Everyone’s experience with taxes may differ in small ways, but there are always a few throughlines that are set in stone. The main tax forms—W-2 and 1099—are what we’ll be focusing on today.
Determining whether you fall under the category of a W-2 or 1099 employee is a straightforward process.
If you are under a supervisor, receive regular paychecks through the company’s payroll, and enjoy benefits like a 401(k), you are typically classified as a W-2 employee. Conversely, 1099 employees are often contractors, and the nature of the employer-employee relationship varies on a case-by-case basis. Although these forms follow different submission routes, both eventually find their way into the hands of the IRS.
No matter your employment status, the Tax Avenger Certified Public Accountant team can handle your case with ease. As service providers of the Canton, MI area and beyond, we are uniquely equipped with the diverse skillset to prep and submit your taxes accurately and efficiently. So, let’s identify more ways in which these forms are different from one another and how CPAs can assist with that.
Ways in Which 1099 and W-2 Forms Differ
We have gone over how to classify 1099 and W-2 employees, but there’s more to the meat of the matter. Both forms must be given to the eligible employee by Jan 31 following the year they were paid, otherwise, the employer may face penalties.
1099
1099 contractors are hired to help with specific projects within a company. They are billed through individual invoices, and these are tallied by the end of the year for accounting purposes. Notably, the employer is not obligated to cover employment taxes, providing a potential short-term advantage. The submission of a 1099 is mandated only when the cumulative payments to the contractor exceed $600 in a given year.
Contractors also go by another name, freelancers. Freelancers may operate their businesses or engage in this work as a side gig, such as in fields like writing or graphic design. Regardless, both freelancers and contractors bear the responsibility of managing their taxes and documenting potential deductions, such as home office costs or car mileage.
W-2
W-2 employees are part of a larger network of individuals. These are your food service workers, blue-collar workers, warehouse workers, and government workers. Workers who fill out these forms will have their taxes—income, state, and federal—withheld from their paycheck depending on what they filled out. Unlike 1099 contractors, W-2 employees have access to employer-sponsored healthcare plans and 401(k) contributions. Essentially, you’re paying your way into the company, and if you are overtaxed, you will receive a refund.
How Can a CPA Help?
Taxes are hard. Even accountants will concede that. While it’s excellent to know how to file your taxes, sometimes life can prove draining, and the last thing you want to do is pour over sensitive information while burnt out. A Certified Public Accountant is versed in many different areas of finance and accounting.
Applying their knowledge to your unique situation will help put together an optimized outlook on your finances. Want to plan better for retirement? Minimize tax liabilities? Diversify your stocks? These are all things that a CPA can do.
It’s beneficial to use CPAs because they understand tax laws and codes better than anyone else. This is because the exam they take to become a CPA goes over so much specific information, that it’s quite a feat to pass. After this, they never stop furthering their education, staying abreast of the latest government revisions.
Tax Avenger in Canton is your personal tax champion. You will never have to worry about making misinformed financial decisions with us on your case. Whether you are a W-2 employee, a 1099 employee, or a mix of both, Tax Avenger’s client-focused services save you money to invest in your bright future. If you’re a Canton, MI resident looking for expert tax return services, contact our CPA for a Free Consultation.