When it comes to paying a worker with exchange to the services that they give, it is really important for the business owner to know the difference between a Form 1099-MISC and a Form W-2 wherein both have critical differences with each other and both have differences when it comes to calculations.
It is really important for every business owner who gives money to their employees that a Form W-2 is only issued to employees at the end of the year. It is rest assured that the employee who will be the recipient of the form will receive it by January 31 of the following year. It contains critical payroll information that each employee needs to file his/her personal income tax return, such as gross wages, salaries and other forms of compensation; federal income tax withholdings; Social Security tax withholdings; Medicare tax withholdings; state and/or local income tax withholdings; retirement plan contributions, such as payments into the employee’s 401(k) plan or other employer sponsored plan; and other employee benefit information. How To Calculate Tax On 1099-MISC Income?
A Form W-2 in indeed very important most especially when an employee prepares a federal or state personal income tax return. There are certainly a lot of things that an employee must do upon receiving the form, that is why it is really important that the Form W-2 must already be prepared ahead of time. Once an employee receives the W-2, he can file his 1099-MISC Tax return and get his long-awaited tax refund check from the IRS.
However, it is not only the Form W-2 which are given on the 31st of January of the following year, but also the Form 1099-MISC, but the Form 1099-MISC is only gives to independent contractors, not employees. Here’s another significant difference between W-2?s and 1099?s – a W-2 must be issued to every employee regardless of how much wages he/she received. Even if an employee worked only a few hours and made just $50, you must still give him a W-2. The case is definitely different with the Form 1099-MISC because the employee must really work worth $600 or more.
It has been reported that there is only one dollar amount of the total annual payments made to an individual if a Form 1099-MISC is being issued. Keep in mind that taxes should not be withheld for those payments at all cost. Simply saying, the difference of an independent contractor is that, he or she is self employed and also capable of calculating his or her own taxes, may it be in state or federal, and same goes along with the other taxes that the individual contractor faces. Be sure to check out this website at https://en.wikipedia.org/wiki/Sales_tax and know more about taxes.