2

I am doing consultant as my job side job. I am wondering if I should put tax in my invoice on top of my charges. This is the current state of the negotiation regarding taxes:

You will not be eligible for any employee benefits, nor will the Company make deductions from payments made to you for taxes. You acknowledge and agree that you are obligated to report as income all consideration that you receive under this Agreement, and you acknowledge and agree to pay all self-employment and other taxes thereon. You further agree to indemnify the Company and hold it harmless to the extent of any obligation imposed on the Company to pay withholding taxes or similar items or resulting from your being determined not to be a Consultant.

How can I negotiate to have my expenses paid for by the employer? Would it be possible to invoice the employer for any taxes incurred, to simply negotiate payment that will cover the additional taxation-related expenses, or for the employer to cover the contractor's expenses in the first place?

I live in California.

  • I would split this into two questions. One relates to tax/invoicing (which is much more personal finance) and the other about how to negotiate it (which is on topic at The Workplace). – enderland Sep 27 '13 at 17:46
  • I would never sign a legal document without getting the advice of a lawyer. – dcaswell Sep 27 '13 at 22:40
7

They are already indirectly paying these expenses.

They should be built into your rates. The amount per job or per hour needs to cover what would have been your salary, plus the what would have been sick, vacation, holidays, health insurance, life insurance, disability, education, overhead for office expenses, cost of accountants...and all taxes.

In many companies the general rule of thumb is that they need to charge a customer 2x the employees salary to cover all this plus make a profit.

If this is a side job some of these benefits will come from your main job. Some self employed get some of these benefits from their spouse.

The company has said we give you money for the work you perform, but you need to cover everything else including paying all taxes. Depending on where you live you might have to send money in more often then once a year. They are also telling you that they will be reporting the money they give you to the government so they can claim it as a business expense. So you better make sure you report it as income.

0

Anything is negotiable.

Clearly in the current draft of the contract the company isn't going to calculate or withhold taxes on your behalf - that is your responsibility. But if you want to calculate taxes yourself, and break out the fees you are receiving into several "buckets" on the invoice, the company might agree (they might have to run it past their legal department first). I don't see how that helps anything - it just divides the single fee into two pieces with the same overall total.

As @mhoran_psprep points out, it appears that the company expects you to cover your expenses from within your charges. Thus, it's up to you to decide the appropriate fees to charge, and you are assuming the risk that you have estimated your expenses incorrectly.

If you want the company to pay you a fee, plus reimburse your expenses, you will need to craft that into the contract. It's not clear what kind of expenses you need to be covered, and sometimes companies will not agree to them.

For specific tax rule questions applicable to your locale, you should consult your tax adviser.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy