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1099 Vs W2
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What to do if you receive a W-2 and a 1099?
The majority of American taxpayers fall into one of two categories. Self-employed individuals are paid by a company for work or services performed and receive a 1099 tax form. People who are employees on a company's payroll and receive a regular paycheck receive a W-2 tax form. Some people receive both.
In any of these cases, questions like "What are W2s" and "What's a W2 vs W9," as well as information on how to file w2 and 1099 taxes together, become really important, especially as tax deadlines near.
Understanding the 1099 vs W2 vs W9 (and many more) is crucial when filing an accurate tax return. Knowing the differences between the 1099 and W2, especially, is important so you can know your tax obligations throughout the year.
Table of contents
Key takeaways
- A W-2 form reports employee income, a 1099 reports freelance income
- Both W-2s and 1099s are needed for a taxpayer to file an accurate 1040 form
- W-2 taxpayers have taxes withheld from their paychecks, 1099 taxpayers do not
What is a 1099 form?
One of the easy distinctions between an employee of a company and a self-employed person is the tax forms that apply to them, the W2 and 1099, respectively. When you work as a self-employed person or freelancer for a client, and that client pays you, the client is required to report the payment to the Internal Revenue Service and to you on a 1099 form.
Whether it's Doordash paying you for making deliveries, a company paying you for freelance design work or a property management company throwing you a few maintenance jobs every month, they all need to tell the IRS what they paid you on a 1099 form.
This is so that the IRS can check it against the tax you pay to see if the amounts match up. These companies are also required to send you a copy of every 1099 they send to the IRS so that you can be aware of what they are reporting to the government.
You wouldn't want that property management company telling the IRS that they paid you $35,000 during the tax year, when they actually paid you $30,000. The IRS would think you owe more in tax than you actually do. With 1099 tax forms, comes 1099 taxes. This is where a 1099 tax calculator is the right tool to help with figuring out how much you'll owe.
Quick tip
If you don't receive a 1099 from a company you did work for, reach out to them before you file your tax return. If you don't see the 1099 form that company sent to the IRS, you won't know the income tax the IRS expects you to pay.
What is a W-2 form?
W-2 forms are only for employees of a company. There is no such thing as a self employed W2. Like the 1099 form, the W-2 is also sent to the IRS and each employee of a company.
So, what are W2s? They are tax forms, perhaps best explained by noting the differences between 1099 vs W2 forms. Most notably, they report different kinds of income. The salary or wages an employee of a company earns are reported on a W-2. Unlike the 1099, which only reports a payment amount, the W-2 also reports the taxes that a company automatically withheld from an employee's wages or salary.
Taxes in 1099 vs W2
The main differences between a 1099 vs W2 situation are how payment is made for work and how income tax gets paid to the IRS. Employees who work for a corporation receive a regular paycheck, and the income and Social Security tax they owe are automatically taken out, or "withheld," as the IRS says.
Each time an employee is paid, their company deducts a specific amount from their check as income tax and sends it directly to the IRS. The amount deducted is shown on the employee’s pay stub with each paycheck.
Employers annually provide W-2 forms to employees so they can submit their yearly income tax returns. Often, the amount withheld is more than the tax actually owed, which is why many W-2 employees receive a tax refund from the IRS each year.
But because companies that hire self-employed individuals and freelancers don't withhold anything from the payments they make, the self-employed individuals are responsible for paying their own estimated taxes.
1099 and W2 in same year
Some people have a W-2 job and a side gig or small business where they're the sole proprietor. If you're on the schedule each week at Home Depot, and you get a paycheck from the company every two weeks, but you also do carpentry work for clients on the side, you will receive a W2 and 1099 from these different employer entities.
The 1099 will come from clients, and the W-2 will come from Home Depot at the end of the tax year. It might happen that one of your clients is a construction company that really likes the work you did as a freelancer and offers you a full-time W-2 job. In that case, you'll receive both a 1099 and a W-2 from that company, and you'll be reporting both types of income when you file your 1040 form at the end of the year.
When do W2 have to be sent out?
There is no difference in the sending deadlines for 1099 vs W2 forms. The IRS requires companies with W-2 employees to send W-2 forms no later than January 31 each year so those employees can file their tax returns accurately and on time. Companies who pay self-employed people have the same deadline to send 1099s to the IRS and to people they have paid. But anyone self-employed needs to pay self-employment taxes on the income.
The difference between 1099 and W2 forms is that W-2 employees have already paid tax in the form of withholdings from their earnings, and 1099 workers have yet to pay income tax to the IRS.
1099 vs W2 tax form concerns
How to file forms W2 and 1099 together
What happens if you don't file a W2?
W2 Vs W9
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