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Misclassifying W-2 employees as 1099 contractors has severe penalties. Learn the biggest difference between the two types of workers. ... Let's say you hire a new employee with a salary of ...
Employees receive a W-2. Independent contractors receive a 1099 form. ... W-2 employees have that employer portion paid by the employer, but 1099 contractors have to pay for it on their own.
In US territories, the W-2 is issued with a two letter territory code, such as W-2GU for Guam. Corrections can be filed using Form W-2c. The use of the form has led to the phrase "W-2 employees" to refer to those who receive Form W-2, in contrast to independent contractors and other "1099 workers" whose income is instead reported on Form 1099. [2]
Employers can and do make mistakes on W-2s, and these errors can cost you money as well as time and effort to correct downstream tax ramifications.
The distinction between independent contractor and employee is an important one in the United States, as the costs for business owners to maintain employees are significantly higher than the costs associated with hiring independent contractors, due to federal and state requirements for employers to pay FICA (Social Security and Medicare taxes) and unemployment taxes on received income for ...
Employers must report the incomes of employees and independent contractors using the IRS forms W-2 and 1099, respectively. Employers pay various taxes (i.e. Social Security and Medicare taxes, unemployment taxes, etc.) on the wages of a worker that is classified as an employee. These taxes are generally not paid by the employer on the ...
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