Whether your business has employees or works exclusively with vendors and independent contractors, you’ll need to meet tax reporting requirements to operate successfully. This information can help you do just that…
Before our Sidekick Accounting experts get into the tax filing details, let’s answer some basic questions about forms and worker status.
What is and why do I need a 1099 Form?
Form 1099-MISC is tax form that businesses use to report types of non-employee compensation. That could be anything from royalties and rent to prize money and payment for professional services. As a business owner, you submit Form 1099 to your payees or independent contractors as well as to the IRS. Businesses that pay more than $600 for services rendered by non-employees need to file a 1099 form.
W-2 employees versus contractors: What’s the difference?
From a tax reporting perspective there is a difference between your employees and the independent contractors you hire. Your employees are workers you hire under an employment agreement, whether they’re full-time or part-time. You as the business owner are responsible for providing your employees with supplies, offering benefits, and paying taxes on their wages. Independent contractors are another story, as these individuals work for themselves. Rather than an employment agreement, you’d issue a contract that spells out expectations and payment terms.
In addition, tax percentage requirements also differ with your employees versus independent contractors. Business owners must pay a percentage of their employees’ taxes—6.2% for Social Security tax, 1.45% for Medicare, and whatever state and federal unemployment taxes apply. But independent contractors are responsible for paying their own taxes, which is 15.3% (2.9% for Medicare and 12.4% for Social Security).
W-2 Filing Must-Haves for Business Owners
Keep this information in mind as you prepare to file Form W-2 for your employees:
Don’t Make These 1099 Mistakes
A Form 1099 Learning Opportunity for You…
Looking for more guidance on when and how to issue 1099s for your small business? Sidekick Accounting owner Megan Schwan will be sharing her knowledge in an online course in January 2021. Contact us and we’ll add you to the email list so you can register when details are available.
Sidekick Accounting Services is an accounting company dedicated to serving other small businesses and individuals. Helping them grow and strive to their fullest potential. With Sidekick Accounting you get a whole lot more than just accounting help, you get the tools needed to continue to be successful! We are Accounting Fit for You!!