There is always a constant misunderstanding of what forms need to be filed on a tax return when a company pays a worker to perform a service or labor under their company name. The two common forms are a W-2 or 1099-Misc. Most people who have worked for a franchise or a global named company have been given a W-2 at the end of each employment year. Because the W-2 is the most common form out of the two, business owners assume that the tax form W-2 is given to every worker but it is not always the case.
Filing a W-2
The tax form that needs to be filed can be one of the two but depends on the situation and status of the person through the eyes of the company. The tax form W-2 is for those who are an employee of the company. One of the key differences between the two tax forms is with a W-2 the business owner assumes the responsibility to deduct the taxes on the wages they are paying their employees and reports and pays the tax deducted to the Internal Revenue Service (IRS). The deductions are composed of State Income Tax, Federal Income Tax, Social Security, and Medicare; comprised these are commonly referred to as payroll taxes. There is another consideration that needs to be made if the company controls the person’s schedule and it’s providing the workers with necessary tools and training to complete a task a specific way then the worker is classified as an employee, in which the company must report this income to the IRS and furnish it’s employee(s) with a W-2 form.
Filing a 1099-Misc.
A 1099-Misc. form is furnished to workers that are considered an independent contractor. These workers are not considered employees of the business, so the worker oversees calculating their own payroll tax and submitting their own income earnings to the Internal Revenue Service (IRS) and Social Security Administration on a quarterly basis. To be considered an independent contractor, the worker contributes its own time, completes task-based projects on their own ideas and styles, the worker provides him or herself with their own tools, materials, and other supplies to complete the task. Another consideration in filing a 1099-Misc. is that the worker needs to make more than $600 in one fiscal year or it is not necessary to provide them with a 1099-Misc.
The Internal Revenue Service has developed a new form for employees who have been misclassified as independent contractors by an employer. Form 8919, Uncollected Social Security and Medicare Tax on Wages, will now be used to figure and report the employee’s share of uncollected social security and Medicare taxes due on their compensation.