As an American taxpayer, understanding the difference between a W2 and 1099 is essential for filing your taxes properly. But what exactly is the difference? This blog post will explain what makes each form unique and how you can decide which is best for you.
W2 vs 1099
A W2 and 1099 are two different types of tax forms used by employers to report employee earnings to the IRS. A W2 form is sent out to employees who are classified as employees by their employer, while a 1099 is sent out to independent contractors or freelancers who perform services for another company or individual.
The main difference between a W2 and 1099 lies in how taxes are collected from each employment type. When you receive a paycheck as an employee, taxes have already been withheld from it, meaning that when it comes time to file your taxes, you don’t owe any additional money. If you’re an independent contractor, however, no taxes are withheld from your paycheck. Instead, you are responsible for reporting all of your earnings on your tax return and paying any necessary taxes that may be due. It’s important to note that if you earn more than $600 in any given year as an independent contractor, you should expect to receive a 1099 form from whoever hired you at the end of tax season.
Another difference between these two forms lies in other benefits such as health insurance or vacation days. Employees who receive a W2 typically receive these benefits from their employer; however, workers classified as independent contractors do not receive them because they are not considered employees of the company or individual hiring them. It’s important to consider this factor when deciding whether or not to accept work as an employee or contractor; depending on your particular needs or lifestyle, one may be more beneficial than the other for you personally.
Deciding whether or not to accept work as an employee or contractor is an important decision that can affect both how much money you make and how much money you pay in taxes each year. Before making any decisions regarding employment status it’s important to understand both the differences between a W2 and 1099 form—as well as the implications those differences have on various aspects of your life—so that you can choose wisely. Understanding these nuances will help ensure that whichever route you choose will be beneficial for both yourself and your wallet!