Effective Way For 1099 Employees To Manage Their Income And Also Pay For Their Federal And State Taxes
The American workplace has experienced a shift, with most employees no longer working in offices, but they are earning from their homes. It is not only individuals who own businesses that will be working from home but even the companies are now outsourcing their services to 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. Freelancers will have to calculate and submit their state and federal taxes unlike in the case of in-house employees who do not have the responsibility of submitting their tax deductions as the employer handles the part for them.
1099 forms are particularly used by IRS as a means of tracking individual’s income, where individuals who earn interest will have to fill out 1099-INT form, as individuals earning individuals fill the 1099-DIV form. Retirement fund benefits are also part of the 1099 income but when you aren’t a regularly employed worker, IRS will consider you as an independent contractor. Freelancers, self-employed individuals, as well as short-term employees, are part of the independent contractors, and they provide their 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. Don’t wait until the end of the year to find a lump sum amount of cash and pay as your taxes for the year, but it is advisable that you save 30 % of every paycheck to have an easier time paying taxes.
Working as a W-2 employee will see an individual have an easier way of managing their taxes but the case is complicated for 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.
While the regular workers in any company will benefit from numerous benefits packages available such as life insurance, healthcare, and retirement packages, the 1099 workers do not have such privileges and it is up to them to find plans that work for their situation.