Businesses outsourcing their functions to independent contractors need to make the use of specific forms to file taxes. The Internal Revenue Service uses the term Independent Contractor for designating the type of workers who contract their services to different businesses. First of all, businesses need to make sure that there make use of the right tax forms when filing the taxes for their actual employees.
Tax Forms for Independent Contractors
Once the status of an individual receiving payment in the form of an independent contractor is determined, the organizations first step is requesting the contractor to fill form 1099-MISC. this is one of the most primary forms that need to be filed by the independent contractors for coming up with accurate payment of taxes. The threshold for taxable compensation reporting is $600 to the independent contractors for the services that they provide during a tax year. 28th February is the deadline within which form 1099-MISC needs to be filed with the IRS. However, the deadline for filing the form electronically is 31st March. Additionally, employers are required to offer a copy of the form to the independent contractors within 31st January of the year following the payment. Independent contractors have the obligation of paying their income taxes along with their self-employment taxes to the IRS. Nevertheless, it is important for businesses to remain aware of the fact that if the independent contractors do not pay their federal or state taxes, the IRS gets the flexibility of mandating the employers to make payments of the withholding taxes along with interest.
W-2 Forms for Actual Employees
W-2 forms serve in the form of earned income statements including the total income of the employees. These forms also include the details of the specific amount of state, social and federal security taxes which are withheld from the paycheck of the employee. It is important for employees to receive the W-2 form from their employers within 31st January of the particular tax year. However, it is to be noted that the employers have time till 28th February to file the W-2 forms with the Internal Revenue Service. There are major penalties that can be incurred in case the employer does not meet the deadlines mentioned above.
State Requirements for the Independent Contractors
It is also significant for taxpayers to remain aware of the different state requirements when it comes to making payments to the independent contractors. The state government can easily be contacted in order to get detailed information about the state requirements for paying taxes by the independent contractors. There can be absolutely no doubt in the fact that independent contractors are a good and valuable resource for the small businesses and this goes specially for special assignments and time-limited projects. Therefore, it is necessary for businesses to ensure that they maintain a correct record and make right payments while complying with the regulations and the requirements of the IRS.