![]() If you’re looking for other tax avoidance opportunities, learn how to pay zero tax on passive income. However, simply receiving a Form 1099 does not indicate you will owe taxes if you take advantage of tax savings opportunities. It will expect you to report this income on your annual tax return. The forms include your Social Security number or taxpayer identification number on it, meaning the IRS will have knowledge of you receiving the money. These documents reflect the money the client has paid to the worker. The law requires any payment for services in excess of $600 to submit a Form 1099 to you and the IRS.įreelancers, independent contractors, or other gig economy workers receive Form 1099s from their clients. For the purposes of this post, it will serve as a record that an entity or person, not your employer, paid you money. What is a Form 1099?Ī Form 1099 comes in many flavors. The form includes a host of information including payroll taxes withheld, pre-tax benefits (e.g., 401k contributions, HSA contributions), etc.Īn employer must submit this form to the IRS and provide copies for the employee to complete a tax return. What is a Form W-2?Ī Form W-2 reports an employee’s year-end amount of compensation paid, taxes withheld, and requisite pay information needed to file federal and state tax returns. To understand the nuances between employees and contractors from a tax (e.g., 1099 vs W-2, payroll taxes, etc.) and cost perspective (i.e., compensation and benefits paid), as well as other important differences (e.g., company control), this post will walk through the differences between these two working relationships. Without knowing about this labor market change, distinguishing between contractors and employees can pose a challenge. Many firms have responded to cost pressures by changing how they hire labor in an effort to reduce staffing expenses and control costs.Īs a result, many companies now hire independent contractors with strong personal brands for specific, discrete tasks and projects instead of finding more expensive full-time employees. It’s no secret the modern economy has changed the nature of the working relationship between workers and companies. ![]()
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