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. 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. 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.
Freelancers just like employees in companies make their earnings from the services they offer. There is, however, a loophole of tax evasion by these 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. For people in formal employment, the government gets their taxes through the employer and not the employee. 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. For freelancers, the form 1099 gives information of their earning. Is there then, any difference between the forms 1099 and 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. The information given by the form is not a way of paying taxes but a declaration of how much earnings you have made. The freelancer is then expected to pay the correct taxes in person. Failure to pay taxes once you have signed this form may lead to penalties on the freelancer by the government.
But you might be wondering if every freelancer is required to sign this form. 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. Having signed the form and you earn less than six hundred dollars, you are not to worry as the form is a formality and also for your accountability. For accountability purposes, therefore, it is good to sign the form as a freelancer even if it may seem a burden.