As another tax season approaches, you might be wondering about the various responsibilities that await your small business. From deciding what deductions are valid to determining what forms to fill out, the stress level is often high for those who run their own companies.<\/p>\n
Fortunately, accurants is here to help. Here are some of the key differences between W-2 and 1099 forms to help you on your tax journey.<\/p>\n
What Is a W-2?<\/strong><\/p>\n Forms sent by employers to both employees and the IRS, W-2s report federal and state taxes withheld throughout the year. Additionally, these forms make note of tax money withheld for Social Security, Medicare and also any benefits such as insurance provided by the employer. As a business owner, you are required to send W-2 forms to any workers in your employ prior to Jan. 31, assuming that taxes are taken out of their checks.<\/p>\n Not sure if your employees are W-2 or 1099 workers? The following qualify an employee to receive a W-2:<\/p>\n What Is a 1099?<\/strong><\/p>\n Not all American workers receive W-2 forms. If you pay your independent contractors\/freelancers without deducting money for federal and state taxes, you will likely need to send 1099 forms at the end of the year. \u00a0These forms are most common among independent contractors and freelance workers who might have multiple clients.<\/p>\n As a small business owner, you are responsible for reporting your employees\u2019 income as well as the money made by your business over the course of the year. The IRS has been paying special attention to SMBs and their employees in recent years, so it\u2019s important to report this information accurately and on time.\u00a0 The IRS taxes independent contractors as a self-employed individual.<\/p>\n Here are some signs you need to send your worker a 1099 instead of a W-2:<\/p>\n It\u2019s important to note that companies are only required to send 1099s to independent contractors who earn $600 or more in a given tax year. However, independent contractors are still responsible for submitting their total earnings to the IRS. \u00a0Neglecting to do so can leave you, your family, or your business open to penalties and audits.<\/p>\n Small business owners are often confused or are misinformed about how they should classify the worker(s) they are planning to hire. Whether you plan to bring them on as W-2 or independent contractors, note that misclassifying a worker can create tax-liabilities, fine and penalties for your business.\u00a0 The key criteria that the IRS uses to determine whether a worker is classified as an independent contractor or W-2 employee, is \u201ccontrol\u201d.\u00a0 The IRS breaks \u201ccontrol\u201d into the following 3 categories:<\/p>\n\n
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