Almost every business in existence has more than one employee. With workers comes compensation. So it is crucial that you, as a business owner, must correctly figure out if you are working with employees or independent workers. Doing so will allow you to deal with plenty of things, including payments, benefits, and so much more. For this piece today, we will take a look at independent contractor taxes. We have quite the ground to cover, so we better get started.
Before you begin handling payments, deductions, and all that, you must first find out what kind of employees you will be working with later. Knowing what business relationship between you and your workers will set things faster and less complicated. The worker who does jobs for your business might be:
An independent worker
An independent worker is someone self-employed. You have no control over how they do work, although there might be some exemptions. What they would earn will be subject to self-employment tax.
An employee is someone who provides services for you and your business. Under common laws and rules, you have total control over what they can do once on the job.
A government worker
Any individual who does work as a public official. Therefore, it is the government that is responsible for the taxes they would pay. This responsibility does not fall to you.
Once you deal with regular employees, you will be familiar with tax withholding. This concept means you have to keep income taxes, medical care tax, and social security from an employee’s paycheck. But when it comes to independent contractors, things are pretty different, but they might be a bit easier. Independent workers, freelancers, and gig workers do not fall under the same category as regular employees. What that means is there is no need to withhold taxes on what these individuals earn. Instead, it would be the worker’s responsibility to pay for self-employment taxes and income taxes. Another perk about having independent contractors is that it costs less to hire them.
Not because you do not have to deal with withholding tax means you have nothing to declare anymore. That is not the case. You will still have to complete a couple of requirements.
An important form of US property tax is FIRPTA which is essential if you are buying or selling property in the USA. It is recommended to seek expert advice from professionals such as FIRPTA Tax Returns or similar websites.
Form 1099 is for independent contractors who reside in the United States. You do not have to worry about any documentation as long as the payment is only under $599. However, if you have plans for a long-term relationship with a worker, you will have to report payments to authorized entities. You will have to do such a task individually for each contractor you have using the form 1099.
This form is for contractors who reside outside the US. It is through this form that government agencies track funds that leave the country.
You will have to collect two primary forms from your independent contractors:
This form is exclusive to US citizens. What happens is that your contractors will provide their TIN or a taxpayer’s identification number. They must also include whether they are incorporated or not. This form is your key to having no liabilities for independent contractor taxes.
This form is similar to the first one. Albeit, the primary difference is that W-8 BEN is for non-US citizens. Foreign contractors also have to fill a W-8 BEN form if they operate an industry.
Remember that these forms only last for a good term of three years. So you have to let your contractor know about renewals in case you have plans to work with them for stretched periods.
You can learn all about taxes. But unfortunately, you cannot cover everything about taxes in only one sitting. What you can do is visit the internet for sites and media. You will have access to thousands of pages that cover it and other related topics. You will have no difficulties in looking for a web page or two that has something to do with independent contractors’ taxes. You can continue your reading and research there.
It is paramount that you learn all you can regarding independent contractor taxes. Doing so will allow you to answer any questions regarding payment and taxes once your workers start asking.
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