This seems to me like a scary situation with essentially zero job security, but maybe I’m wrong about this?
The only real job security is to have marketable skills. Eternal perfect job security is extremely rare in the USA—I can’t think of anyone but tenured professors who have that. If you work at a startup, the startup could go under. If you work at a big firm, there could be layoffs. Etc.
The way I see it, if you successfully get a grant in Year N, then that should be strong evidence that you can successfully get a grant in Year N+1. After all, you’ll now have an extra year of highly-relevant experience, plus better connections etc. Right? (Well, unless you waste the grant money and get a bad reputation.) (Or unless the cause area funding situation gets worse in general, but that would equally be a concern as an employee at big nonprofit too, and anyway seems unlikely for major EA cause areas in the near future.)
And if not, whatever type of job you were doing before, you can apply for that type of job again! (If you leave on good terms, you could apply for literally the same job you left.)
Should they take their grant in small amounts spaced out year-by-year instead of all in the first year?
Do your taxes with accrual accounting! One time I wound up getting 26 months of pay in one calendar year. It would have been a catastrophe with cash-basis accounting, but it was perfectly lovely thanks to accrual accounting. :)
For tax efficiency, should grant recipients optimally incorporate themselves as an S-corporation, or a charitable foundation, or something else?
You can be self-employed automatically without filing any special paperwork. That’s the category I’m in.
IIUC, the advantages of being a charitable foundation are all on the grant-giver side, not the grant-receiver side. Namely: (1) If you’re a charitable foundation, and another nonprofit wants to give you money, it is extremely easy for them to do so. (2) If you’re a charitable foundation, and an individual wants to give you money, then they can tax-deduct it.
However, some institutions including EA Funds have jumped through whatever hoops there are such that they can give money to individuals.
If your grantor is willing to give you the money as an individual, I think there’s no reason on your end to do anything different than that.
(If you want the advantages of being a nonprofit, e.g. getting money from SFF, without filing all the paperwork to be a nonprofit, I vaguely recall that there is an institution in the EA space that will “take you in” under its umbrella. But I can’t remember which one. (Update: Maybe I was thinking of Rethink.Charity Fiscal Sponsorship?)There are also “virtual research institutes” (Theiss, Ronin, IGDORE, maybe others), that offer the same advantage (i.e. that your grantor would be officially granting to a nonprofit), but they’ll take a cut of every grant you get. A different advantage of the “virtual research institutes”, I suspect, is their ability to handle government grants, which I imagine come with a ton of bureaucracy & paperwork.)
Certain kinds of incorporation give you liability protection, which would be relevant if your “business” is going to borrow money or where there’s a risk of getting sued. That hasn’t been applicable for me.
If you get a $50K grant, is this better or worse on net than earning $50K of traditional W-2 employment income? … How do EA freelance researchers deal with the things that are typically provided through the employer/employee relationship — things like healthcare, disability insurance, retirement savings accounts, and so forth?
If you want to know how big a grant is necessary to support your living expenses, you have to do the annoying spreadsheet where you calculate the major taxes and deductions and expenses etc.
To answer your specific questions:
For me, $X of grant income was considerably worse than $X of W-2 income, even leaving aside the fact that the latter often comes with employer-provided benefits. The QBI deduction helps, but not nearly enough to compensate for the employer contribution to payroll taxes etc. It’s possible that this is income-dependent, I’m just saying what it was for me.
Yes I pay out-of-pocket for disability insurance, and (Roth & regular) IRAs, and an obamacare plan.
what lies do you tell your relatives to stop them from nagging you about your unorthodox career decisions
It was fine, partly because I didn’t quit my old job until my first 1-year grant was finalized, and so far I have gotten renewal grants well before the previous grants ran out. (Sample size = 1, but still.)
The way I see it, if you successfully get a grant in Year N, then that should be strong evidence that you can successfully get a grant in Year N+1. After all, you’ll now have an extra year of highly-relevant experience, plus better connections etc. Right? (Well, unless you waste the grant money and get a bad reputation.) (Or unless the cause area funding situation gets worse in general, but that would equally be a concern as an employee at big nonprofit too, and anyway seems unlikely for major EA cause areas in the near future.)
I think this is true overall but it’s overstated for initial grants (e.g. Year 0 or Year 1). Often funders might be excited to fund someone to help them “test their fit” for work in a new domain, and it’s positive EV to do such a test even if someone only has a 20% of being amazing. I don’t know what the empirical situation looks like for how often grantees get renewed, but I’d strongly encourage one-year or three-month grantees to not think of their grants as roughly as high job security as that of working normal jobs in the corporate sector or academia, unless they’ve explicitly been assured of this by their grantmakers.
That said, I think it’s broadly true that most independent EA work, particularly in longtermism, selects from and/or trains skillsets that are quite lucratively outside of EA, so I expect most EA (e.g.) independent researchers to have reasonable “exit options” outside of their granted work.
