W-2, W-4, W-9, 1099-MISC - understanding how to handle tax matters can make your head spin. Though necessary when operating a business and hiring staff, most of us find tax law cumbersome and baffling. The inability to understand the law results in many employers submitting the wrong data to the Internal Revenue Service (IRS) or neglecting to file paperwork at all - two activities which can result in heavy fines and audits. This article will help you identify the type of person you are hiring, as well as what forms are needed to gather and submit information to the IRS at tax time.
Who am I hiring?
As an employer, the first thing you need to do when hiring a professional is determine if this person will be hired as an employee or an independent contractor. Understanding their status under the IRS definition will help you to determine how to collect, process, and submit tax information.
If you hire an employee
Though Guru.com only connects employers with independent contractors, this section has been provided for informational and comparability purposes.
While employees pay income tax, Social Security, and Medicare, their employers are responsible for paying a portion of Social Security and Medicare, as well as all of the unemployment and worker's compensation insurance premiums. When hired, employees are typically asked to complete a W-4 "Employee's Withholding Allowance Certificate" form. Though the main purpose of the W-4 form is to help the employee and employer calculate the number of tax withholdings, this form is also used to gather personal information, such as name, address, social security number, and marital status.
In January of each year, employers calculate and prepare the W-2 "Wage and Tax Statement" form for submission to the employee and the IRS. Consisting of six copies, the W-2 form includes the following information:
- Employer's employer identification number (EIN)
- Employer's name and address
- Employee's name and address
- Employee's social security number (SSN)
- Employee's total wages and compensation from January 1 through December 31 of the previous year
- Taxes withheld, including federal, state, and other tax and program withholdings.
If you hire an independent contractor
Unlike employees, independent contractors are responsible for paying all of their own taxes. When hired, independent contractors are typically asked to complete a W-9 "Request for Taxpayer Identification Number and Certification" form. As the employer is not responsible for withholding taxes from the independent contractor, the W-9 does not calculate this information. Rather, it collects and verifies an independent contractor's taxpayer identification number (TIN), such as social security (SSN) or employer identification number (EIN). Employers who elect to participate in Guru.com's 1099 tax form service do not have to collect the W-9 form from the independent contractor. As the issuing agency, Guru.com will gather that information.
In January of each year, employers calculate and prepare the 1099 "Miscellaneous Income" form for submission to the independent contractor and the IRS. Consisting of five copies, the 1099 form includes the following information:
- Recipient's name and address
- Recipient's taxpayer identification number (TIN)
- Payer's name, address, and telephone number
- Payer's employer identification number (EIN)
- Amount of non-employee compensation from January 1 through December 31 of the previous year
Employers who choose not to participate in Guru.com's 1099 tax form service are responsible for generating and submitting the 1099 form to the independent contractor and the IRS. Although payments are handled through SafePay, Guru.com is not the employer of record and should not be issued a 1099 form on behalf of services rendered by the independent contractor. In addition, Guru.com should not be held responsible for issuing 1099 forms on behalf of employers who are not participating in Guru.com's 1099 tax form service.
The following criteria must be met to issue a 1099 to the independent contractor and the IRS:
- A payment is made to someone who is not an employee (i.e. an independent contractor).
- The payment is for services, including payment for parts or materials used to perform the service.
- The payment was made to an individual or partnership.
- The payment(s) totalled $600 or more in a single, calendar year.
- The independent contractor has completed and submitted a W-9 form the issuing agency (Guru.com or the employer if they have not elected to participate in Guru.com's 1099 tax form service).
Qualifying independent contractors should receive their copy of the 1099 form no later than January 31. Employers should submit the 1099 forms to the IRS by February 28 (for hard copy or magnetic media transmissions) or March 31 (for electronic transmissions). Employers submitting 250 or fewer 1099 forms can submit hard copies of the forms by mail. (Note - the "1096 Annual Summary and Transmittal of U.S. Information Returns" form must accompany all hard copy submissions.) Employers submitting more than 250 forms must choose magnetic media or electronic submission.
Employers should be aware that the IRS issues penalties to employers who:
- Do not issue the 1099 forms by the proper date
- Issue incomplete or inaccurate 1099 forms
- Fail to use magnetic media or electronic submission for forms numbering 250 or greater
- Intentionally fail to submit 1099 forms
The penalties include non-reporting fees of 10% of the filed amount, improper submission fees of $50 per form, and late filing fees of up to $250,000 per year.
How can Guru.com's 1099 tax form service help me?
By choosing to participate in Guru.com's 1099 tax form service, employers are relieved of the obligations relating to the collection, verification, and submission of tax forms and earnings data.
Through this free service, Guru.com collects the W-9 form from the independent contractors you hire and issues the 1099 forms to qualifying independent contractors and the IRS. Payment through SafePay is required with the 1099 tax form service. Our 1099 tax form service is only for employers who reside in the United States who hire independent contractors who reside in the United States.
Learn more about the 1099 tax form service and how to sign up.
Conclusion
Although tax issues can be confusing, the best preparation is knowledge. Understanding the type of person you are hiring, as well as what forms should be gathered and submitted will make you an informed employer. In addition, familiarizing yourself with the 1099 tax form service may prove helpful if you wish to relinquish responsibility regarding tax form collection and preparation. |