, right? What a tax refund is, is it means that you overpaid your taxes. You [00:14:00] gave the government too much money, and then they're giving you your own money back to you, which is like slightly less exciting, but also fun because you get, you know, some money in the mail.
[00:14:09] I can tell you that I don't get a tax refund anymore because I have so much self-employed income that it's usually I'm usually giving the government more money at the end of the year. When you give the government more money than you need to, and then you get it back as a tax refund. Um, what you're doing in essence is giving the government and interest free loan, which, cool, but I'd rather earn interest on my money personally.
[00:14:38] So what I like to do is the money that I set aside for taxes is I keep that in a savings account. I don't invest that money because anything that has any risk of losing the principal, like losing the money that I originally invested, um, is for me not the [00:15:00] right choice, because I know that I need that money again. So I like to keep my tax savings account, it's like a high yield savings account and interest rates are starting to go up, which means that your money earns more money, which is nice. And maybe you're only earning, again, depending on how much money you have in there. Maybe you're earning a couple of dollars a month, but it's like a couple of dollars that I wouldn't have otherwise. And I know that that money is there to pay my taxes at the end of the year, which is good.
[00:15:29] It is important whether you use TurboTax or whether you keep a spreadsheet or you have a ledger or something for you to keep track of all of the places that you work and the hours that you work. I know in places like Australia, you invoice at the end of the month or at the end of the fortnight to tell your employer, who's not your employer, but if you're an independent contractor, like a casual employee, but you invoice and say, this is how many classes I taught, this is how many [00:16:00] people I taught. Um, but you really want to keep track of that somewhere, especially if you're paid per head. Because it's not malicious. Um, in terms of your pay not being totally accurate, but the person who loses out often is you. So you do want to stay on top of how much you've earned and when you've hit that income threshold, again, if you have a partner you may already be at that income threshold if they're working, but just so that you're not surprised. Because the thing that's really not fun is, uh, getting to tax time and being like, oh, you owe like $6,000 and you're like, oh, okay, cool. Right. And then you have to find that somewhere.
[00:16:42] So having some sort of software or pen and paper, if that's what works for you, just so that you have everything in one place and you kind of have an overview of what's going on, what you're going to owe, it just makes it a lot less stressful. Like if you're hearing me talking about this and you're like, oh my God, this is really [00:17:00] stressful. The more, you kind of engage with this and befriend this, because this is a part of Pilates teaching that is integral to the Pilates teaching part, but is not about teaching Pilates. It's about, you know, staying on top of your finances, which is its own thing.
[00:17:18] It's also good to have that information so that when your employer sends you your 10 99, if you're an independent contractor, your W2 if you are an employee. You want to check and make sure that the numbers match, that they say that they gave you as much money as they actually gave you. And just to make sure that nothing's like looking weird. I remember one of the studios that I worked at as an employee, I had the federal income tax not withheld because I think I earned something like $16,000 at that one studio.
[00:17:53] So I only paid income tax on like the last $6,000, because the first 10,000, [00:18:00] it doesn't, it has an income tax rate of zero, but I was working at multiple places. And so that was a bit of a, Ooh, could have noticed that a little bit sooner. So don't do that, what I did.
[00:18:14] The majority of this episode is that taxes are different when you're an employee or an independent contractor. So that's one thing. Um, liability insurance is also different when you're an employee or an independent contractor. A lot of times, as an employee, you're covered by the studio insurance. If you're an independent contractor, you might be covered by the studio insurance, you might not be covered by the studio insurance. You may need to have your own liability insurance. You also might need to add the place you're teaching as an additional insured on your liability insurance so that the work that you do at that location is also covered.
[00:18:56] So those are the things that I think are most [00:19:00] important about working as an employee or working as an independent contractor. The teaching Pilates bit is the same, but behind the scenes is a little bit different. And there's just a lot of things that are kind of unique to. Not necessarily just Pilates teachers, but yoga teachers or personal trainers or people who work casually. And it's weird cause it's not casual work because you're definitely there at specific times, but it's not the same as a nine to five. It is different from that. And there's just a whole behind the scenes world that we peeked into today. So thanks for coming along for the ride.
[00:19:40] Huge thank you to all my supporters on Buy Me A Coffee. Really looking forward to those coffee chats this week and this month. Lots of exciting things coming on the horizon. Stay tuned for that. Have a great couple of weeks and I'll talk to you again soon.[00:20:00]
[00:20:05] Thanks for listening to this week's chapter of Pilates Teachers' Manual, your guide to becoming a great Pilates teacher. Check out the podcast Instagram at @pilatesteachersmanual, and be sure to subscribe wherever you listen. For more Pilates goodness check out my other podcast, Pilates Students' Manual, available everywhere you listen to podcasts.
[00:20:29] The adventure continues. Until next time.