US tax terms in US staffing or in US Recruitment

Mode of Hiring:

Mode of Hiring or Position Type is a contract established between a person and a company OR between a company and another company.

Contract between a company and a person:

  • W2: On W2, Candidate will work as a full time employee of a company (Employer) and employer takes care of employee and employer taxes. Employer sends w2 form to candidate in January, for the previous year wages and deductions. Candidates submit tax returns to IRS usually, and occasionally employer also submits tax returns on behalf of candidate.
    Eligible Candidates: American Citizen, Green Card (GC) Holder, EADs (Employer Authorization Document), TN Permit (Canadian Visa), OPT (Optional Practical Training), CPT (Curricular Practical Training), H1B, L1 etc.
    • W2 - Salary with benefits: This is FULL TIME, PERMANENT JOB. Employee will be paid salary and get benefits like joining bonus, vacation, holidays, workers compensation, relocation expenses, leave encashment, IRA, Health/Vision/Dental/ Life Insurance, 401k, Education Benefits, retirement plans etc. Usually company pays the candidate when there is no job or in between projects.
    • W2 - Hourly with benefits: This is FULL TIME, TEMPORARY job. Employee will be paid on hourly basis and they will be enjoying benefits also. As soon as the contract period is over, employee has to find another job.
    • W2 - Hourly with no benefits: This is FULL TIME, TEMPORARY job. Employee will be paid on hourly basis and there are no benefits.
  • Contract - Independent (1099): Candidate will work as a contractor for a company for that contract period. Company sends 1099 form to candidate in January, for the amount earned in previous year. Based on this 1099 form, Candidate will submit tax returns to IRS, which includes employee and employer taxes.
  • Contract to Hire - Independent (1099): To start with, Candidate will work as a contractor for a company and later will be hired as a full time, permanent employee for that company. In January, company sends 1099 form for the amount earned previous year in contract period. In addition, they also send w2 form to candidate in January, for the previous year wages and deductions earned after hiring him as a fulltime employee. Based on this w2/1099 form, Candidate will submit tax returns to IRS, which includes employee and employer taxes.

Contract between a company and another company:

  • Contract - Corp to Corp: This is a contract between Company (Client) and another company (vendor). Vendor's candidates will work with client and client sends 1099 form to vendor.
  • Contract to Hire - Corp to Corp: Vendor's candidates work with client ON CONTRACT for a particular duration and later they will be hired as permanent employee of the client. Client sends 1099 forms to Vendor for the contract period worked by the candidate. After hiring the candidate into their payroll, client sends w2 to the candidate for the wages earned during the previous year.

 

USA Tax Terms - Question and Answers:

 

 

A. What are the different US tax terms in US staffing or in US Recruitment?

 

  • 1. W2 Tax Term - Full Time
    • a. W2 - salary with benefits
    • b. W2 - salary with no benefits
    • c. W2 - hourly with benefits
    • d. W2 - hourly with no benefits
  • 2. 1099 Tax Term
    • a. Contract with an Independent candidate
    • b. Contract to hire with an Independent candidate
  • 3. Corp - Corp(C2C) Tax Term
    • a. Contract betwen a corporation and another corporation
    • b. Contract to hire between a corporation and another corporation.

B. What is the difference betwen w2 and 1099?

w2: Since candidate is an employee, the employer has to deduct employee and employer taxes and pay to the necessary organizations.

1099: The employee pays the employee taxes and employer taxes.
Employee Taxes: Federal Tax, State Tax, County Tax, City Tax, FICA, Medicare etc.
Employer Taxes: FICA, Medicate, FUTA, SUI, Workers compensation, Liability Insurance etc.

C. What is the difference between w2 and corp to corp (c2c)?

w2: An employee of the company is called as w2 employee. w2 form is issued by the employer to employee which shows salary, taxes, benefits paid.

c2c: It is a contract between one company to another company.

D. What is the difference between corp to corp(c2c) and 1099?

c2c: It is a contract between one company to another company.

1099: It is a contract between a company and a candidates.

In corp to corp, company employee and employer taxes, and in 1099 employee pays employee and employer taxes.

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