There are certainly a lot of businessmen who have their own workers wherein they pay these workers in exchange of their service, however, the most important thing that a business owner must know especially if that specific business owner has people who needs to be paid is that, there is a critical difference between a Form 1099-MISC and a Form W-2.
Form W-2 is issued to employees at the end of the year. By January 31 of the following year, it is really important for business owners to remember that an employee must already receive the Form W-2. 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. So it is extremely important that you prepare this form in a timely manner. Every employee definitely wants to receive the most awaited tax refund check, that is why they all get excited upon receiving the Form W-2 because it finally enable them to file their tax return.
On the other hand, the Form W-2 is not the only one that should be issued to its recipients by the 31st of January, since the same case also goes to the Form 1099-MISC, however, the only difference is that, the form is not given to the employee, but rather to an independent contractor. 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. Even if an employee worked only a few hours and made just $50, you must still give him a W-2. The case is definitely different with the Form 1099-MISC because the employee must really work worth $600 or more.
It has been reported that there is only one dollar amount of the total annual payments made to an individual if a Form 1099-MISC is being issued. Keep in mind that taxes should not be withheld for those payments at all cost. By definition, an independent contractor is self-employed and is responsible to calculate and pay his own income taxes (both federal and state), as well as his own self-employment taxes (the self-employed person’s version of Social Security and Medicare taxes).