What Are the Two Main Types of Tax Forms From a Company?

Companies issue various tax forms to individuals each year, reporting income and taxes withheld. Understanding these documents is fundamental for accurate tax filing. While numerous forms exist, two types are particularly common and play a central role in most individuals’ tax situations.

Understanding the W-2 Form

Employers provide Form W-2, officially known as the Wage and Tax Statement, to their employees annually. This document reports the wages paid and taxes withheld from an employee’s earnings. An employee is typically someone whose work is controlled by the employer regarding when, where, and how the job is performed.

The W-2 form details the total wages, tips, and other compensation received by the employee. It also lists the amounts of federal, state, and local income taxes withheld from paychecks. Additionally, it reports Social Security and Medicare wages and the corresponding taxes withheld, often referred to as FICA taxes. Contributions to certain retirement plans, like 401(k)s, and health savings accounts may also be included.

This form is essential for employees when preparing their federal and state income tax returns, specifically Form 1040. The information on the W-2 helps determine an individual’s total taxable income and the amount of tax already paid through payroll deductions. This allows for the calculation of any additional tax owed or a refund due.

Understanding the 1099 Form

Form 1099 reports various types of income received outside of traditional employment wages. For individuals, Form 1099-NEC, or Nonemployee Compensation, is particularly relevant. This form is used to report payments of $600 or more made by a business to independent contractors, freelancers, or self-employed individuals.

While 1099-NEC covers nonemployee compensation, other 1099 forms exist for different income types, such as 1099-MISC for miscellaneous income like rents or prizes. However, the 1099-NEC is the primary form for reporting income earned from providing services as an independent contractor. A key characteristic of income reported on a 1099-NEC is that the payer generally does not withhold income taxes.

The 1099-NEC shows the total compensation paid to the independent contractor. This means the individual receiving the form is responsible for managing their own tax obligations, including income tax and self-employment taxes. This form provides the necessary income information for self-employed individuals to report their earnings on their tax returns.

Distinguishing Between W-2 and 1099

The main difference between a W-2 and a 1099 form lies in the nature of the worker’s relationship with the company. A W-2 is issued to employees. Conversely, a 1099-NEC is issued to independent contractors or freelancers, indicating a payer-contractor relationship where the individual typically has more control over their work methods.

A key distinction between these forms is how taxes are handled. Employers withhold federal income tax, Social Security, and Medicare taxes directly from an employee’s W-2 wages. For 1099-NEC income, however, the payer generally does not withhold taxes, making the independent contractor solely responsible for paying their own income and self-employment taxes. This often necessitates making estimated tax payments quarterly to the IRS to avoid penalties.

The tax implications also differ for the individual taxpayer. Income reported on a W-2 is directly used to complete Form 1040, the main federal income tax return. In contrast, income reported on a 1099-NEC typically requires reporting on Schedule C, Profit or Loss from Business, where business expenses can be deducted before calculating net profit. Independent contractors are also subject to self-employment tax, which covers both the employer and employee portions of Social Security and Medicare taxes.

Beyond tax withholding and reporting, the classification impacts benefits. W-2 employees often receive benefits such as health insurance, retirement plans, and paid time off through their employer. Independent contractors generally do not receive such benefits from the companies they work for. Misclassification of workers can lead to penalties for businesses from the IRS.

Receiving and Using Your Tax Forms

Companies are required to issue W-2 and 1099 forms to individuals by January 31st each year, covering income from the previous calendar year. This deadline allows individuals time to prepare their tax returns before the April 15th filing due date. It is advisable to keep a copy of these forms for at least three years for record-keeping purposes.

Upon receiving your forms, review them for accuracy. Check that your name, Social Security number, and reported income amounts are correct. If you find an error on a W-2 or a 1099, contact the employer or payer who issued the form and request a corrected document. For a W-2, a corrected form is called a W-2c, while a corrected 1099 is a new 1099 with the “corrected” box checked.

If a form is not received by the end of February, or if the issuer is unresponsive to correction requests, contact the IRS for assistance. The IRS may contact the employer or payer on your behalf and can provide Form 4852, Substitute for Form W-2, which allows you to estimate your income and withholding for filing. These forms are essential for accurately completing your federal income tax return, Form 1040, and any relevant schedules like Schedule C.