What You Need to Know About the 1099 Tax form
Many new developments have been on the rise in the twenty-first century. Among the key developments in the twenty-first century is the increase in freelance earners as well as independent contract workers. Freelance workers and independent contractors work on contract basis and not as employees of any firm. The services or goods they offer will be sold or procured by a company upon agreement of the freelancer’s terms. Among the many freelancers and independent contractors are people like landscapers, online graphic designers, free contract workers among others. In almost every field, these freelance and independent contractors will be found.
Just like any other employees in companies, freelancers earn from their services. Freelancers may have the opening to escape payment of taxes. The government in conjunction with companies seeking services of freelancers have therefore put in measures to curb freelancer’s tax evasion. 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.
Collection of taxes is one of the ways most governments raise their revenues. For people in formal employment, the government gets their taxes through the employer and not the employee. 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. For freelancers, the form 1099 gives information of their earning. So, what is the difference between the form 1099 and the W-2 form?
The freelancer’s earning in the contact with the company is declared in the form 1099. Once this information is forwarded to the government, the amount of tax to pay is calculated. You should be keen to note that the form is not a form of remittance of the taxes but it only declares how much you have earned. Calculated taxes of the freelancer are paid by the freelancer himself to the government. Failure to pay taxes once you have signed this form may lead to penalties on the freelancer by the government.
But you might be wondering if every freelancer is required to sign this form. The truth is that every freelancer has to sign the form anytime they are contracted by a company. 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. For accountability purposes, therefore, it is good to sign the form as a freelancer even if it may seem a burden.