1099 Form
Every year, employers and employees file taxes to pay their due amount to the government of the United States of America. This presents options to employers and employees in terms of how they will file for taxes and returns. The 1099 Form is a tax return that serves a similar purpose to the W2 Form. The W2 Form is used for employers of a certain company and is easier to file because taxes have already been withheld from the paychecks throughout the year. Employees that receive W2 Forms will have an easier time reporting their income and paying the correct amount of taxes. The 1099 Form is used when an independent contractor is paid without the withheld taxes that others may have.
The 1099 Form is appropriately used when the employee is an independent contractor. Contractors will fill out a 1099 Form for freelance work, but just because the taxes aren’t withheld right away doesn’t mean that the employee won’t have to pay them later. At the end of the year the independent contractor will receive their 1099 Form, which will simply state the amount of income earned from that company. The employee will then need to figure out tax deductions and then pass on the information and the correct amount of taxes to the Internal Revenue Service. There are some advantages and some disadvantages of being an independent contractor filing a 1099 Form. Filing a 1099 Form allows you to deduct expenses on your tax return and you will keep tax money until the end of the year so that when you pay the IRS your money has lost some value. The 1099 Form also has its disadvantages such as a tax for being self employed because the employer normally pays this tax. Filing with a 1099 Form also prevents you from being a part of company retirement plans that can pay huge future dividends.
The 1099 Form allows you to deduct expenses from your tax return leading to greater tax savings. It also allows you to keep present earnings and pay them at a later time when inflation has decreased their value. That makes your present value income greater when you are an independent contractor filing with a 1099 Form. These are the largest advantages to filing independently with a 1099 Form.
1099 Form
The 1099 Form also has some downfalls. Most notably, if you file with a 1099 Form you must pay the Social Security and Medicare taxes that the employer usually pays for. Since you are filing with a 1099 Form you are self employed and take on this responsibility. If you are independent and filing using a 1099 Form you cannot be a part of retirement plans with matching options that many companies offer. Further, those that file a 1099 Form don’t have employer health insurance or holiday pay.
There are many advantages of being an independent contractor and many disadvantages. The 1099 Form is reserved for independent workers that file taxes on their own without withholding from their paychecks throughout the year. Overall the 1099 Form will be an excellent option for some and a poor option for others based on the pros and cons.
1099 Form
For more information about the 1099 Form take a look at Wikipedia.