One of the best ways to determine if you are self-employed is look at the documents you receive from where you work. If you receive a W-2 and have Social Security Taxes withheld, you are a regular employee and do not have to file Self Employment Taxes. If you receive a 1099, you are self-employed. In some cases, people will receive both a W-2 and a 1099 from their place of employment. Some reasons include your employer paying you per diem, or providing you with special programs that are not considered part of your normal wages.
The Internal Revenue Service recognizes that determining self-employment for tax purposes is different on a case by case basis. A person can have a “normal” job and also be self-employed at the same time.
The W-2 Tax and Wage Statement
The W-2 Tax and Wage Statement is the information your employer has reported to the IRS about wages paid to you and any taxes that were withheld on your behalf. This information is reported on your 1040 form.
If an individual has more than one source of income or worked for more than one employer, they may have several W-2s. Your employer will have deducted this income from any income you have received from them that is reported on the 1099.
The 1099 form are normally used for reporting non-employee compensation and can be a factor in determining whether and individual is self-employed. For example, if you earn more than $400 from Associated Content for articles you have published, you will receive a 1099 from Associated Content. This is considered to be self-employment and you will need to report it as income and calculate any Self-Employment tax, which is actually your Social Security credit. The good news is, you can deduct your business expenses and lower the amount of taxes you pay.
There are many types of 1099 forms. A 1099-M for miscellaneous payments is used for reporting payments to self-employed and contract employees. This type of form is used by businesses to report payments.
Other Income Sources
If you receive money from a personal business, you are self-employed. For example, you list and sell several items on EBay. You package and ship the items to the winning bidders. This income is considered self-employment. You may need to check that all of your self-employment income is reported on either a 1099 or report it yourself as part of the income on Schedule C of you annual personal income taxes.
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