Understanding Form 1099
The rise of many new developments has been a characteristic of the twenty-first century. One of these new developments in the twenty-first century is the entry of freelance workers and independent contractors. These are people who are not employed directly by a company but who work on their own on a contractual basis. The services or goods they offer will be sold or procured by a company upon agreement of the freelancer’s terms. Examples of freelance workers and independent contractors are; landscapers, online graphic designers, free contract workers among many more. 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. Tax evasion could be one problem with freelancers. The government in conjunction with companies seeking services of freelancers have therefore put in measures to curb freelancer’s tax evasion. The signing of the form 1099 is the condition put in place to make sure that freelance workers do not evade payment of taxes. Information on how this form prevents freelancers form evading tax payment is provided here.
Every government in the world gets most of its revenue from the collection of taxes. People in formal employment will have their share of tax remitted by their employment firms. 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. One thing to note from here is that the form is not a way of submitting tax but a declaration of your earning as a freelancer. The freelancer is then expected to pay the correct taxes in person. 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. Despite the fact that all freelancers sign this form, only those making more than six hundred dollars will be required to pay taxes. 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.