I picked up a freelance job doing work for a government agency (for those of you who are familiar, it's a NAF, or non-appropriated fund entity). When I asked the guy who pays the taxes, he said, "Oh, we're a tax-exempt organization". Sure enough, I've got the tax-exempt number on the paperwork.
Now, I still have to pay taxes on this, right? Anyone have a link to the IRS explaining this? It's going to come out to around 9k - I'm sure Uncle Sugar will want his cut, no?
BTW, I'm working as an independent contractor, if that makes a difference.
"So you want to throw out the old you - but the old you is old enough to know it won't make it better"
Del Amitri - "Make it Better"
Working for a non-profit or tax-exempt organization does not exempt its employees or contractors from paying taxes. You will always, for the rest of your life, pay taxes on what you earn (unless consumption taxes replace the current system).
DON'T FORGET - as a freelancer, if your employer issues you a 1099 that means they are not withholding payroll taxes for you. This means that you will also owe self-employment taxes (i.e. medicare and social security) on top of your regular federal taxes. Many freelancers forget this and either get pinched by the IRS or end up owing thousands more than they expected. For more on Self employment taxes, check this out:
[Jon Zanone]"Now, I still have to pay taxes on this, right? Anyone have a link to the IRS explaining this? It's going to come out to around 9k - I'm sure Uncle Sugar will want his cut, no?"
As stated by others, you are required to pay income taxes on the amount you earn from this organization.
As an independent contractor, you're also required to pay the employer's and employee's shares of the social security and medicare taxes, which you'll pay through self employment tax when you file your 1040. Those come to 15.3%, although you do get to deduct half of the self-employment taxes as an above the line deduction on your 1040.
Just did payroll this morning for my 1-person LLC. Every time I write myself a check for $1,000.00 I also pay the government $810.40 for Social Security, Medicare and Tax Withholdings "Form 941 - Employer's Federal Tax Return." I do this online every pay period vs. at the end of the quarter.
This does not include my $545.00 annnual Worker's Compensation insurance premium.
This does not include my monthly $137.55 individual major medical monthly health insurance premium.
This does not include my monthly $34.00 1-million dollar General Liability insurance premium.
This does not include my business income taxes on the profit that I make.
This does not include my personal income taxes that I pay at the end of the year on what I make from my own company.
Don't see every $1000 they pay you as $1000 of salary - the actual value will be diminished by almost half when you take into consideration the benefits they are NOT giving you.
Of course, contractors and freelancers and anyone self-employed will need to make the same calculation - usually a company with employees, receiving money from a contract, has figured this out already - but an individual whose attention is focused on actually getting paid for his skills (at last) can drift along in denial quite a while (oh, say, usually until about April 15) before the realization hits. Not always, but often.
Hope the job still makes economic sense after such a calculation.