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.
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 definitely wants to receive the most awaited tax refund check, that is why they all get excited upon receiving the Form W-2 because it finally enable them to file their tax return.
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. There are definitely a lot of difference between a Form 1099-MISC and a Form W-2 because the latter form is being issued to an employee regardless of the wages that he or she receives. Every employee who have worked for their money regardless of its quantity and regardless of the time that they have exerted on their work must receive a Form W-2. In contrast, a Form 1099-MISC is only required if the recipient received $600 or more in non-employee compensation during the year.
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. It is really important not to withheld taxes for 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.