TheTaxPages.com - Wages and Salaries

Wages and salaries

Wages and salaries are payments received by an employee for performing services for an employer.

Employees

The employer is required to issue you a Form W-2 showing the amount of income you received during the year. It takes most employers a few days to process the payroll. Therefore you will generally not receive part of the income you earned in December until January the following year. Income is reported on your Form W-2 based on when you received the pay. The December income, received in January, will be reported on the next year's W-2.

Amounts withheld from pay for income tax, social security and Medicare taxes, pensions, insurance, and union dues are considered "received" and must be included in gross income in the year they are withheld.

Generally, your employer's contribution to a qualified pension plan for you is not included in gross income at the time it is contributed. However, amounts withheld under certain salary reduction agreements with your employer may have to be included in gross income in the year they are withheld.

Your total wages and salaries from all your W–2 forms (and your spouse's if you are filing a joint return) are reported on Form 1040.

Other payment arrangements. Because employers are required to match the social security and Medicare withholding of employees and often they must pay into an unemployment fund, some will classify you as an independent contractor. In these situations they do not withhold taxes or pay into your social security or Medicare accounts and issue you a Form 1099-MISC rather than a Form W-2.

Independent Contractor vs. Employee

In some cases determining if someone is an independent contractor or an employee is not straight forward. Many factors need to be considered. They Include:

How much control the business has over how and when the work is performed.
Whether the person performing the services provides their own tools or has unreimbursed expenses. .
If the worker performs similar work for other businesses.

Basically, if you received a 1099-MISC the business did not consider you an employee. If you wish, you can complete Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding and the IRS will review the situation.

No matter what you are called, Independent Contractor, Self Employed, Sole Proprietor or Small Business, if you received a 1099-MISC you should report it on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ, Net Profit From Business. As a business you can deduct certain expenses and if you had net earnings of $400 or more you must also pay self employment tax.