A W-2 form is an end-of-year tax statement given to someone who is an employee of a company. A 1099-MISC form is a tax statement sent by organizations to independent contractors who perform certain levels of work during the year. Both are important to tax filers when they fill out their returns.
A W-2 is typically more detailed than a 1099. A primary reason for this is that employers withhold deductions throughout the year from employee income and these deductions are cited on the W-2. Deductions include federal, state and local income taxes, Social Security tax, Medicare tax, and any employee-paid amounts for insurance and retirement. All of the information on the W-2 is submitted when an employee files a tax return. All wage information on a W-2 is reported to the Social Security Administration and IRS as well.
Companies sometimes hire independent contractors or freelancers rather than employees to complete projects and tasks. Unlike employees, independent contractors typically get to set their own schedules, though they usually must complete work within a certain time frame. Independent contractors also have the right to work for multiple clients. In a contractor arrangement, the employer doesn't withhold taxes and so doesn't report these on the 1099 form. The contractor is responsible for paying his own taxes either quarterly or annually. The 1099 only includes the amount paid to the contractor during the tax year. The IRS requires companies to send 1099 forms when they pay $600 or more in rent or compensation to a contractor, or $10 or more in gross royalties. A copy of the 1099 is also sent to the IRS.
- Photo Credit BernardaSv/iStock/Getty Images
- Difference Between a W2 & W4
- Difference Between W-2 & W-3 Forms
What Are the Differences Between the 1099C & 1099S?
When you receive payments throughout the tax year, it is important to report the payments to the IRS. Generally, employers report wages...