Taxes

kuulani

kuulani

New Member
I work for a small non-profit and was just informed by my employer that my status will be changed from a salaried employee to a contractual worker.

Besides the fact that I will now have to pay taxes out of my ass come April, what other things do I have to be aware of? (I basically know nothing about taxes and being a contracted worker).
 
In short...you are no longer an employee. Except for the things that have been bargained for (contracturally) they are responsible for zilch.

Taxes
SSA
State & local
Medicare
Health
Retirement

but, it'll make you aware of how much you really pay in taxes...then you can join us.

Also, your days/hours may change to better suit their needs. If they're slow, you'll be low man on the seniority roster.

You are now a business owner.
 
In addition to what Gonz said, ask them about your vacation & sick time too. When Rusty did 1099 work, he got paid more than normal but we didn't realize the tax implications either. It was only after we got screwed at tax time that we were told a lot of people who do this type of work put money aside for that reason. So it's not such a shock. They 'deduct' their own estimates for what they would pay if they weren't contractual and leave it in an interest bearing account like ING.

You won't have a problem this April because you weren't contractual last year. So you can prepare for this for next year if you're planning on staying.

Also, there's a stigma, at least around here, that contract workers are much easier to let go. :(

I'm sorry Ku'u. Will you stay there or look for something else?
 
Most contract workers around here do not get paid vacation, sick or stat holiday days.

greanfreak mentioned that most people put money aside for taxes...those who don't are pretty foolish. When you get your slips for last year look at how much you paid in taxes throughout the year (I paid over $13,000)...having to come up with that all in one go for next year would be a huge kick in the pants...if you stay there put the same amount of money aside each week and you were paying in through your paycheque previously.

Also, in terms of contract workers being "easier to let go"...it's completely true. Contract workers save companies money through not being provided benefits, but they also essentially relieve the company of any obligation. A contract worker is someone who is "around until no longer needed" essentially. A friend of mine used to do contract work but did it with a signed contract for X months at a time...that way he knew he had a job until a certain date atleast. He re-signed a couple times then once when his contract was coming due, he wasn't offered a renewal and had to find another job. I think there may also be contract employees who don't have such a set and signed contract...in which case I believe the company could let them go whenever they deem them not necessary. The company wouldn't have to pay them anything in the sense of severance pay...so, like Gonz said, contract workers are the low man on the todem pole.

Personally, I'd never want to work contract work. If I had to in order to be employed I obviously would...but I would definately avoid it at all costs...it seems like a HUGE hassle and not having benefits or anything would suck.
 
Here, contractors earn a LOT more than non-contracted workers (in IT-related professions) so it's definitely worth it if you want to save up money.
 
Dara says contract nurses typically get paid quite a bit more than employed nurses, but are responsible for their own medical insurance, don't get paid vacations or sick time, etc., etc., etc.

As Gonz puts it, congratulations you're self-employed.
 
Another reason why contract workers might get paid more is that the employer no longer has to cover the worker with worker's comp insurance, which can get expensive. For example, for roofers, for every dollar in pay a dollar goes to worker's comp, as well. True, roofing is a more dangerous job than, say, working with kids, but you get the idea. For contract workers, an employer can pay the contractor more money, which makes the contractor feel better, while actually saving a truckload of money.
 
I think people would be surprised how much it costs to provide benefits, paid vacation, stat holidays, etc. to employees...for some people who don't use benefits alot and stuff maybe being a contract employee works out for the better but if you don't have a spouse who has full benefits being without them can be scary... meds, etc. can add up VERY quickly if someone in your family gets sick.
 
greenfreak said:
In addition to what Gonz said, ask them about your vacation & sick time too. When Rusty did 1099 work, he got paid more than normal but we didn't realize the tax implications either. It was only after we got screwed at tax time that we were told a lot of people who do this type of work put money aside for that reason. So it's not such a shock. They 'deduct' their own estimates for what they would pay if they weren't contractual and leave it in an interest bearing account like ING.

You won't have a problem this April because you weren't contractual last year. So you can prepare for this for next year if you're planning on staying.

