Your W-2 Form: The Basics
You'll receive a W-2 form if you're an employee. The IRS requires your employer to record your salary and tax information and report it to you on a W-2. The form shows how much money you earned from that employer during the year, which you can use in calculating your adjusted gross income, or AGI. The form also shows your tax withholdings for the year, including federal and state taxes.
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Essentially, the W-2 will give you a sense of how much you were paid and how much you've already submitted to the IRS and your state in taxes.
Your Form 1099: The Basics
The 1099 form, by contrast, records income you received as an independent contractor or for some other source of income. For example, if you're a freelancer or own your own business, you’ll likely receive several 1099 forms from your clients. The IRS requires businesses to issue a form 1099 if they've paid you at least $600 that year.
Depending on your money-making activities, you may receive a few different 1099 forms to track your income. For example, you might receive a 1099-K form, which is used for payments via settlement entities (like PayPal) to record your business transactions for the year. Use the sum total of your 1099 forms to calculate your total income and AGI.
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Under the American Rescue Plan, changes were made to Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App that process credit/debit card payments or electronic payment transfers. The change begins with transactions starting January 2022, so it doesn’t impact 2021 taxes. Beginning with tax year 2022 if someone receives payment for goods and services through a third-party payment network, their income will be reported on Form 1099-K if $600 or more was processed as opposed to the current Form 1099-K reporting requirement of 200 transactions and $20,000. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.
Where 1099 forms differ from W-2 forms is in tax withholdings.
- Taxes are not usually withheld by the payer.
- As a freelancer, you're responsible for estimating your taxes and paying the self-employment tax.
- Instead of withholding taxes with each payment, you'll make tax payments quarterly based on your estimated annual tax liability.
As a result, your 1099 form won't show the taxes you've already paid to the government—just your income from each client.
Using the W-2 and 1099 Forms to File Your Taxes
It's simple to file your taxes, whether you received W-2s, 1099s, or both. Compare the income information on both forms with your records for accuracy. If you file your taxes with TurboTax, you’ll have the option to record or import your W-2 form right away, and easily search for each of the other Form 1099 options.
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