As a small business owner, it is required to complete certain forms reporting employment taxes. The two most common tax form types are the 1099 form and the W 2 form. Form 1099 is used for an independent contractor and the W 2 tax form is used for an employee.
1099 Vs W 2 Forms
The main difference between a 1099 and W 2 forms is that the 1099 form is issued by a payer to a recipient for services provided, or to self-employed individuals. A W 2 form is issued by the payer to the employee of the business. It’s important to pay these taxes.
The 1099 form is one of the most important tax forms for a business or an individual involved in the monetary institution, freelance, inventory, or any other business that must file the taxes with the government.1099 forms are used for other services besides employment, such as rental income or royalties.
The W 2 tax form is given to the employees who receive a regular income or salary each month. It contains details like the salaries paid to you in a particular year, along with the tax deducted from the payslip and any type of compulsory contribution paid by the employer.
Comparison Table Between a 1099 and W 2 Forms
| Parameters of Comparison | 1099 | W 2 Forms |
| Meaning | It is also known as feedback which is used to report payments made under the business. | The W 2 form is used to report employment income issues by the employer to employees. |
| Treatment of Income | The tax form that income filled as in 1099 will show up as taxable income. | The tax form that income filled as in W 2 will not be taxable income. |
| Treatment of Expenses | This reports income as non-employee compensation. It means they are withholding different amounts of taxes from each form. | The W 2 tax form reports income as wages, by the employee of a company. |
| Income Limits for Filing | It does not require that you file taxes if your earnings are below six hundred dollars. | It requires to pay taxes on all earnings whether they are or more or less than that. |
| Filing and Issue | The IRS requires this forms to be issued and filed by January 31 each year. | These are also forms is to issued and filed by January 31 each year. |
What is a 1099 Form?
1099 is a tax form used to report non-employee compensation. The Internal Revenue Service uses the form to track independent contractors, freelancers, and other non-employees who receive payments for work performed.
When you receive a 1099 form, you are required to include the income on your tax return even if you did not receive any money from that source during the year.
Form 1099 is a tax form issued by several organizations. This form is used to report income that was given to you for the specific year.
There are different types of Form 1099, they are categorized as the Tax Statement, Form 1099-INT Interest Income, Form 1099-DIV Dividends and Distributions, Form 1099-G Certain Government Payments, Form 1099-MISC Miscellaneous Revenue, and Form SSA-1099 Social Security Benefit Statement.
The most common ones are 1099-MISC & 1099-INT.
Before filing Form 1099 with the IRS, make sure you have all of your client’s information ready, including your name, address, and social security number.
The purpose of this form is to ensure that you pay your due taxes on time and also help the IRS keep an eye on people who are not paying their taxes correctly. Many Professionals file these taxes to payers
What is W 2 Form?
Wage and Tax Statement also known as the W 2 form is an important document issued by employers each year to employees detailing how much the employee earned and how much tax the employer withheld during the year.
The W 2 form is different from all other forms because it is issued in duplicate. One copy goes to the employee and one copy goes to the Internal Revenue Service.
The employee’s copy lists each paycheck received during the year, along with any associated taxes withheld.
This information can help you determine if your taxes have been calculated accurately, or if you have overpaid or underpaid your taxes for the year.
It is the central form used for filing your tax return. It details your earnings and any taxes that were deducted from your wages, such as federal and state income tax, Social Security, and health care.
Anyone who received a W 2 form can use it to file their taxes.
The W 2 form is issued by employers to report wages paid to employees and is also used by them to report their earnings.
It is required to report total income from all sources, including wages, salaries, interest, and dividends.
Main Differences Between a 1099 and W 2 Forms
- The employer is responsible for issuing and distributing W2 forms to its employees, while in 1099 there is no withholding obligation.
- The W 2 tax form can be used to file your federal income tax return, while 1099 cannot be used to file.
- The W2 tax form is issued by the employer every pay period (monthly), while you receive a 1099- only once at the period.
- W 2 will show a withholding amount for taxes from your income while a Form 1099 will not show the withholding taxes.
- A W 2 tax form will list your total wages, while 1099 is only for income that is considered to be non-wage income.
Conclusion
Whether you are planning to fill them out on your own or hire a bookkeeper, it is beneficial to know exactly what is expected of you and what information you can expect to see when it comes to 1099 and W 2.
1099s are an extension of your income tax return and W 2s are a summary of your tax return.
There is no reporting requirement to states for Form W 2 unless there are other state tax withholdings that should be added to it for state tax reasons.
While both forms report income, they do so in different ways, and are usually handled by different entities. For example, a self-employed person’s 1099 will be filed separately with the IRS, a person who worked as an employee files as part of their company’s annual tax filing.
References
- https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/experien21§ion=41
- https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/taxexe59§ion=16