What You Need to Know About the 1099 Tax form
Many new developments have been on the rise in the twenty-first century. The entry of freelance workers and independent contractors in the job industry is one of the most notable developments of this century. Working on contractual basis, these people offer services to companies but not as part of their employees. They will work for the company once the company needs their services and agrees to the freelancer’s terms. Among the many freelancers and independent contractors are people like landscapers, online graphic designers, free contract workers among others. You will find freelancers and independent contractors in almost every field.
The above-named categories of people earn from the services they offer just like any other workers in the formal employment sector. Freelancers may have the opening to escape payment of taxes. For this reason, the government and the companies contracting the freelancers put a condition to ensure that the freelancers do not evade tax payment. This condition to ensure that freelance earners do not evade payment of taxes is the form 1099. Here, we focus at how this form ensures that the freelancers pay their taxes to the government.
Most revenues of any government come from the collection of taxes. Employees are obliged to remit taxes of their employees on their behalf if the employment is formal. People in formal employment sign form W-2 as an agreement with their employers that the taxes of the employee are forwarded to the government directly and not through the employee. There is, however, a difference with freelancers as the information on their earning is contained in form 1099. Is there then, any difference between the forms 1099 and W-2?
The amount a company pays a freelancer is declared in the form 1099. The amount to be paid as tax to the government by the freelancer is calculated from the information in the form 1099. The information given by the form is not a way of paying taxes but a declaration of how much earnings you have made. The freelancer is then expected to pay the correct taxes in person. Having signed the form and then failing to pay the required taxes makes the freelancer penalized by the government.
Is every freelancer supposed to sign the form 1099? Every time a freelancer is contracted by a company to work, the form 1099 is to be signed. Tax will, however, be submitted by a freelancer who earns more than six hundred dollars despite the signing of the form. Formality and accountability is the reason why every freelancer including those making less than six hundred dollars should sign the form. Signing of the form shows that the freelancer is accountable although some people may regard it as an unnecessary burden.Continue reading "If You Read One Article About Taxes, Read This One" »