Every so often, when you’re caught up in the process of hiring, the distinction of whether the person in question is an independent contractor or an employee may prove to be rather tricky. Although you pay them both, still the same, distinguishing between both statuses may become necessary since forms have to be filled out for the sake of avoiding penalties. You must then determine which particular form is required if any at all. This could come down to picking a 1099. But what’s a 1099?
Usually referred to as an information form, a 1099 is paperwork that is commonly demanded by the Internal Revenue Service (IRS), mainly used to report income that’s received through sources outside of one’s employment. With purposes of documenting and recording pay collected from a person’s unofficial workplace, this form is meant to keep a record of any external income gathered across a year’s span.
Any failure to comply with the filing of this form is usually faced with an undesirable hefty penalty of $100. These forms were designed explicitly for taxpayers, set to help with the minimizing of tax evasion. However, tax payments won’t necessarily soar based on your additional income, as the components that influence this change are only 3; deductions, assets, and type of 1099.
Given the complications of determining the working status of an employee, which in return determines the kind of form that may be needed, the IRS has kindly issued a guide on how to correctly classify your employees. The theory is, should you have less control over the aspects of your employee’s job than they are likely to classify as independent contractors, in which case a 1099 becomes relevant.
Otherwise, it isn’t needed. Also, if your independent contractor is getting paid less than $600 per annum, again, you are not expected to file a 1099. You must know a misclassification could lead to unnecessary consequences where you would be held liable on account of employment taxes for that worker.
That said, It would be best if you make 1099 forms online, for reasons of avoiding a misclassification and miscalculation. By doing so, you would be led through the intricacies of this form, having the correct variant and calculations done on your behalf.
Well, other than for avoiding the penalty, a 1099 can bring a number of merits towards your business. The biggest one being relief of paying for employment tax since your independent contractor is not classified as an employee.
They also become ineligible for worker’s compensation coverage, which helps in lowering your risks and expenses. This perk is complemented by the unneeded effort of providing them with minimum wage, overtime, or even any sort of benefits.
In making an independent contractor concentrated company, you would be making yourself flexible. Keeping your options open should be regarded as quality perks, seeing that you can easily divert towards your company’s new priorities must they change. An action that’s made feasible by their unbinding standing, allowing you greater freedom and smaller risks.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.
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