by Michael Lodge
We get many individuals that come into our office that feel they are working full time and are an employee of the company they are working for, but at the end of the year they get a 1099-MISC. No taxes are taken out and all of a sudden they have a self employment tax bill due. So lets discuss what the difference between a W-2 for employees and a 1099-MISC as a independent contractor, what do both forms report.
Question: What is the difference between a Form W-2 and a Form 1099-MISC?
Although both of these forms are called information returns, they serve different functions.
Employers use Form W-2, Wage and Tax Statement, to:
- Report wages, tips, and other compensation paid to an employee.
- Report the employee’s income and social security taxes withheld, and other information.
- Report wage and withholding information to the employee and the Social Security Administration. The Social Security Administration shares the information with the Internal Revenue Service.
Payers use Form 1099-MISC, Miscellaneous Income, to:
- Report payments made in the course of a trade or business to a person who is not an employee or to an unincorporated business.
- Report payments of $10 or more in gross royalties or $600 or more in rents or compensation. Report payment information to the IRS and the person or business that received the payment.
If you got a 1099 make sure you talk to your accountant on how to report the income and what expenses are allowed to take against the 1099 income. It is important to talk to a tax accountant on your status with the company you are working with, you may not be an independent contractor and may be a full time employee.
If you need tax help, call our office at 877.778.1770