We have a resident of Turkey on a J-1 visa exhange visitor program. We are a non-profit acting as the Host Organization in an agreement with the Council of International Programs USA. Are we required to without federal, state, or local taxes on the independent contractor's income?

When did you enter the U.S.
On J-1 you are nonresident for 2-years, you do not pay FICA or self employment tax and if you worked for less than 183 days in 2009, the income is not taxable as per tax treaty. But you must file tax return and Form 8843. You will pay state income tax. Your U.S. Tax Return: U.S. Tax Filing Requirements for Non-Residents