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The Difference Between a 1099 and a W-2 Tax Form

Updated for Tax Year 2022 • October 18, 2022 07:05 AM


OVERVIEW

Both the Form W-2 and Form 1099 serve a similar purpose—to report income you earned from sources throughout the tax year—but each is issued under different circumstances and requires slightly different approaches for tax season planning. Here are some tips to decode these two forms and what to expect when preparing your taxes.


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Your W-2 Form: The Basics

You'll receive a W-2 form if you're an employee. The IRS requires your employer to record your salary and tax information and report it to you on a W-2. The form shows how much money you earned from that employer during the year, which you can use in calculating your adjusted gross income, or AGI. The form also shows your tax withholdings for the year, including federal and state taxes.

Essentially, the W-2 will give you a sense of how much you were paid and how much you've already submitted to the IRS and your state in taxes.

Your Form 1099: The Basics

The 1099 form, by contrast, records income you received as an independent contractor or for some other source of income. For example, if you're a freelancer or own your own business, you’ll likely receive several 1099 forms from your clients. The IRS requires businesses to issue a form 1099 if they've paid you at least $600 that year.

Depending on your money-making activities, you may receive a few different 1099 forms to track your income. For example, you might receive a 1099-K form, which is used for payments via settlement entities (like PayPal) to record your business transactions for the year. Use the sum total of your 1099 forms to calculate your total income and AGI.

Beginning with tax year 2022, if someone receives payment for goods and/or services through a third-party payment network, their payments are required to be reported on Form 1099-K if more than $600 was processed during the year. Those payments can include income as a result of business (self-employed, independent contractor, freelance, gig-work), real estate rental, hobby sales, personal item rental or sale.

Where 1099 forms differ from W-2 forms is in tax withholdings.

  • Taxes are not usually withheld by the payer for 1099 forms.
  • As a freelancer, you're responsible for estimating your taxes and paying the self-employment tax in addition to your income tax.
  • Instead of withholding taxes with each payment, you'll typically make tax payments quarterly based on your estimated annual tax liability.

As a result, your 1099 form won't show the taxes you've already paid to the government—just your income from each client.

Using the W-2 and 1099 Forms to File Your Taxes

It's simple to file your taxes, whether you received W-2s, 1099s, or both. Compare the income information on both forms with your records for accuracy. And remember that just because you did not receive a 1099 or W-2 form for certain income doesn't mean that you can leave it off of your tax returns. You are required to report all of your income.

If you file your taxes with TurboTax, you’ll have the option to record or import your W-2 form right away, and easily search for each of the other Form 1099 options.

With TurboTax Live Full Service Self-Employed, work with a tax expert who understands independent contractors and freelancers. Your tax expert will do your taxes for you and search 500 deductions and credits so you don’t miss a thing. Backed by our Full Service Guarantee. You can also file your self-employed taxes on your own with TurboTax Self-Employed. We’ll find every industry-specific deduction you qualify for and get you every dollar you deserve.

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