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Differences Between a 1099 and W-2 Forms

 1099 vs W-2 Forms

A lot of people are confused about which form to use when filing for wage and income taxes. Some would use a W-2 and 1099 interchangeably. To help you make the distinction between the differences in a 1099 and a W-2, here are some things that can clarify your questions. Understanding the differences can have major implications especially if the IRS becomes involved. Making sure that you file the correct form is necessary to avoid painful and financially  taxing results.

When and How to Use the W-2 Form

  1. When you have employees that are reporting for work on a temporary basis and those enjoying a regular status in the company or the organization.
  2. W-2 forms reflect and declare the employees’ overall income and revenue. Furthermore, all earnings and proceeds from medical and health income and benefits as well as remunerations from Social Security should also be reflected in W-2 forms.
  3. Deductions for federal taxes and those that are withheld for local and state-governed taxes should also be declared on the W-2 form.
  4. Beginning January 31st, W-2 forms must distributed to the employees. By February 28th, this form, along with the company’s compilations reflected in the W-3 form must then be submitted to the IRS.

When and How to Use the 1099-MISC Form

  1. For independent contractors, the 1099-MISC form must be used. The Internal Revenue Service office has published how to distinguish and differentiate between regular employees and independent contractors. It is said that for one to be classified as an independent contractor, one should have his own, registered, personal business, and his business is to provide work for another. An employee receives direct instructions from the employer.
  2. If your task and instructions for your work production is given directly by the employer, or you are given tools to perform those tasks; you are considered an employee and not an independent contractor.
  3. Taxes withheld for health and medical income and also those from Social Security are not reflected in 1099-MISC forms. The reason behind this is that companies who hire independent contractors are not responsible to deduct such taxes from their payments.
  4. However, you still collect all of the 1099-MISC forms and submit them to the IRS. Instead of using the W-3 form, you use the 1096 form for the compilation.

A striking difference between the two is that when you submit a 1099-MISC form, you are solely responsible for all the taxes and deductions withheld from your total earnings. Employees, on the other hand, will have the company sharing with them these tax obligations and deductions. This may have been the reason why there are some companies who declares their employees as independent contractors because of what they can save from the deductions.  If you are an employee, make sure that your employer does not rob you of the privileges you should be enjoying as a regular employee. There have been many cases and legal suits that have been filed by employees against their employers for this reason. In this time and age, every employee should be vigilant because these are state-mandated laws that also have federal backup.

If you are previously an independent contractor who has gained employment, make sure that you settle your position well. If you have landed a job, it is best that you file a W-2 form and leave your independent job altogether. This will give you better focus on your job and better clarity on your tax forms. A lot of people who have been juggling in-between being an employee and an independent contractor have met with many unfavorable circumstances with the IRS. The reason being, if you have not settled your accounts well, the IRS may be dubious about you and may be on your back relentlessly. They will want to make sure that you are not misfiling and devaluating the supposed and mandatory taxes you should be paying.

Summary:

  1. Employees fill out the W-2 form while independent contractors fill out the 1099 form.
  2. Those who are using the 1099 form are responsible for all the taxes and deductions withheld out of their total earnings.
  3. Those who are using the W-2 form have the company with them in paying the taxes.


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