Final answer:
A W-4 form is used by employees to set tax withholding preferences while an I-9 form verifies employment eligibility in the United States. Independent contractors must manually pay taxes as they do not have taxes withheld via a W-4. Both forms are critical to ensuring proper tax payment and eligibility for employment.
Step-by-step explanation:
Understanding W-4 and I-9 Forms
When you are employed, you must complete a W-4 form to indicate your tax withholding preferences. The selections you make on this form determine the amount of taxes withheld from your paycheck. While it may seem advantageous to have less tax withheld to increase your take-home pay, it is important to understand that these withholdings contribute to your annual tax obligations, covering local, state, and federal taxes. At the end of the financial year, you must file a tax return to reconcile the total tax owed with the amount that has been withheld.
The I-9 form is another critical document, which validates your eligibility to work in the United States. Both forms—W-4 for tax withholdings and I-9 for employment eligibility—are essential when beginning a new job. Failure to appropriately manage your tax withholdings could lead to underpayment, which might incur penalties, while the I-9 form ensures compliance with employment regulations.
Independent contractors, such as members of the gig economy, do not have taxes withheld through a W-4 and instead must manually pay their taxes. All taxpayers, including independent contractors, contribute to government-funded services that benefit the community, such as infrastructure and public safety initiatives.