| There are some reasons an individual would choose | | | | are required to fill one out and give it to their |
| self-employment over working for someone else, but | | | | employees. The form itemizes deductions from pay |
| not everyone is willing to take on the problems and | | | | for insurance, taxes, and other expenses. It also lists |
| stress of owning a business. For some, the notion of | | | | the employee's total income for the year and how |
| running every aspect of a company is more than | | | | much money they took home after taxes. |
| overwhelming. Those who are employed by a | | | | A W-2 can serve many purposes, but ultimately it is |
| company have many advantages over those who are | | | | meant to aid the employee in filing their taxes for the |
| self-employed. Many of these benefits involve salary | | | | year. The fields on the W-2 are numbered to |
| and taxes. | | | | correspond with common tax forms, so that the |
| What is W-2 employment? | | | | employee can easily fill in the blanks and make the |
| Individuals who are employed full-time by a business as | | | | correct calculations. |
| a regular employee should receive a W-2 form. | | | | Advantages of W-2 Employment |
| Independent contractors and independent consultants | | | | Those individuals who receive a W-2 from their |
| receive a form called a 1099. This form is a statement | | | | employer have the privilege of earning a regular salary. |
| of payment from that company for the tax year if | | | | That is not to say that they are necessarily salaried, |
| they were paid more than $600. | | | | but the majority of these kinds of employees have |
| According to the IRS, a company "has the right to | | | | regular hours that bring in a constant stream of |
| control or direct only the result of the work [of an | | | | income. This is probably the most advantageous part |
| independent contractor] and not what will be done and | | | | of being employed by someone else. |
| how it will be done or method of accomplishing the | | | | Freelancers and business owners are not guaranteed |
| result." Although the IRS uses a "20 questions" test to | | | | to make money for their efforts. Employees have a |
| determine whether a worker is an employee or | | | | contract that promises them compensation for their |
| contractor, in general, under this definition, those whose | | | | labor. This steady stream of income makes budgeting |
| method of working can be controlled by their employer | | | | and saving easier. |
| are regular employees and receive a W-2. | | | | Employees are also often offered benefits like health |
| Businesses that retain employees of this type are | | | | insurance and retirement packages. Most of the time, |
| obligated by law to perform the following tasks: | | | | their company goes in on these services with them in |
| - They must pay income, Social Security, and Medicare | | | | order to offset some of the cost. Any freelancer can |
| taxes for the employee. Technically, these taxes are | | | | attest to the high cost of private health insurance and |
| deducted from the employee's salary, but the | | | | saving plans. Employers often offer these services as |
| employer is required to collect them and send them to | | | | further incentive. |
| the IRS on the behalf of the worker. Many companies | | | | More Advantages of Receiving a W-2 |
| supplement their employees' income in order to ease | | | | Though a W-2 employee may not be completely free |
| the burden of these taxes. | | | | to choose how and when they work, they are offered |
| - They must pay unemployment tax. The government | | | | several advantages. Working as a W-2 means |
| gives aid to those who have lost their jobs and are | | | | simplified tax filing with the employer withholding |
| trying to find work in the form of unemployment | | | | estimated taxes, as compared to managing your own |
| benefits. The funds for this program come from a tax | | | | taxes as an independent contractor and having to file |
| on businesses with employees. The tax is not | | | | quarterly tax estimates. A W-2 is not only useful for |
| deducted from an employee's pay and is solely funded | | | | filling out one's taxes (although it is most suited to this |
| from company money. | | | | purpose). Many government and private agencies |
| - They must issue a W-2. At the end of the tax year | | | | accept the forms as another form of identification. The |
| the employer must send copies of a completed W-2 | | | | document will always list the employee's social security |
| to the employee and the Social Security Administration. | | | | number and full name, so it can be used in conjunction |
| This form will notify the government that the employee | | | | with a photo ID to prove one's identity. |
| has received funds and allow the employee to file | | | | Some loan companies and retailers who offer credit |
| state and federal income tax. | | | | will also accept a W-2 as proof of income. This was |
| What is a W-2? | | | | more convenient before the era of digital banking, but |
| A W-2 is a standard form designed by the Internal | | | | the old paper method of proving employment is still |
| Revenue Service. At the end of a tax year, employers | | | | used by some companies. |