Just when you start to get excited about spring, you remember that annoying chore that comes around every April 15: Tax Day. It’s the time of year when you must round up all your paperwork and crunch your income numbers.
To some extent, you need your employer to be a partner in this process. They need to provide certain materials in order to make your tax-season preparation go smoothly. Here’s what you need to know to gather the right materials from your employer this tax season.
Navigating the New Economy
The structure of the modern economy can make the tax process more complex. In the past, most employees had a single employer, who they worked for full time. They would also stay with that company over a long period of time. There was a limited amount of paperwork involved, and the process followed a predictable annual rhythm.
In the contemporary world, most working relationships are more complicated. The gig economy has led to a situation where people are likely to have multiple contract relationships at once.
More than a third of U.S. workers (36%) take part in the gig economy. This includes people who freelance full time and those who pick up extra money on the side. Another study showed that 55% of gig workers also held down full-time jobs elsewhere. Clearly, people are becoming more comfortable with complex working lives.
Even if you have a single employer at any given time, the modern economy is far more flexible than it used to be. Switching jobs has become more common. If you have a different employer than you did last year, you might not know their processes very well. That means you might have to chase them down to get the paperwork you need.
What You Need from Employers
The more complex work-life created by the modern labor market puts much of the weight on you to gather the proper tax-related documentation. Don’t just wait for stuff to arrive in the mail and hope it’s all there. Keep track of what you need and follow up as necessary to make sure you get the paperwork.
Here are the basic forms you’ll need from your employer:
This is the basic old-fashioned tax form you receive from an employer. These come from companies that officially list you on their payroll. If you’re an independent contractor, you’ll receive a different tax form (more on that in a second). The W-2 comes from firms that pay you as an employee.
The form will list your personal details (name, social security number, etc.), along with information about the employer (including the company’s tax ID). It will also detail the amount you earned over the course of the year, as well as the amount of taxes withheld on your behalf.
In the modern economy, more and more workers act as independent contractors. One study showed that a majority of people (52%) have worked as an independent contractor, or will try it out in the next years.
In these arrangements, you aren’t officially on the books as an employee. As such, the company doesn’t withhold taxes for you or pay payroll taxes for you. 1099 is the tax form needed for these independent-contractor situations.
1099 resembles the W-2 in many ways. It shows your info, along with the information for the company. The document also totals the amount you received from that firm during the year.
However, in a contractor relationship, the company will not withhold any taxes for you. So, the 1099 will not have that information, for the simple reason that those figures don’t exist. Instead, you are responsible for paying those taxes yourself.
The modern labor market is a brave new world. It opens lots of opportunities, but also involves new levels of complexity. It helps to have a guide. By partnering with a top-flight staffing firm, like PrideStaff, you get the advice and direction you need to maximize your potential.