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1099 vs W-2, what you need to know!

The Internal Revenue Service (IRS) is the revenue service organized by the federal government of the United States whose responsibilities solely lies in collecting taxes as well as administering the Internal Revenue Code (IRC).

The IRS ensures employer correctly record employees’ salary and tax information and reports the tax activities or information to an employee on a W-2 form. W-2 shows exactly how much money you have earned from an employer during a particular year, and this can possibly be used to calculate adjusted gross income also known as AGI. Both 1099 and W-2 are the tax forms all employers make use to report taxes and wages withheld for workers of different types.

Form 1099

The 1099 form, by contrast, shows details of the income that has been received as an nondependent contractor or for other means of income. As an instance if one owns a business, one is likely to receive several 1099 forms from several other clients engaged. So IRS has established a standard that has mandated businesses that once $600 has been paid to particular person within a year, then a form 1099. It is very important to note that there are different types of 1099 forms and each type can be issued to an individual depending on the money-making activities.

Who is a 1099 worker?

A 1099 worker can be categorized as a self-employed worker or a freelancer. These types of workers will be hired for a particular task over a specific period of time as established in a contract of agreement.

Form W-2

IRS Form W-2 also known as Wage and Tax Statement basically gives details of an employee’s net income from the previous year; it shows taxes that have been withheld by an employer. A simple to way to explain this is that employers send employees a Form W-2 in January along with a copy to the Internal Revenue Service and these employees use Form W-2 to prepare their tax returns.

Any employer that has been able to pay at least $600 to an employee during the year must provide W-2 form and also send a copy to the Internal Revenue Service and other information such as Tip Income may also be included on the W-2.

The IRS has established the fact that employers must include salary and wage information on form W-2. Form W-2 also reports state and federal taxes withheld on a paycheck. Please note that the information on W-2 is used for preparing tax return. As stated by IRS, employers must send W-2 by latest January 31.

An employee should receive a form W-2. As an independent contractor or self-employed, it is possible to do the same work as an employee and have earnings on a different forms.  So in this case the self-employed personnel receive his earning on a Form 1099 unlike an employee who receives earnings on a Form W-2.

Can I receive a 1099 and a W-2 from the same employer? 

It is technically possible as one can receive both forms from the same employer. But it is a special case. For instance, if one works a regular 40 hour in a week under a contract, one receives a Form W-2. So, if one also performs other different job like packing snows on a Saturday and Sunday or being on a committee for a work-related event, then it is possible to receive a 1099 for that additional work. The main fact here is that if an employee perform work that would be paid with a 1099 if done by a non-employee; the employee will be paid with a W-2 for your regular work and a 1099 for your freelance work.

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