The quick takeaway is that W-2 forms are for employees who are hourly or receiving a salary, while 1099s are for people who are contractors or freelancers (i.e. don't draw any benefits and aren't subject to the same labor laws as employees).
Most importantly, the way these two different kinds of income are treated on your tax return is very different.
W-2 / Employees
- You will fill out a Form W-4 when you start these jobs.
- The company will withhold income taxes with each paycheck, along with social security, and Medicare taxes. They base the amount of income tax they withhold on the answers you give on the W-4, so make sure to check out the article linked above.
- You'll receive a Form W-2 in January of each year that shows how much income you received in the prior year and how much tax was withheld.
- You generally cannot take expenses on this kind of income.
1099s / Contractor/Freelancer/Self-Employed
- In most cases, you'll be asked to fill out a Form W-9 when starting the job. This just lets the company/person know the information they need in order to issue you a 1099.
- The company will not withhold any taxes, which means you are responsible for paying them yourself.
- You may receive a Form 1099-NEC or 1099-MISC in January of each year you do freelance work showing how much you got paid. But companies also might not send anything. Make sure to track your income regardless.
- You can take business expenses for this kind of income (like equipment rental, van rental, sub-contractors, etc).
I Got Both Kinds of Forms (Or the Wrong Kind)
Sometimes companies are a little fast and loose with the terminology they use with people. They'll say you're a freelancer, or a freelance employee, but then send you paychecks or a W-2 at the end of the year.
And even more common, we have tons of clients who have one or more W-2 jobs and ALSO get 1099s for other jobs.
Regardless of the words people use to describe your work, what matters for taxes is the form they send you. That's what we go by.
And it's totally fine to have both kinds of forms in the same year. That's nothing to worry about.
I Also Got Other 1099s
1099s come in MANY varieties. The ones that focus on freelance income are generally the 1099-NEC (which stands for 'non-employee compensation') and the 1099-MISC (which stands for 'miscellaneous').
If you have investments or are withdrawing money from a retirement account, you may also have a 1099-B, 1099-INT, or 1099-DIV (for brokerage, interest, or dividends, respectively) or a 1099-R (for retirement). And if you got unemployment, you'll receive a 1099-G (for government).
Basically all the 1099s are describing some kind of income. But when we're asking about your freelance income in particular, what we want to know about is the money you got for your services, art, goods, etc, not the other stuff.
We've got an article here about which forms to upload to our website for your tax appointment.
Get started on your tax return today by signing up for an account.