In United States, small businesses and other employers use different forms to record the income earned by employees and independent contractors. Usually, employees of the business in U.S. receive W-2 form which lists the income they received during the financial year. This form even contains deductions which are taken from that income in the form of federal and state taxes, deferred payments and social security contributions. A 1099 form is used for many reasons, but it is typically given to an independent contractor which is also known as freelancer. Other versions of 1099 can be used to report various types of income, like interest, dividends, real estate and debt cancellation.
On a typical 1099 form, such as 1099-MISC, the income earned will be recorded, but there will be no deductions for federal or state income taxes and will not be deferred as compensation. Social security and medical deductions can be noted. The receiver of 1099 form is not an employee of the business, so this business is obligated only to tender the income to the contractor without any discussions. This income is also reported to the Internal Revenue Service (IRS) so that it can tax the income which is earned by freelance workers working for them. A freelancer is obligated to calculate his or her own taxes and forward the payments to Internal Revenue Services.
People who receive 1099 forms come in wide range. Actors, artists, novelties, freelance writers and similar creative artists who generally compensate on per-job basis and are not treated as employees. Many businesses have started to bring independent contractors to work on particular task. This helps to keep the employees costs down because the employer does not have to pay for such things as health insurance and does not have to make contributions to retirement plans. After the task is finished, the employer can end the working relationship and simply issue the independent contractor a 1099 form.
There is many other version of 1099 form which can also be issued. A 1099-INT, is used to denote the interest that the taxpayer has earned. A 1099-G form donates things like tax refunds and credit received. A 1099-R is for distribution from the retirement plans, annuities and pensions. In all there are about 20 versions of the 1099 form.
1099 form is actually for the employees who work in the company. It contains all the details of the employees i.e. taxes they pay. There are many versions of this form, as are come in wide range.