With so many numbered and lettered tax forms, knowing the difference between them all can be tricky. Our new “What’s the Difference” series will help you understand what each form means, and which of these forms you need to file your taxes.
The W-2 and 1099-MISC are forms used to report your income when filing your taxes. To understand the difference between the two, you first must decide if you are an employee or an independent contractor/self-employed. How can you tell?
- If taxes are withheld from your paycheck, it is considered employee income, meaning you will receive a W-2.
- If no taxes are withheld, it is considered self-employed income, meaning you will either receive or fill out a 1099-MISC form.
The W-2 is the most common tax form. Employers are required to issue their employees a W-2 as well as send a copy to the IRS. The W-2 reports your annual wages, tips, commissions, and the amount your employer withheld from your earnings during the year. Your employer withholds this money from your paycheck to pay federal and state income tax, Social Security, and Medicare taxes. The IRS compares your W-2 against your tax return to make sure the information matches correctly, therefore it is crucial that once you receive your W-2, you verify the numbers are correct.
Employers have until February 1st to mail out W-2s to employees, so be on the lookout for yours!
If you are an independent contractor and performed work for any company that paid you $600 or more, each of them must issue you a 1099-MISC form. For example, if you are a carpenter and work for various companies on an as-needed basis, then you should receive a 1099-MISC from each company that pays you $600 or more.
If you’re an independent contractor and make less than $600 from a provider, they are not required to issue you a form, however you are still responsible for reporting all taxable income. Unlike an employee, your taxes are not automatically withheld. As a self-employed individual, you are still responsible for paying federal and state income tax, as well as Social Security and Medicare – otherwise known as self-employment tax.
If you’re having trouble with your return or have questions on which form you should receive, consult with a professional tax preparer.
Are you ready? Test your knowledge of the W-2 and 1099 here. Don’t forget to come back and tell us how you did – Good luck!