90% of Americans hire a professional or use tax software to complete their tax returns each year. Most people need help when filing their tax returns because tax forms are extremely confusing.
Working on your taxes might be even more difficult if you operate your own business. Self-employed individuals don’t always take regular paychecks. As a result, they might have questions about whether to use a W2 vs. 1099 to report their income.
If you have questions about these forms, continue reading this guide to learn the main differences between W2s and 1099s.
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The Basic Definition of a W2
Of all the different tax forms you might encounter, a W2 is one of the most common. A W2 is a form that an employer gives to an employee at the end of the year. The employee uses the form to show the IRS how much income they earned for the year.
A W2 tells you multiple things, including the following items:
- The employee’s name
- The person’s social security number
- The income for the year
- The deductions taken from the income
- The withholdings from the income
When you work for a company as an employee, you should receive a W2 from that business at the end of the year. You must include this income on your tax return when filing.
The Basic Definition of a 1099
When you earn money from a job that does not consider you an employee, you might receive a 1099 that states your income for the year. If a company doesn’t consider you an employee, they likely consider you an independent contractor.
You might also be considered an independent contractor if you run your own business. In either case, your income wouldn’t be recorded on a W2. Instead, a 1099 will show the amount of money you earned for the year.
If you own your own business and need tax forms, you can create them. You can create W2 with no hassle or a 1099. You’ll need to decide which type of tax form you need, though.
The Main Difference Between a W2 vs. 1099
As you can see, both tax forms prove a person’s income for the year, but there is a big difference between a W2 vs. 1099. The main difference is taxes.
When you work as an independent contractor for someone else or your own business, they do not withhold taxes. Therefore, the main difference between a W2 and a 1099 is the tax withholdings.
If you receive a W2 for your income, you already paid taxes on the money. If you receive a 1099 for your income, you haven’t paid taxes yet, which means you’ll pay self-employed taxes when you file your tax returns.
Learn More About Tax Forms
As you compare a W2 vs. 1099, you might understand the primary differences now. Knowing the differences can help you determine which forms you need for your business.
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