Some Things That Every 1099 Employee Needs To Know
The working field in America has experienced a lot of changes, and more individuals have been working from home than ever before. Persons working from home aren’t just in charge of their own businesses as there are companies that also utilize the freelancers. Companies which hire freelancers for their tasks will benefit as they do not have to pay the freelancers benefits as it is the case with the regular workers and they also do not have to pay for their office space, while the freelancer, on the other hand, will also benefit from having the freedom to control their schedule. The individuals who earn as freelancers will definitely love several aspects of their career, but there are some individuals, among the 10.6 million Americans working as freelancers, who will struggle when they have to file their taxes. In an in-house employment, the employee may not face a struggle to submit their taxes as the employer will deduct the taxes before payment, but the freelancers will be in charge of their tax deductions.
1099 forms are used by IRS when they need to track individual’s income where any income that one earns as interest or dividend will be announced through 1099-INT or 1099-DIV. Individuals who earn cash from the retirement fund will also have to pay taxes as it is part of 1099 income but when you do not have a regular job you will be termed to as an independent contractor by IRS. Individuals considered as independent contractors will include freelancers, short-term employees, and individuals in charge of their businesses and they are required to provide tax information through 1099 misc form.
The individuals who work in most companies will not have a big deal when they need to submit their deductions from their income, as the employer will be tasked with submitting the various deductions which will include state and federal taxes as well as social security. The regular employees might be excited when they have all the cash from their paychecks after turning into independent contractors, but they aren’t exempted from paying taxes. To pay taxes effectively, do not wait to have a lump sum amount and pay as taxes, but you will have to save 30% of every paycheck to cater for your taxes.
Unlike the case of W-2 employees who might have an easier time to handle taxes, the case is complex on the side of freelancers and other 1099 employees. To avoid overpaying for the taxes or underpaying that can lead to tax debts and attract penalties, seek the help of an accountant.
As a freelancer you do not enjoy the same benefits that workers enjoy, as they will have life insurance, healthcare, and retirement benefits, but yourself you will have to find plans which can work and benefit you.