Income from private lessons and the form of settling accounts with the tax office

Service-Tax

Tutoring is a common form of earning income. A tutor may be employed on the basis of a mandate contract or employment contract with an entrepreneur who conducts activities related to education. Usually, however, tutors are self-employed through their activities. However, how to tax your tutoring income and what form of tax settlement should you choose? We explain below.

Economic activity and activity performed in person

The Personal Income Tax Act defines two types of activity that generate taxable income. Among them, there are activities performed in person and economic activities.

According to Art. 5a paragraph. 6 of the PIT Act, economic activity and non-agricultural economic activity is a gainful activity:

  • manufacturing, construction, commercial, service,
  • consisting in searching for, identifying and extracting minerals from deposits,
  • consisting in the use of things and intangible assets
  • conducted on its own behalf, regardless of its result, in an organized and continuous manner.

It does not matter whether this activity generates profits or losses for the taxpayer. At the end of the year, the taxpayer must settle any activity on the appropriate PIT form.

On the other hand, activity performed in person is a gainful activity that is not conducted in an organized and continuous manner, but is only incidental. As the name suggests, it must be performed independently by a natural person who does not employ any additional third parties.

Income from private tutoring

In a situation where tutoring is provided ad hoc, it certainly does not bear the characteristics of economic activity. Nevertheless, the income obtained from tutoring should be taxed. In such a case, revenues are obtained on the basis of a contract for the provision of services, and the provisions on mandate apply to this type of services.

However, if the principal is a natural person for whom tutoring is provided, then the source of income for the tutor will not be the activity performed in person, but other sources of income indicated in art. 10 sec. 1 point 9 of the PIT Act.

According to Art. 13 sec. 1 point 8 of the PIT Act: revenues from activities performed in person are revenues from the performance of services, on the basis of a mandate contract or a specific specific contract, obtained only from:

  • a natural person conducting business activity, a legal person and its organizational unit as well as an organizational unit without legal personality,
  • the owner (holder) of the real estate in which the premises are rented, or the manager or administrator acting on his behalf - if the taxpayer provides these services only for the purposes related to the real estate

- with the exception of revenues obtained on the basis of contracts concluded as part of non-agricultural business activities conducted by the taxpayer and revenues obtained on the basis of enterprise management contracts, management contracts or contracts of a similar nature.

As results from the above provision, income from private lessons provided to natural persons who do not conduct business activity are not included in income from activities performed in person. Therefore, they are considered to be income derived from other sources. Consequently, these revenues are subject to different taxation rules.

Tutoring income can be taxed in two ways:

  • include all revenues from tutoring in the annual tax return and then pay the tax for the entire year,
  • pay advances on income tax every month by the 20th day of a given month. However, the condition for such a method of accounting is that this method is used throughout the year, and after the end of a given year, the entire settlement should be included in the annual tax return.

It should also be emphasized that in such a situation, the client, i.e. the person who uses the tutor's services, does not have any obligations related to the settlement of income tax on this account. Regardless of which method of income tax settlement the tutor chooses, the tutor may reduce the income by tax deductible costs in a flat-rate amount set at 20% of the income. However, if the taxpayer has evidence of actually incurred costs related to the provision of services, he may reduce the revenue by the actually incurred costs.

Tutoring as a business activity

If the services provided by the tutor meet the definition of economic activity, i.e. they are provided in a continuous and organized manner, the taxpayer should register the business activity, and thus, the revenues from tutoring should be accounted for as part of this activity.

The taxpayer can choose the following forms of business taxation:

  • tax scale, i.e. general rules,
  • flat tax,
  • lump sum on recorded revenues,
  • tax card.

Tax scale and income from tutoring

Tax on general principles (tax scale) may be chosen by every entrepreneur as a form of business settlement. The tax base is income understood as the difference between revenues and costs.

When choosing a tax scale, there are two rates of taxation of income: 17% and 32%. Income not exceeding the tax threshold of PLN 85,528 is taxed at a lower rate. However, the surplus over this amount is taxed at the rate of 32%. In addition, the tax scale makes it possible to deduct from the tax, the so-called tax-reducing amount.

The main obligation of taxpayers settling income tax on general principles is to keep a book of revenues and expenses and to pay monthly or quarterly advances for income tax.

Flat tax and tutoring income

The flat-rate tax cannot be used by taxpayers who obtain income from the provision of services to the former or current employer from business activities conducted independently or from the right to participate in the profit of a company that is not a legal person, corresponding to the activities that the taxpayer or at least one of the partners performed or performs in a tax year as part of an employment relationship or a cooperative employment relationship.

The flat tax rate is always 19%, regardless of the amount of the entrepreneur's income. This is the basic difference between a flat tax and a tax paid on general terms. Moreover, when settling an activity with a flat tax, the entrepreneur cannot take advantage of the tax-free amount and tax reliefs.

Lump sum on registered revenues and revenues from tutoring

Lump sum on registered revenues is a simplified form of taxation of economic activity. Entrepreneurs using this form of settlement pay income tax, but they cannot reduce it by tax deductible costs.

As a rule, only some tutors can pay income tax in the form of a lump sum on recorded income. In accordance with the Act on flat-rate income tax on certain revenues earned by natural persons, this form of taxation may be used by tutors who:

  • are teachers
  • they give lessons by the hour,
  • they do not provide services to legal persons, organizational units without legal personality or to natural persons for the purposes of their non-agricultural business activities,
  • they do not employ persons performing activities related to the essence of a given profession on the basis of employment contracts, mandate contracts, specific-task contracts and other contracts of a similar nature.

The flat rate on recorded revenues for the provision of tutoring services is 17%. Therefore, even if the taxpayer meets the above conditions and can use this form of taxation, it usually does not. This is because it is unfavorable for him, due to the inability to deduct tax deductible costs.

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Tax card and income from tutoring

A tax card is the easiest way to settle your income tax. The taxpayer does not have to keep books, submit tax returns and make advance payments. The amount of tax to be transferred to the tax office is determined by the head of the competent tax office.

Individuals who receive income from tutoring may consider taxing with a tax card.

Pursuant to Art. 23 sec. 1 point 11 of the Act on flat-rate income tax on certain revenues earned by natural persons, flat-rate income tax in the form of a tax card may be paid by taxpayers operating in the field of educational services consisting in giving lessons per hour. At the same time, giving lessons by the hour is considered a learning aid consisting mainly in doing homework with the student.

The tax depends on the number of hours and amounts to:

  • up to 48 hours: PLN 5.10 per hour,
  • from 48 to 96 hours: PLN 244.80 + PLN 10.60 for each hour over 48,
  • over 96 hours: PLN 753.60.

In connection with the above, income from tutoring per hour may be settled in the form of a tax card.

In order for a taxpayer providing tutoring services to be able to tax them with a tax card, he should:

  • submit an application for taxation in the form of a tax card on the PIT-16 form,
  • not to use the services of people who are not employed by them under a contract of employment and the services of other enterprises and plants, with the exception of specialist services,
  • not to conduct any other non-agricultural business activity,
  • the taxpayer's spouse should not conduct business activity to the same extent,
  • not to produce products taxed on the basis of separate regulations with excise duty.

As can be seen from the above, tutoring income may be taxed as income from other sources or as an economic activity. At the same time, when conducting the activity consisting in the provision of tutoring services, income obtained from it can be taxed using general rules, flat tax, lump sum on recorded income or a tax card. This decision rests with the taxpayer.