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Freelancing: Know about the 1099 Tax Form
Many new developments have been on the rise in the twenty-first century. The entry of freelance workers and independent contractors in the job industry is one of the most notable developments of this century. Freelance workers and independent contractors work on contract basis and not as employees of any firm. Companies needing the services of these freelancers contract them to work for them upon agreeing to the set terms. Landscapers, online graphic designers, free contract workers among others are some of the freelance workers and independent workers we have. In almost every field, these freelance and independent contractors will be found.
Just like any other employees in companies, freelancers earn from their services. Tax evasion could be one problem with freelancers. To ensure the freelancers do not evade their tax obligations, the government works with the companies contracting freelancers to put in measures to avoid tax evasion. The signing of the form 1099 is the condition put in place to make sure that freelance workers do not evade payment of taxes. How the form 1099 prevents freelance workers form evading tax payment is what we focus on now.
Most revenues of any government come from the collection of taxes. People in formal employment will have their share of tax remitted by their employment firms. A form called W-2 is signed by people in formal employment as an agreement between them and their employer that their taxes be paid directly to the government by the employer. For freelancers, the form 1099 gives information of their earning. You, therefore, should know the difference between the forms 1099 and the form W-2.
The amount a company pays a freelancer is declared in the form 1099. The amount to be paid as tax to the government by the freelancer is calculated from the information in the form 1099. You should be keen to note that the form is not a form of remittance of the taxes but it only declares how much you have earned. The freelancer is then expected to pay the correct taxes in person. Having signed the form and then failing to pay the required taxes makes the freelancer penalized by the government.
But you might be wondering if every freelancer is required to sign this form. The truth is that every freelancer has to sign the form anytime they are contracted by a company. Despite the fact that all freelancers sign this form, only those making more than six hundred dollars will be required to pay taxes. Formality and accountability is the reason why every freelancer including those making less than six hundred dollars should sign the form. Signing of the form shows that the freelancer is accountable although some people may regard it as an unnecessary burden.
