Businesses: 10 Mistakes that Most People Make
There are certainly a lot of businessmen who have their own workers wherein they pay these workers in exchange of their service, however, the most important thing that a business owner must know especially if that specific business owner has people who needs to be paid is that, there is a critical difference between a Form 1099-MISC and a Form W-2.
One thing that every business owner must take note is that a Form W-2 is only issued to employees at the end of the year. By January 31 of the following year, it is really important for business owners to remember that an employee must already receive the Form W-2. The Form W-2 is really an important form considering that it has different information with regards to a person’s payroll, information that an employee needs to file his or her personal income tax return, these information includes salaries, gross wages and all the other forms of compensation like Medicare tax withholdings, local income tax withholdings, security tax withholdings, federal income tax withholdings, retirement plan contributions and all the other benefit information that an employee can acquire.
Indeed, a Form W-2 is very essential to every employee since an employee cannot file her or his state or federal personal income tax return without the Form W-2. So it is extremely important that you prepare this form in a timely manner. every employee who receives her or his Form W-2 definitely got excited for it can already make them file for their tax return and finally get the most awaited tax refund check.
On the other hand, the Form W-2 is not the only one that should be issued to its recipients by the 31st of January, since the same case also goes to the Form 1099-MISC, however, the only difference is that, the form is not given to the employee, but rather to an independent contractor. 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. You should not have withheld any taxes from those payments. 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.