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.
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. 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.
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. 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.
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. Another difference of the Form W-2 and the Form 1099-MISC is not only of the recipient, which is between an employee and an individual contractor, but also because the Form W-2 is being issued to every employee no matter how much wages they receive. 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.
A 1099-MISC that is issued to an independent contractor typically reports only one dollar amount – the total annual payments made to that individual. It is really important not to withheld taxes for those payments. By definition, an independent contractor is self-employed and is responsible to calculate and pay his own income taxes (both federal and state), as well as his own self-employment taxes (the self-employed person’s version of Social Security and Medicare taxes).
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