If you own a business and are paying people who perform services for you, it is critical that you understand the difference between Form W-2 and Form 1099-MISC.
It is really important for every business owner who gives money to their employees that a Form W-2 is only issued to employees at the end of the year. You must give each employee this form by January 31 of the following year. The Form W-2 is really an important form considering that it has different information with regards to a person’s payroll, information that an employee needs to file his or her personal income tax return, these information includes salaries, gross wages and all the other forms of compensation like Medicare tax withholdings, local income tax withholdings, security tax withholdings, federal income tax withholdings, retirement plan contributions and all the other benefit information that an employee can acquire.
A Form W-2 in indeed very important most especially when an employee prepares a federal or state personal income tax return. Definitely, an employee must do a lot of errands upon receiving the Form W-2, making it for the business owner to prepare it in a timely manner. Once an employee receives the W-2, he can file his tax return and get his long-awaited tax refund check from the IRS.
However, it is not only the Form W-2 which are given on the 31st of January of the following year, but also the Form 1099-MISC, but the Form 1099-MISC is only gives to independent contractors, not employees. There are definitely a lot of difference between a Form 1099-MISC and a Form W-2 because the latter form is being issued to an employee regardless of the wages that he or she receives. A Form W-2 must be given to an employee no matter how long or short the employee have worked, considering that there are instances where an employee could only work for worth $50 yet that employee can still receive a Form W-2. In contrast, a Form 1099-MISC is only required if the recipient received $600 or more in non-employee compensation during the year.
A 1099-MISC that is issued to an independent contractor typically reports only one dollar amount – the total annual payments made to that individual. You should not have withheld any taxes from those payments. Simply saying, the difference of an independent contractor is that, he or she is self employed and also capable of calculating his or her own taxes, may it be in state or federal, and same goes along with the other taxes that the individual contractor faces.