The only real job security is to have marketable skills. Eternal perfect job security is extremely rare in the USA—I can’t think of anyone but tenured professors who have that. If you work at a startup, the startup could go under. If you work at a big firm, there could be layoffs. Etc.
One difference between being an employee vs being a grant recipient/independent contractor is that employees get unemployment insurance in the US, while contractors don’t (with the exception being the expanded pandemic unemployment benefits in 2020). While it’s true that there’s no such thing as perfect job security, you do get more of a built-in cushion as an employee.
(This whole answer is USA-specific)
The only real job security is to have marketable skills. Eternal perfect job security is extremely rare in the USA—I can’t think of anyone but tenured professors who have that. If you work at a startup, the startup could go under. If you work at a big firm, there could be layoffs. Etc.
The way I see it, if you successfully get a grant in Year N, then that should be strong evidence that you can successfully get a grant in Year N+1. After all, you’ll now have an extra year of highly-relevant experience, plus better connections etc. Right? (Well, unless you waste the grant money and get a bad reputation.) (Or unless the cause area funding situation gets worse in general, but that would equally be a concern as an employee at big nonprofit too, and anyway seems unlikely for major EA cause areas in the near future.)
And if not, whatever type of job you were doing before, you can apply for that type of job again! (If you leave on good terms, you could apply for literally the same job you left.)
Do your taxes with accrual accounting! One time I wound up getting 26 months of pay in one calendar year. It would have been a catastrophe with cash-basis accounting, but it was perfectly lovely thanks to accrual accounting. :)
You can be self-employed automatically without filing any special paperwork. That’s the category I’m in.
IIUC, the advantages of being a charitable foundation are all on the grant-giver side, not the grant-receiver side. Namely: (1) If you’re a charitable foundation, and another nonprofit wants to give you money, it is extremely easy for them to do so. (2) If you’re a charitable foundation, and an individual wants to give you money, then they can tax-deduct it.
However, some institutions including EA Funds have jumped through whatever hoops there are such that they can give money to individuals.
If your grantor is willing to give you the money as an individual, I think there’s no reason on your end to do anything different than that.
(If you want the advantages of being a nonprofit, e.g. getting money from SFF, without filing all the paperwork to be a nonprofit, I vaguely recall that there is an institution in the EA space that will “take you in” under its umbrella. But I can’t remember which one. (Update: Maybe I was thinking of Rethink.Charity Fiscal Sponsorship?)There are also “virtual research institutes” (Theiss, Ronin, IGDORE, maybe others), that offer the same advantage (i.e. that your grantor would be officially granting to a nonprofit), but they’ll take a cut of every grant you get. A different advantage of the “virtual research institutes”, I suspect, is their ability to handle government grants, which I imagine come with a ton of bureaucracy & paperwork.)
Certain kinds of incorporation give you liability protection, which would be relevant if your “business” is going to borrow money or where there’s a risk of getting sued. That hasn’t been applicable for me.
If you want to know how big a grant is necessary to support your living expenses, you have to do the annoying spreadsheet where you calculate the major taxes and deductions and expenses etc.
To answer your specific questions:
For me, $X of grant income was considerably worse than $X of W-2 income, even leaving aside the fact that the latter often comes with employer-provided benefits. The QBI deduction helps, but not nearly enough to compensate for the employer contribution to payroll taxes etc. It’s possible that this is income-dependent, I’m just saying what it was for me.
Yes I pay out-of-pocket for disability insurance, and (Roth & regular) IRAs, and an obamacare plan.
It was fine, partly because I didn’t quit my old job until my first 1-year grant was finalized, and so far I have gotten renewal grants well before the previous grants ran out. (Sample size = 1, but still.)
(speaking for myself, not my employers)
I think this is true overall but it’s overstated for initial grants (e.g. Year 0 or Year 1). Often funders might be excited to fund someone to help them “test their fit” for work in a new domain, and it’s positive EV to do such a test even if someone only has a 20% of being amazing. I don’t know what the empirical situation looks like for how often grantees get renewed, but I’d strongly encourage one-year or three-month grantees to not think of their grants as roughly as high job security as that of working normal jobs in the corporate sector or academia, unless they’ve explicitly been assured of this by their grantmakers.
That said, I think it’s broadly true that most independent EA work, particularly in longtermism, selects from and/or trains skillsets that are quite lucratively outside of EA, so I expect most EA (e.g.) independent researchers to have reasonable “exit options” outside of their granted work.
One difference between being an employee vs being a grant recipient/independent contractor is that employees get unemployment insurance in the US, while contractors don’t (with the exception being the expanded pandemic unemployment benefits in 2020). While it’s true that there’s no such thing as perfect job security, you do get more of a built-in cushion as an employee.