What are the Differences Between W2 & 1099 Forms?

Understanding the Differences Between W2 and 1099 Forms

If you’re an employee or a contractor, you may be familiar with W2 and 1099 forms. These forms are essential documents used for tax purposes but serve different purposes. In this article, we’ll discuss the differences between W2 and 1099 forms and how they affect your taxes.

What is a W2 Form?

A W2 form is a document an employer provides to an employee that reports their wages, tips, and other compensation paid for the previous year. The form also includes the amount of federal, state, and local taxes withheld from the employee’s paycheck throughout the year. W2 forms must be provided to employees by January 31st each year.

W2 forms are used to file income tax returns, claim tax credits, and determine Social Security and Medicare taxes owed. The information on the W2 form is used to calculate an employee’s tax liability or refund.

What is a 1099 Form?

A 1099 form is a document provided to non-employees, such as contractors or freelancers, who were paid $600 or more for services rendered during the previous year. The form reports the total amount paid to the contractor or freelancer and is used to report income for tax purposes. The 1099 form must be provided to the contractor or freelancer by January 31st each year.

1099 forms are used to report income earned by non-employees, such as independent contractors, sole proprietors, and partnerships. The information on the 1099 form is used to calculate the contractor or freelancer’s tax liability.

Differences Between W2 and 1099 Forms

The primary difference between W2 and 1099 forms is who receives them and why they are used. W2 forms are provided to employees to report their wages, tips, and other compensation paid, while 1099 forms are supplied to non-employees to report income earned.

Another significant difference is the amount of taxes withheld. Employers are required to withhold federal income taxes, Social Security taxes, and Medicare taxes from an employee’s paycheck and report them on the W2 form. However, no taxes are withheld from payments made to contractors or freelancers, and they are responsible for paying their own taxes.

Employees also have additional benefits, such as access to health insurance, retirement plans, and paid time off, while non-employees do not receive these benefits.

Which Form is Right for You?

Whether you receive a W2 or 1099 form depends on your employment status. You will receive a W2 form from your employer if you are an employee. If you are a contractor or freelancer, you will receive a 1099 form from the company or individual who hired you.

It’s important to note that misclassifying an employee as a contractor can have serious legal and financial consequences. If you are unsure of your employment status, consult with a My HR Professional or attorney to determine whether you should send a W2 or 1099 form.

I will end with one more comment.

Understanding the differences between W2 and 1099 forms is essential for employees and contractors alike. While they serve similar purposes, they are used to report different types of income and taxes. If you need help determining which form you should receive, consult with a tax professional to ensure that you are in compliance with tax laws and regulations.

Written by:

Jeremiah Bogdon CPA, CPSP


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