Also, there's a stigma, at least around here, that contract workers are much easier to let go. :(

I'm sorry Ku'u. Will you stay there or look for something else?
Click to expand...

I kinda expected to be let go sooner or later since it's a nonprofit and their cashflow isn't guaranteed all the time. The nonprofit is actually my second job. I don't really trust non-profits to keep salaried employees, which is good that I kept my first job when I got offered this other one, even though this second one is something I rather do.

So what's an ING account? I better look into that. Thanks!
 
Nixy said:
Most contract workers around here do not get paid vacation, sick or stat holiday days.

greanfreak mentioned that most people put money aside for taxes...those who don't are pretty foolish. When you get your slips for last year look at how much you paid in taxes throughout the year (I paid over $13,000)...having to come up with that all in one go for next year would be a huge kick in the pants...if you stay there put the same amount of money aside each week and you were paying in through your paycheque previously.

Also, in terms of contract workers being "easier to let go"...it's completely true. Contract workers save companies money through not being provided benefits, but they also essentially relieve the company of any obligation. A contract worker is someone who is "around until no longer needed" essentially. A friend of mine used to do contract work but did it with a signed contract for X months at a time...that way he knew he had a job until a certain date atleast. He re-signed a couple times then once when his contract was coming due, he wasn't offered a renewal and had to find another job. I think there may also be contract employees who don't have such a set and signed contract...in which case I believe the company could let them go whenever they deem them not necessary. The company wouldn't have to pay them anything in the sense of severance pay...so, like Gonz said, contract workers are the low man on the todem pole.

Personally, I'd never want to work contract work. If I had to in order to be employed I obviously would...but I would definately avoid it at all costs...it seems like a HUGE hassle and not having benefits or anything would suck.
Click to expand...

Thanks Nix! I would never do contract work as my only job too. This is my second "furnish my house" job :D
 
kuulani said:
I kinda expected to be let go sooner or later since it's a nonprofit and their cashflow isn't guaranteed all the time. The nonprofit is actually my second job. I don't really trust non-profits to keep salaried employees, which is good that I kept my first job when I got offered this other one, even though this second one is something I rather do.

So what's an ING account? I better look into that. Thanks!
Click to expand...

Good, I'm glad this isn't such a bad situation then. I know I feel better. ;)

AB linked you to ING - it's just an internet based bank with good rates on savings. We had an account with them for years while we saved up for the wedding and the house, to get some extra dough from the interest. But we've since found that the brick-and-mortar banks have caught on to the business they're losing and some of them have better savings rates and incentives than ING. We decided to go with Washington Mutual for the total package - rewards points on debits, and a higher savings rate.

Anyway, the point is, if your money isn't going to be invested some other way, why not throw it in a higher interest bearing account?

It's too bad that they're not doing so well but I guess that's expected with non profits. I hope you can still enjoy your work there without financial problems! :)
 
greenfreak said:
It's too bad that they're not doing so well but I guess that's expected with non profits. I hope you can still enjoy your work there without financial problems! :)
Click to expand...

It's my total dream job ... the kind of job I'd do for free if I didn't have to worry about bills and eating and all that silly stuff!

The crappy thing now is that I have to remember to invoice them for my services and I won't get my paychecks direct deposited and now I have to remember to save for tax time. How irrirating!
 
most contractors i know are on a payroll with taxes taken out. it's just easier for employers to get rid of them, but the tax thing isn't that complicated.

what you really have to look out for is "self-employed" status, where you get to match your own FICA since there's no employer contribution.
 
2minkey said:
what you really have to look out for is "self-employed" status, where you get to match your own FICA since there's no employer contribution.
Click to expand...

[Maurice Chevalier]Ah yes, I remember it well...[/Maurice Chevalier]

Oh, and Dara says the contract nurses may in fact have their taxes deducted, she isn't sure. I think I misunderstood her the first time.
 
2minkey said:
what you really have to look out for is "self-employed" status, where you get to match your own FICA since there's no employer contribution.
Click to expand...

Ah yes, grasshopper. I had forgetten the insidous match policy.

On the upside...you can make your own hours.
 
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