What You Need to Know About the 1099 Tax form
The twenty-first century has seen a rise in a number of new developments. The entry of freelance workers and independent contractors in the job industry is one of the most notable developments of this century. Working on contractual basis, these people offer services to companies but not as part of their employees. Companies needing the services of these freelancers contract them to work for them upon agreeing to the set terms. Landscapers, online graphic designers, free contract workers among others are some of the freelance workers and independent workers we have. In almost every field, these freelance and independent contractors will be found.
Freelancers just like employees in companies make their earnings from the services they offer. Tax evasion could be one problem with freelancers. To ensure the freelancers do not evade their tax obligations, the government works with the companies contracting freelancers to put in measures to avoid 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. 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. 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. 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 amount a company pays a freelancer is declared in the form 1099. The amount to be paid as tax to the government by the freelancer is calculated from the information in the form 1099. 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. Remittance of the taxes of the freelancer to the government is done in person. Having signed the form and then failing to pay the required taxes makes the freelancer penalized by the government.
But you might be wondering if every freelancer is required to sign this form. Every time a freelancer is contracted by a company to work, the form 1099 is to be signed. 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. The form though it may appear to be a burden, is a good way of ensuring that there is accountability on the part of the freelancers.