If you own a business and are paying people who perform services for you, it is critical that you understand the difference between Form W-2 and Form 1099-MISC.
Form W-2 is 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?
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 1099-MISC Tax return and finally get the most awaited tax refund check.
Form 1099-MISC must also be issued to recipients by January 31, but this form is given to independent contractors rather than 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 Form W-2 can be given to an employee even if the employee just earned $50 from her or his work, however, the case is different with the Form 1099-MISC because the recipient must work for at least $600 in a non-employee compensation during that year. Make sure to check out this website at https://en.wikipedia.org/wiki/Taxability and know more about taxes.
Another thing that every business owner must keep in mind is that, when it comes to issuance of Form 1099-MISC to an independent contractor, it has been known that there is only one dollar amount of the total annual payments made to that specific individual. 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.