The Difference Between 1099s and W-2s

1099s and W-2s will be received in February, so it is important to understand ahead of time the difference between the two forms. The employee who receives a W-2 will have paid state and federal taxes through automatic deductions from their paycheck all year and the 1099 employee will have paid quarterly federal and state income tax payments themselves.
Here is a simple layout of the differences between 1099s and W-2s.

The W-2 Employee

• Is paid on an hourly or salaried basis.
• Has no pre-determined or agreed-upon end date to employment.
• Upon hiring, fills out a W4 form.
• Receives a W-2 tax form, which includes wages, tips and commissions earned by the employee in the previous year, as well as the total amounts paid to state, local and federal government(s).

The 1099 Employee

• Is hired on a contractual or project basis with an end date or agreed upon end to employment.
• Upon hiring, fills out a W9 form.
• Receives a 1099 tax form, which includes the total compensation that the employee received in the previous year without any payments to state, local and federal government(s).
• Is responsible for paying quarterly taxes throughout the previous year, which pay for state, local and federal tax responsibility.
• The 1099 form is also used to record prize money or royalties as a form of income that is subject to taxation.

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