Can You File a W-2 and 1099 Together?
When you have both employee wages and contractor income, your tax return merges two different systems. Learn how to report both types of earnings accurately.
It is common for individuals to earn income from both traditional employment and independent contract work within the same tax year. You are required to report all sources of income to the Internal Revenue Service (IRS) on a single tax return. This means income from a Form W-2 and a Form 1099-NEC are filed together on your Form 1040. The process involves understanding how to handle each income type before combining them to calculate your total tax liability.
Reporting Your W-2 Employee Income
Your Form W-2, Wage and Tax Statement, summarizes the annual wages paid and taxes withheld by your employer. The figure in Box 1, “Wages, tips, other compensation,” represents your total taxable earnings from that job and is transferred to your Form 1040. Box 2 shows the total federal income tax that was withheld from your paychecks during the year, which acts as a credit against the total tax you owe. Other boxes detail the amounts withheld for Social Security and Medicare taxes, known as FICA taxes. For a W-2 employee, your employer pays half of these taxes, and the other half is withheld from your pay.
Reporting Your 1099 Independent Contractor Income
Income reported on Form 1099-NEC, Nonemployee Compensation, is treated as business income. This requires you to calculate your net profit or loss from your self-employment activities using Schedule C, “Profit or Loss from Business.” You report the total gross income you received from all clients on Schedule C. Even if you earned less than the $600 threshold for receiving a 1099-NEC from a client, you are still required to report all self-employment income.
From your gross income, you subtract the costs of running your business to determine your net profit. These business expenses must be ordinary and necessary for your work. Common deductions include:
- The business use of your home, calculated using either a simplified or actual expense method
- Vehicle expenses, where you can use the standard mileage rate (67 cents per mile for 2024) or track actual costs
- Office supplies and business-related software subscriptions
- Professional fees paid to lawyers or accountants
- Business insurance premiums
- The cost of health insurance premiums if you are not eligible for a plan through a spouse’s employer
The total of these deductions is subtracted from your gross income on Schedule C to find your net profit or loss.
Calculating Self-Employment Taxes
The net profit calculated on your Schedule C is subject to self-employment tax, which is calculated on Schedule SE, “Self-Employment Tax.” As a self-employed individual, you are responsible for paying both the employee and employer portions of Social Security and Medicare taxes. This combined tax rate is 15.3% of your net self-employment earnings. You only pay self-employment tax on 92.35% of your net earnings from the business.
The 15.3% rate is applied to this adjusted amount and consists of a 12.4% Social Security tax, which applies up to an annual income limit ($168,600 for 2024), and a 2.9% Medicare tax with no income limit. The result of the Schedule SE calculation yields the total self-employment tax you owe and a deduction for one-half of your self-employment tax.
Combining Income and Filing Your Tax Return
The final step is to assemble all figures onto your Form 1040. Your W-2 wages are reported directly on Form 1040. The net profit from your business, as calculated on Schedule C, is reported on Schedule 1 of Form 1040 as additional income. The deductible portion of your self-employment tax and the self-employed health insurance deduction are also reported on Schedule 1, reducing your total income to arrive at your adjusted gross income (AGI).
The total self-employment tax from Schedule SE is transferred to Schedule 2 of Form 1040 as an additional tax. Any federal income tax withheld from your W-2 is reported on the main Form 1040 as a payment you have already made. After considering all income, deductions, and tax credits, these forms consolidate to determine your final tax liability or refund.