If you are somebody who employs contractors at your organization, you are no stranger to 1099 forms. 1099 forms are pieces of tax documentation to ensure that your employees are paid properly and taxed appropriately. Many companies hire freelance workers or employ gig contractors, as they are an effective way to get help on an as-needed basis. In this article, we will explore the importance of 1099 forms and what you need to know when it comes to squaring away taxes in your organization.
When Did 1099s Come Into the Picture
1099 forms were implemented as a way to properly tax gig workers and hold corporations accountable for their hiring practices. 1099 forms were implemented in 1918 by the Internal Revenue Service. These forms were originally issued for workers who made more than $800 a year, but this amount has lessened over the years. Now, gig workers are required to have a 1099 form for any source of employment that generated over $600 of revenue in a single calendar year.
Why Businesses Hire Contractors
There are many reasons why businesses might choose to move forward with hiring contractors. First, contractors are typically less expensive for organizations to employ when compared to full-time employees. This is because full-time employees require extra benefits that contractors and gig workers do not.
Freelance workers do not require health benefits, paid time off, and other perks, which saves the company significant cash flow. In return, freelancers will get to enjoy flexible working hours and the ability to dip their toes in an industry that is different from the one they focus on full-time.
The Purpose of a 1099 Form
The purpose of a 1099 form is to properly document the earnings of an employee taking home more than $600 in a given calendar year. The employer will issue this document and send it to the freelancer or gig worker to use when filing taxes. The 1099 form will state their year-to-date earnings and allow for the employee to accurately pay taxes on a yearly or quarterly basis.
There Are Many Different Kinds of 1099s
There are so many different kinds of 1099 forms, you’ll be singing the entire ABCs on your way through! From cancellation of debt to property ownership, it is important to take note of the letter following 1099 on your form to make sure you are filing correctly.
When Do I Need to Issue a 1099 Form?
If you hire a contractor and pay them for more than $600 worth of work over the course of a calendar year, you are required to issue them a 1099 form! If you have them do a one-off project for less than that amount, you do not have to issue a 1099 form as documentation of their labor.
The Difference Between a W2 and 1099
A W2 form is issued when a business hires an employee to work for them full-time. This means they will be on regular payroll and be able to have taxes taken out of their pay so that they can avoid getting penalized quarterly and having to cough up a large bill for taxes in a lump sum.
Still have questions on your 1099 forms and the importance of this documentation? Contact Bottom Line Consulting today and get the support you need!