There are over 157,000 employed individuals in the United States. But the American worker is taking on a new identity.

While many employees still work at an office or another place of establishment, many American workers are getting paid to type on their computers in their PJs or to drive around in their car while creating their own hours.

These employees differ for a couple of reasons, namely their tax documents and the way the IRS recognizes them. We can separate these employees by who receives a 1099 tax form or a W2 tax form. Here’s your 1099 vs W2 guide.

1099 vs W2: In a Nutshell

1099 and W2 are both documents that report your income earned and the taxes you paid throughout the year and/or the taxes you owe. Here are the differences and how to know which tax form you should receive.

1099

If you’re an independent contractor, self-employed worker, and/or sole proprietor, you’ll receive the 1099 tax form.

Independent contractors are their own business owners. The IRS recognizes these workers as sole proprietors.

They’re given many responsibilities and benefits as a business owner, though their classification doesn’t require a business establishment.

Those who receive a 1099 form commonly do contracting work for clients.

Their work can be either temporary or ongoing. But they’re not an employee of the business, meaning they can work from anywhere and can work any hours they choose.

However, these workers don’t receive any employee benefits. They are also responsible for paying their taxes.

A 1099 form is a tax form that contractors receive from their clients.

The clients report the wage they paid the contractor. The 1099 form is proof of an independent contractor’s income, so there’s a good chance a contractor will get several 1099 forms from their different clients.

The IRS uses the 1099 form to calculate the contractor’s income and to determine how much tax they owe.

W2

W2 is the tax form that most employees recognize. The W2 form details not only the yearly wages the employee received but also the amount of tax that was taken out of their paycheck.

The W2 form breaks down how much tax was paid to specific avenues, such as state tax and social security tax.

Employees of a company receive a W2 from their employers. Employees receive a salary or hourly wage and benefits. Their employer also deducts their taxes from their paycheck.

This means many employees receive a tax return during tax time.

They make the tax form using a W2 form generator or equivalent and the employee receives their W2 form before the 31st of January.

 

Do You Want to Be a Contractor or an Employee?

Now that you know all about 1099 vs W2, it’s time you decide which classification you want to be.

Even though independent contractors are responsible for paying their own taxes, you have the freedom to work where you want and set your own hours. But most people like job security, salary, and benefits of employment.