The Difference Between 1099 and W-2 Forms (summary)
If you’re an independent contractor or an employee, you’ll receive one of two different tax forms at the end of the year: a 1099 or a W-2. But what’s the difference between these two forms, and how do they affect your taxes?
The Basics
1099 is a tax form used to report income received from non-employment sources, such as freelance work or contract jobs. A W-2, on the other hand, is used to report income received as an employee of a company.
Types of Workers
Independent contractors, freelancers, and self-employed individuals typically receive 1099 forms. W-2 forms are usually given to employees who work for a company and receive a regular paycheck.
Income Reported
1099 forms report all income received from a specific client or company during the tax year, including any bonuses or reimbursements. W-2 forms report the total amount of income earned by an employee during the tax year, including any wages, salaries, and bonuses.
Tax Implications
Individuals who receive a 1099 form are responsible for paying self-employment taxes on their income. This includes the employee’s and employer’s share of Social Security and Medicare taxes. In contrast, employees who receive a W-2 form typically have their taxes withheld by their employer throughout the year.
Understanding the differences between 1099 and W-2 forms can help you understand your tax responsibilities better. Whether you’re an independent contractor or an employee, knowing which tax form you should expect to receive and how it affects your taxes is essential. If you have any questions or concerns, consult a tax professional.
