The difference between 1099 and W-2:A regular salary or hourly employee fills out a W-4 form when they are hired. A W-4 form lets the employer know how much tax to withhold from each paycheck. The employee may update their tax information if their circumstances change, at any time. The employer is then responsible to pay the taxes withheld from each employee to the IRS. At the end of the year, the employer will provide the employee with a W-2 form to file their taxes.
What this means for a small business:If you are a small business owner and have contract employees you may need to file a form 1099-MISC at the end of the year. There are generally 4 rules that say you need to file this:
- You paid someone who is not your employee
- You made the payment for services in the course of your business
- You made a payment to an estate, individual or partnership
- You made a payment to the payee of at least $600 during the year