There’s no other way to best express an employer’s gratitude than by giving their people what they deserve. Employees and contractors alike work hard to keep the business in its best shape; thus, they deserve to get what’s due for them. All these obligations, like 1099 payroll, may entail long and arduous processes, but relying on an expert team to do the work can make a big difference.
It pays to know and abide by tax laws mandated by state and federal regulations as an employer. For one, this creates a positive environment where everyone is fueled to thrive and execute their best for the company’s benefit. At the same time, this ensures that the organization will endure and survive more years in the industry.
However, some company leaders are still in doubt when it comes to basic business processes, including but not limited to forms that need to be filed. What is the difference between a W-2 and 1099 forms? When should you apply for and issue one aside from the other?
What are W-2 and 1099 Forms?
Also known as the Wage and Tax Statement, a W-2 form highlights how much an employee makes and how much of that income was withheld for federal taxes. That is done through getting the sum of the first paycheck of the year to the final payroll.
Thus, this form conceptualizes earned wages, any taxes withheld, and deductions taken for items like retirement contributions or health insurance for that calendar year. It also includes how much was withheld for FICA taxes, like Social Security and Medicare Income.
These forms are divided into two types – 1099-NEC and 1099-MISC. Despite the subtle yet significant differences, 1099 forms are given to record that an entity or person other than an individual’s employer gave or paid them money. However, it doesn’t mean that taxes are owed on that money.
This type of form, otherwise known as non-employee compensation, is given to individuals who provided work or services but were not employees. With company owners positioning their businesses online, it has allowed more people from around the globe to perform work for the said entity.
In the same way, business owners also enjoy the freedom of choosing between hiring employees or independent contractors based on the quality and longevity of the project – and the level of output needed in a particular timespan.
Thus, 1099-NEC is given to independent contractors who earned at least $600 in services, rents, prizes or awards, and other income payments.
On the other hand, form 1099-MISC reports miscellaneous income that does not fit into other 1099 categories. A few revisions have been made on some specifications. For example, Box 7 is for the payer who made direct sales of $5,000 or more. Box 9 is used to report crop insurance proceeds. Box 10 is for gross proceeds to an attorney.
Thus, form 1099-MISC is for each person an employer has paid during the year that does not fall under the employee or independent contractor category.
Therefore, the difference between W-2 and 1099 forms lies in the taxes withheld. 1099 forms are issued to independent contractors to report their income to the IRS. On the other hand, W-2 is for an employee to report their income and payroll taxes withheld.
Do You Need Help with 1099 Payroll?
If you need assistance with the processes involved herein, call us at ClearPath, and we’ll be happy to help you out.