Does your company have a 401K or benefits plan? That would be my suggestion, especially if they have a good matching program. Far, far better to do that than to donate to charity, though I’m not knocking philanthropy.
The average taxable income on US federal tax returns is around $62k. The average of reported charitable donations is around 3%. So the $12.2k standard deduction for single filers, $24.4k for joint filers, is very significant relative to the charitable contributions average people would be talking about. If OP has a much higher than average income OP probably should point that out at least in general terms, since income level heavily affects any tax question.
Otherwise the answer on employer side is as others already pointed out. If the employee is directing the contribution it’s still the employee’s income for tax purposes. In any other permutation (simply ask the employer to cut your salary and hope the difference goes to charity, seek out an employer with a policy of donating X% of profits to charity*, etc), it’s not ‘asking an employer to directly donate part of my income’.
The specific tax exemptions for fringe benefits in the US code, which have been whittled down over the decades and are less than in some other developed countries, do not include charity donations directed by employees out of their compensation.
So the simple answer to the thread question is ‘no’, assuming US federal taxes and any common sense definition of what ‘ask an employer to directly donate part of my income’ means.
*which in any case realistically is usually a marketing device for some companies which deal directly with the public. If they didn’t think those policies would increase sales by appearing more virtuous in the eyes of potential customers attracted by that sort of thing, they probably would not (and should not, actually) do it. Should not because especially if it’s a public stock company the profits don’t belong to the management, they belong to the shareholders. The shareholders can decide what portion of the profits to give to charity after they receive them as dividends or capital gains on selling their stock. To the extent public stock company managers give away shareholder money to bask in the glow of being viewed as philanthropists, they are committing malfeasance IMO. If they at least quietly intend it to be a marketing device to increase net profit to shareholders after the contributions, it’s acceptable. So it’s a grey area practically because it’s hard to know the managers’ exact mix of motivations in giving away other people’s money.
Aside from what Alley Dweller already very capably explained (thank you), I should also point out that 1) I would be donating to a third party, not to my employer (as in the case of Bruce writing off his donation to the org that hires him) and 2) I would be donating cash money, not time
So apparently there is a max of 50% of AGI that can be deducted for charitable donations, and also the $12,000 standard deduction to weigh that against. Thanks for that info!
Thank you. I was not familiar with the concept of “fringe benefits.” I have no desire to get my employer intro trouble over this.
Hmm, I very much doubt I’ll live to see retirement age, or that our society will still be intact by then.
In any case, I am an independent contractor.
In the tax alphabet, they come after Obama’s taxes Beyond that, this is GQ, so I’ll leave it be.
Ahhhh okay, that actually clears up a lot! I didn’t realize that’s how it worked. Thank you. Between that and the “fringe benefits” above, it seems like my best option is to just take the money and then donate it after I get it.
I’m sorry, I didn’t mean to be evasive. I was just asking in general terms because my income is extremely unsteady and unpredictable. In the past, the most I’ve ever earned was $24/hr as a full-time employee or $30/hr as an independent contractor. Then these last two years, I paid no taxes because I was unemployed/underemployed while going to school.
But suddenly, I was offered a part-time job that pays $90/hr, but the hours are haphazard and the future uncertain. In case you missed it above, I am an independent contractor (IT stuff, nothing shady, just overpaid and more than I need to live). The catch is that some weeks I’m working 40 hours, other weeks 5-10. On paper, if this were a full time job, it would put me into a $187k bracket. But in reality, I have no way of knowing, before the end of the tax year, what my income is going to be. I might not even be able to keep the job for long.
What I’m afraid of is owing, say, $187k worth of taxes at the end of the year, but having donated so much of it through the year that I won’t be able to pay my tax burden next April. I am not good at finances and budgeting to begin with, so I’d rather just avoid having to deal with that hassle to begin with. Frankly, if I kept all that money, I know I would just mismanage it and waste it on trivial shit. Hence me trying to send it to a good cause instead of wasting it.
But it sounds like that’d just offload the hassle to my employer, making them jump through hoops, which isn’t what I’d want either.
I guess the responsible thing to do is to just wait until the end of the year, look at my income over the whole year, and then donate some portion of that myself – after, not before, I’m able to calculate my 2019 income with certainty.
Thank you all for the feedback. I do appreciate you covering both the basics and the nuances, as someone with really zero knowledge of tax stuff beyond what CreditKarma asks me to fill in every year.
I do have one further question though: Does the whole 501c4 situation make it any different? If I were to do it myself, then my tax burden WOULD be really high, since none of it would be deductible.
And for my employer, I would assume that this would still be a fringe benefit, and would be an even greater hassle since they can’t get any write-offs from it?
Makes me kind of pissed off that corporations can operate with shell companies and foreign tax accounts and give freely to 501c4s and SuperPACs and as an individual I’m basically stuck with the tax burden unless I incorporate myself and jump through loopholes…?
Right, and it doesn’t matter whether you have your employer remove that and donate it prior to you seeing it on your paycheck, or whether you donate it yourself and just itemize it at the end of the year.
Either way, your taxable income decreases by $1000, and you pay $200 less in tax. It just shows up a little different on your tax form at the end of the year.
And it sounds like Saint Cad’s example doesn’t really apply to your situation either.
So, since you said “I’m an independent contractor” – I am guessing that your employer does not withhold any taxes for you from your paycheck? I’m also guessing that your employer doesn’t offer you any of the “fringe benefits” of which you were previously unaware of the existence of, like health insurance? Is this accurate?
