Income earned attracts the provisions of taxation, irrespective of whether you are an individual, firm or a corporate entity. Taxation entails following a lot of procedures and filling up of a lot of forms, from recording of income to finding out total income on which tax is payable. There are a number of tax forms to be filled in case your income paid exceeds a certain limit.
Employers employ a lot of methods for recording the income information of its employees, be it, a wage earner employee or an independent contractor. Normally, employees engaged in business firms receive a form called the ‘W-2 for’ recording the income they received or earned during a financial year. Even the independent contractors and freelancers getting money in different pay structures, are given 1099 tax forms.
1099 tax forms are taxing documents, specifically for employees who are contracting workers or freelancers and who get payments for the work as and when they are done. 1099 forms are used for a number of other reasons too, but basically they are given to freelance workers as a record for the income that they have received from a particular business or project. It’s a basic tax document like W-2 and other forms.
So basically, all business firms are required to report or note the amounts paid by them to their employees and subcontractors or freelancers on forms W2 and 1099, respectively, in a financial year. A regular employee gets form W2, and a subcontractor or freelancer receives form1099.
However, nowadays, specific changes are being brought to the scope of 1099 tax forms. Now not only will it be issued to the contract workers alone, but to many individuals and companies that are receiving more than $600 as income through payments for services and products provided by them throughout the financial year. Even small business units would now be required to issue the tax form 1099 to every business firm from which they have purchased goods or availed services exceeding $600.