Freelancing: Know about the 1099 Tax Form
The twenty-first century has seen a rise in a number of new developments. Among the key developments in the twenty-first century is the increase in freelance earners as well as independent contract workers. These are people who are not employed directly by a company but who work on their own on a contractual basis. They will work for the company once the company needs their services and agrees to the freelancer’s terms. Among the many freelancers and independent contractors are people like landscapers, online graphic designers, free contract workers among others. These are becoming more and more common in almost every field.
Freelancers just like employees in companies make their earnings from the services they offer. Tax evasion could be one problem with freelancers. The government in conjunction with companies seeking services of freelancers have therefore put in measures to curb freelancer’s 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. Information on how this form prevents freelancers form evading tax payment is provided here.
Most revenues of any government come from the collection of taxes. Employees are obliged to remit taxes of their employees on their behalf if the employment is formal. People in formal employment sign form W-2 as an agreement with their employers that the taxes of the employee are forwarded to the government directly and not through the employee. There is, however, a difference with freelancers as the information on their earning is contained in form 1099. 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. Through the information in the form, the government can go ahead and calculate the amount to be paid by the freelancer as tax. One thing to note from here is that the form is not a way of submitting tax but a declaration of your earning as a freelancer. Calculated taxes of the freelancer are paid by the freelancer himself to the government. A freelancer who fails to pay his or her taxes is liable for penalties by the government.
Is every freelancer 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. Tax will, however, be submitted by a freelancer who earns more than six hundred dollars despite the signing of the form. A freelancer earning less than six hundred dollars only needs to sign the form for formality and to account for the earnings made. For accountability purposes, therefore, it is good to sign the form as a freelancer even if it may seem a burden.