Difference Between W2 and 1099 (With Table)

There are plenty of tax forms, and W2 and 1099 are just two of their types. These are used to report their salaries and taxes operated for different types of workers. W-2 workers are people who are employed under someone; they are the employees. 1099 are for people who are self-employed or employers.

W2 vs 1099

The difference between W2 and 1099 is that W2 tax forms are used to report the wages of employees, whereas 1099 tax forms are used to report the wages of employers or self-employed people. Both of these are forms of tax, but the people concerned about it are different.

W2 is a tax form available for employees or people working under any institution. W2 employees are the typical salaried people. These people benefit from employee programs and have a guaranteed minimum wage to save their human rights. Workers have a limited contract and can be removed from their place at per the institution’s convivence.

1099 is also a tax form, but the concerned person is an independent worker who generally provides certain services to other employees. They are required to fill 1099 form to report their wages. 1099 workers hire W2 workers as employees with the intention to help them in their businesses.

Comparison Table Between W2 and 1099

Parameters of ComparisonW21099
Tax DifferencesTheir tax is different as they are the employees.1099 worker pays more amount as their income is more.
Time of PaymentIt is paid monthly and is generally withheld from the salary itself. It is paid annually and only then the form is received.
Provided byW2 forms are provided by the employer to the employee. Employers must get a form for themselves and any other contractors they are working with.
Employment Works under someone and is employed on contract. Business owners who employ people to help in their work.
UsageUsed for reporting the paid wages of employees annually. Used for recording wages not paid by the employer.

What is W2?

The W2 form is also known as a Wage and Tax Statement and is used to report the wages earned by the employee in a year. The form is provided by the employer to the employees.

W2 is used to record the wages earned by the employee from the employer over the span of a year. The employer needs to have these records and keep a check on the tax information through this form. W2 form shows the taxes that the employee paid in a year.

The non-cash payments are also recorded in the form. It shows the amount one earned over the span of a year and how much of it is spent in the taxes submitted to the IRS and state. The paycheck of all the months is recorded in the form.

The form requires information about the taxes paid to the IRS, Medicare income, social security, and state taxes. The completed form is then submitted by the employee to the IRS for tax filling purposes.

The employer is obliged to provide the employees with the W2 forms each year, and they also need to fill the form with the necessary insurance information. The forms can be provided in hard copy or online mode for ease.

What is 1099?

1099 is also another tax form that is used by employers to file their taxes. The form records the income an individual earns by being an independent contractor or employee. For instance, small business owners and freelancers like graphic designers, photographers, writers, etc., do not work under someone. Instead, they are independent workers.

There are different types of 1099 form types, and the employer needs to see for themselves which form is suitable for them. The forms must be provided to the contractors by the employer of the company. The form is given to self-employed people, but their income must reach a certain minimum limit to receive the form.

The 1099 worker is the individual who is self-employed and might be employing other people to help in their work. They can be employers and independent workers as well. These people are not provided with any benefits from the company as they are independent workers and are temporary.

These people may work with multiple clients or companies, and hence, they need to pay for their insurances themselves. In this light, 1099 worker needs to report their tax to the IRS themselves. These forms can be given to them by the companies they are related to.

Main Differences Between W2 and 1099

  1. W2 is the tax form useful for the workers employed by any company. However, 1099 tax forms are used by self-employed people or contractors who are working with the companies just as clients.
  2. W2 tax forms contain Medicare expenses, state taxes, and other insurances that are paid by the company for its employees but, 1099 workers need to take care of these expenses themselves.
  3. W2 forms are used to report the wages of the employees with details of each month. On the other hand, 1099 forms are used to report the annual income of the self-employed worker with all the expenses included.
  4. W2 forms are provided by the company, and they need to fill in too to keep an eye on the expenses and income of the employees. 1099 forms, however, were filled by the person themselves and submitted to the IRS too.
  5. W2 workers are employed under someone, and hence, they receive insurance from the company. On the contrary, 1099 workers are independent of such companies, and hence, they need to take care of such expenses by themselves.

Conclusion

The need of an individual for filing their taxes might be different from others due to their different circumstances. W2 workers are permanent and work under the company with the guidance of any head. 1099 workers, though, are self-employed and independent workers. They are not obliged to anyone else other than themselves.

W2 tax forms are provided by the company, and they fill the record of taxes deducted from the salaries of their employees monthly. 1099 workers need to do this process annually, and there is no compulsion to record income for every month.

Both of these forms are used to report the wages of an individual and the taxes they paid annually. For W2 workers, this process is generally done by their company, but for 1099 workers, this task needs to be done by them only.

References

  1. https://www.jstor.org/stable/40913076
  2. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/rutlr69&section=59
  3. https://www.aspeninstitute.org/wp-content/uploads/2016/07/resource_guide_final8-1.pdf
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