Speaking as someone who was an independent contractor for several years: my advice to you is, if you are not already doing so, talk to a tax professional. If you are truly a contractor, you’re on the hook for paying your own taxes (as well as the self-employment tax), and a tax professional may help you figure out what your total tax liability is now likely to be for 2019, based on your new income level, and what you should be planning for paying.
That’s probably a good idea. I have no idea what a self-employment tax is, and it sounds important.
Is this what H&R Block does? Are there any other good choices to talk to?
Just to highlight why this arrangement is still under your control and h dance taxable in your hands : what if you asked your employer for a receipt or note of the donation he made , just in case the IRS comes calling, and the employer says, “Yeah, I donated it to my favorite charity -myself!”
If you’re upset by that, it shows that you really thought you were the one deciding where the money was to go, and that’s why it should be listed as your income.
OK…first of all, I am not a tax accountant. And, second, yeah, it’s pretty important.
When you’re an actual on-the-books employee of a company in the U.S., your employer is responsible for withholding money from each of your paychecks for federal income taxes, as well as state income tax (if your state has an income tax). two ot
In addition to that, your employer has to withhold money from each of your paychecks for two other purposes: your Social Security taxes, and your Medicare taxes. Those two taxes, I believe, are 6.2% of your gross income for Social Security, and 1.45% of your gross income for Medicare (source here), and together, those two are referred to as “FICA taxes.”
But, beyond that, in addition to taking those 6.2% and 1.45% out of your paycheck, an employer is also responsible for matching those amounts with their own payments. So, in effect, if you’re employed, you’re essentially paying 12.4% of your gross income into Social Security, and 2.9% into Medicare, but your employer is paying half of that.
HOWEVER, if you’re self-employed (as you apparently are, as an independent contractor), when the company for whom you’re doing contract work gives you a “paycheck,” they aren’t taking any of that out of your check. You’re responsible for paying your income taxes, but you’re also responsible for paying your FICA taxes, too. And, since you are essentially your own employer, you have to pay the “self-employment tax” (i.e., the 6.2% for Social Security and the 1.45% for Medicare that your employer would normally pay).
H&R Block is a tax preparing service; they probably do have actual accountants working for them, but I believe that that most of the people who work in the local offices aren’t actually accountants.
You may well be better off finding a local independent accountant who does tax work, and would be willing to go through your numbers and give you some advice in a consultation.
A number of years back I had a friend purchase a convienance store. He did it on his own. He learned the hard way. His advice. The 1st thing you should do is find a tax lawyer, the second thing is find a business lawyer. His mistake cost him thousands of dollars in taxes that he could have advoided. H&R block is not a tax lawyer.
Makes sense. Thank you.
In addition to what Alley Dweller said, there is the more common sense distinction in that in the first instance he makes money and in the second he does not. Generally making money is income and not making money is not. That seems a huge distinction to me.
But the dominion and control aspect is the key. If I make $1.5 million per year, and I tell my boss that $1 million is plenty, so:
- give the rest to charity, or
- keep the money and make my salary $1 million,
then in the first instance, it is my income because I am directing its disposal. I could keep it, I could give it to charity, I could gamble it at the blackjack table. It’s my money and just because I chose to have someone else give it to charity doesn’t make it any less my money.
In #2 I am disclaiming all interest in the money so that it never comes under my control. That extra $500k remains with my company who could keep it, give it to charity, or gamble it at the blackjack table.
That’s the distinction: who has control.
A 501c4 donation is not tax-deductible. Only 501c3 donations are.
See a tax professional immediately, and not from a firm that just does tax preparation like you’ll see heavily advertised during tax season. You want someone who will go over your situation and be able to tell you how much you should be setting aside. They’re not too busy this time of year; they likely have time or have employees that have time to go over your stuff now in the slow season. The best bet is any firm or individual with “CPA” in its name, though an individual with “EA” as a title is pretty good too. Someone with no professional title you’re really risking your neck on. You’ve already missed your first two quarters of estimated payments so you’ll probably be facing some penalties regardless unless you don’t actually end up making that much.
If you do find a tax-professional, ask them about what retirement plans you can set up so that you don’t have to pay tax on all your money now. You should be able to set up around 20% of your total pay (if you’re topping out at $90/hr and 2000 hours/year) in a SEP IRA, and you may have other options if you’re doing it now as opposed to next year. SEP IRAs are great when you realize too late you want to put some away for retirement since you have until the next October to set them up, but another retirement plan, one that has to be set up by the end of the tax year, might make more sense for you.
Not quite what the OP asked for, but the closest I’ve come to this scenario is with employer-provided life insurance.
The amount an employer can provide (and pay for) is 50,000 dollars. Any amount over that, the premiums must be declared as income to the employee, and the employee has to pay income tax.
UNLESS the employee designates a charity as the beneficiary of the proceeds. II can’t find a cite for that offhand, but I think I read it on my company’s intranet.
Aside from that, as everyone else has said, can’t do it.
Now, the OP could save up his money and donate it to a charity every couple of years, if the donation gets to be big enough to push you over the limit to be deductible.
But really, your best bet is as others have said, save whatever you “don’t need now” in a tax advantaged account for now. You can donate some of it later on when you’re at retirement age, or you can will it to a charity.