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Understanding Form 1099

The twenty-first century has seen a rise in a number of new developments. One of these new developments in the twenty-first century is the entry of freelance workers and independent contractors. Freelance workers and independent contractors work on contract basis and not as employees of any firm. They will work for the company once the company needs their services and agrees to the freelancer’s terms. Landscapers, online graphic designers, free contract workers among others are some of the freelance workers and independent workers we have. You will find freelancers and independent contractors in almost every field.

The above-named categories of people earn from the services they offer just like any other workers in the formal employment sector. 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. This condition to ensure that freelance earners do not evade payment of taxes is the form 1099. How the form 1099 prevents freelance workers form evading tax payment is what we focus on now.

Every government in the world gets most of its revenue 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. Is there then, any difference between the forms 1099 and W-2?

The freelancer’s earning in the contact with the company is declared in the form 1099. Once this information is forwarded to the government, the amount of tax to pay is calculated. 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. Remittance of the taxes of the freelancer to the government is done in person. A freelancer who fails to pay his or her taxes is liable for penalties by the government.

The question then arises if it is every freelancer that is supposed to sign the form 1099. It is compulsory for every freelance worker to sign the form 1099 every time they are contracted by a company for their services. 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.

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