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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. Freelance workers and independent contractors work on contract basis and not as employees of any firm. Companies needing the services of these freelancers contract them to work for them upon agreeing to the set 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.
Just like any other employees in companies, freelancers earn from their services. There is, however, a loophole of tax evasion by these 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. How the form 1099 prevents freelance workers form evading tax payment is what we focus on now.
Most revenues of any government come from the collection of taxes. Employees are obliged to remit taxes of their employees on their behalf if the employment is formal. 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. Is there then, any difference between the forms 1099 and W-2?
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. The information given by the form is not a way of paying taxes but a declaration of how much earnings you have made. The freelancer is then expected to pay the correct taxes in person. 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? Every time a freelancer is contracted by a company to work, the form 1099 is to be signed. 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. For accountability purposes, therefore, it is good to sign the form as a freelancer even if it may seem a burden.