Freelancing: Know about the 1099 Tax Form
The twenty-first century has seen a rise in a number of new developments. Among the key developments in the twenty-first century is the increase in freelance earners as well as independent contract workers. These are people who are not employed directly by a company but who work on their own on a contractual basis. 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.
Freelancers just like employees in companies make their earnings from the services they offer. There is, however, a loophole of tax evasion by these freelancers. For this reason, the government and the companies contracting the freelancers put a condition to ensure that the freelancers do not evade tax payment. The compulsory signing of the form 1099 by freelancers is the condition that ensures they do not evade tax payment. Information on how this form prevents freelancers form evading tax payment is provided here.
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. Companies have their formal employees sign a form W-2 as an agreement that the company will pay the taxes of the employees to the government on their behalf. There is, however, a difference with freelancers as the information on their earning is contained in form 1099. So, what is the difference between the form 1099 and the W-2 form?
The form 1099 declares the amount of money paid to the freelancer by the company. 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. A freelancer who fails to pay his or her taxes is liable for penalties by the government.
Is every freelancer supposed to sign the form 1099? It is compulsory for every freelance worker to sign the form 1099 every time they are contracted by a company for their services. If a freelancer earns less than six hundred dollars, however, they will not be required to pay the taxes. Having signed the form and you earn less than six hundred dollars, you are not to worry as the form is a formality and also for your accountability. Signing of the form shows that the freelancer is accountable although some people may regard it as an unnecessary burden.