This form, tailored for non-employee compensation, ensures your hiring processes are well-documented. Employers automatically withhold federal and state taxes, and often even contribute to Social Security https://www.bookstime.com/articles/cpa-bookkeeping-services and Medicare tax. At tax time, you’ll receive a Form W-2, summarizing your earnings and taxes paid. You’ll simply plug these numbers into your tax return, or have your tax accountant handle it for you.
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What is the difference between a W-2 employee vs. a 1099 contractor?
Check out our guide on independent contractors vs. employees for more on the difference between the two classifications. Worker misclassification can affect workers‘ rights to minimum wage and overtime pay and can have tax and withholding consequences. As if the classification topic were not complex enough, another big aspect for CPAs to consider involves the ethics of advising clients about classifying workers.
- You might have heard about how the California legislators have impugned the way Uber and Lyft classify their drivers.
- Independent contractors have more flexibility in setting their own terms but are not covered by the same protections.
- On the other hand, if the person works their own hours and can work for more than one company, the worker is an independent contractor.
- The IRS will acknowledge the receipt of Form SS-8 and then try to contact both parties to gather as much information as it can to make a determination.
Our automation system isn’t just a tool; it’s your partner in efficient business management. In the end, the decision between being a traditional employee or an independent employee depends accountant for independent contractor on your unique circumstances, priorities, and preferences. If you value job security, stable benefits, and a structured work environment, being a W2 employee might be the right choice.
Voluntary Classification Settlement Program
When you’re an independent contractor, paying the government regularly throughout the year is your responsibility. You can estimate how much you need to pay the government each quarter by guessing what your total income for the year will be or by using the amount you’ve paid in estimated taxes the previous year. Worker classification also has Federal Unemployment Tax Act (FUTA) tax implications. Chamber of Commerce policy experts Marc Freedman, Vice President, Employment Policy, and Tom Sullivan, Vice President, Small Business Policy, to get clarity on this issue.