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Want to hire someone, but don’t understand the difference between a 1099 and a W2? We’re here to break it down for you.
Key Takeaways
- A 1099 form is used to report income paid to independent contractors, while a W2 is used to report income paid to employees.
- Hiring independent contractors and issuing a 1099 can provide cost savings, flexibility, and access to specialized skills.
- There are legal and regulatory considerations to keep in mind when hiring independent contractors and issuing a 1099.
The difference between 1099 and W2 forms
So, what exactly are a 1099 and a W2?
A 1099 is a tax form that is used to report income that is paid to independent contractors. This form is used to report the amount of money that the independent contractor earned, but no taxes are withheld.
On the other hand, a W2 is a tax form that is used to report income that is paid to employees. This form is used to report the amount of money that the employee earned, and taxes are withheld.
As an employer, there are some potential benefits to hiring independent contractors and issuing a 1099 instead of a W2. For example:
- Cost savings: Independent contractors are responsible for paying their own taxes, which can save you money on payroll taxes and other expenses.
- Flexibility: Independent contractors can often work on a project basis, which can provide you with more flexibility in terms of staffing.
- Specialized skills: Independent contractors can bring specialized skills and expertise to your organization that you may not have in-house.
A 2019 study by Upwork and the Freelancers Union found that 57 million people in the United States were freelancers, which is about 35% of the workforce. This suggests that independent contracting is becoming more common, and may be a viable option for employers looking for specialized skills or cost savings.
With that in mind, it’s important to note that there are legal and regulatory considerations to keep in mind when hiring independent contractors and issuing a 1099.
For example, in the United States, there are specific criteria that must be met in order for a worker to be considered an independent contractor rather than an employee. It’s important to make sure you’re properly classifying your workers before you make the hire.
Hiring independent contractors and issuing a 1099 can provide potential cost savings, flexibility, and access to specialized skills. But, it’s important to ensure that you are complying with all relevant laws and regulations when doing so.
By understanding the differences between a 1099 and a W2 Employee, you can make an informed decision about which option is best for your organization.
Speaking of…
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