Freelancing: Know about the 1099 Tax Form
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. Companies needing the services of these freelancers contract them to work for them upon agreeing to the set 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. Tax evasion could be one problem with 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. 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. 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. Information on the earnings of the freelancer is contained in a form called the 1099 tax form. You, therefore, should know the difference between the forms 1099 and the form W-2.
The freelancer’s earning in the contact with the company is declared in the form 1099. Through the information in the form, the government can go ahead and calculate the amount to be paid by the freelancer as tax. The information given by the form is not a way of paying taxes but a declaration of how much earnings you have made. Calculated taxes of the freelancer are paid by the freelancer himself to the government. 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? The truth is that every freelancer has to sign the form anytime they are contracted by a company. If a freelancer earns less than six hundred dollars, however, they will not be required to pay the taxes. 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.