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Getting the most out of your employees.

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This is a blog about REAL questions with REAL answers from REAL people for REAL business owners and professionals.  How many times have you had questions about payroll or just business or tax questions in general, but couldn't figure out exactly what to ask or who to ask it to?  I hope it's comforting to know you're not the only one this happens to!  I felt the same way in the beginning, many  years ago.  It's actually what drove me to this profession in 1984!  Now, after decades of helping thousands of people, just like you, I'm writing this blog to help YOU!  So dig in - see if some of our questions and answers put words to your thoughts.  We're here to help - so reach out to us with your every-day challenges and we'll create a post just for you!

REAL questions with

REAL answers from

REAL people for

REAL business owners

What is the real difference between a 1099 and W-2 employee? -a.c.

As an employer you may encounter times where a private/independent contractor (1099) fits your needs the best. A private contractor has a different employment status that affects their tax filing, how much they pay in taxes, and when they pay. 

 

For a W-2 employee, you (the employer) withhold a certain amount of their paycheck each pay period based on their deductions and remit that on their behalf. You make quarterly income tax payments, annual payments and keep track of everything with your payroll system. You also pay half of the FICA; The Federal Insurance Contributions Act is the federal law that requires you to withhold two separate taxes from the wages earned. It includes Social Security Tax and Medicare Tax at a flat percentage rate. The Social Security Tax is 6.2% rate of earned wages, and the Medicare Tax is 1.45% of earned wages (2018).

 

When you pay a private contractor they are responsible for making all their own tax payments, including FICA. They will need to cover their own self-employment tax obligations. You still need tax forms filled out, including Form W-9 and the 1099-MISC. You won’t need to send the W-9 anywhere but you will keep it on file for at least 4 years.

 

Form W-9 verifies your freelancer’s name, address and Taxpayer ID Number so they can pay their own taxes to the IRS. They will need to mark themselves as exempt from withholding taxes as they file on their own. 

Form 1099-MISC needs to be addressed every January. If you’ve paid your independent contractor more than $600 in the past calendar year then a 1099 is required. 

 

Another good practice for working with contractors is record keeping. Hold on to every single document related to your work and their employment, like contracts, invoices, proof of payment, bills, and more. The easiest way to accomplish this is to add your freelancer to your payroll, that way each payment is tracked and all records are kept within that department. 

Find out more about our Services and Who We Are. Make this the best decision of your day.

At Payroll Vault, we want to be an extension of your business team. 

We're available, accessible and affordable.  Reach out today.

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Published on:

September 24, 2018

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All, Blog, Compliance, Payroll Service, Labor, Human Resources, Entrepreneurship, withholding, tax withholding, payrollvault, taxes

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