Wages and other payments to employees are reported on Form W-2, while payments to independent contractors are reported on Form 1099-NEC. Each business must classify its workers as employees or independent contractors to file the appropriate form.
Independent Contractors vs Employee
In 2019, Uber got hit with $650 Million in penalties for misclassifying their drivers as independent contractors rather than employees. Their mistake? Issuing 1099-NEC forms instead of the W-2s: the primary point of distinction between the two types of workers. The IRS is very clear about these regulatory practices, and if you don’t follow the rules, you could end up paying some hefty fines for noncompliance.
- Behavioral control −
Does the company have the right to control what the worker does and how the worker does the job? - Financial control −
Does the business direct the financial aspects of the worker’s job? Things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc. - Relationship of the parties −
Is there a written contract or employee-type benefits such as pension plan, insurance, or vacation pay?
What’s the Difference Between 1099 and W-2 Forms?
Now that you have classified your workers, it’s time to understand the difference between 1099 forms and W-2 forms.
1099 vs W2 Forms
Form W-2 is a Wage and Tax statement, and it is used to report an employee’s wages and taxes. It is issued to the employee and the Social Security Administration. The employer issues the form reporting information such as the employee’s social security number, income, and the amount of taxes that were withheld from their paycheck.
Form 1099-NEC is a newer addition to the 1099 series, and it stands for Nonemployee Compensation. This form is used to report payments made to contractors and other nonemployee workers. The payer issues the form, reporting information such as the recipient’s name, address, and social security number. 1099-NEC is used for reporting the compensations paid to the independent worker in exchange for their services if the gross payment is $600 or higher.
Form 1099-NEC vs Form W-2
| Form W-2 | Form 1099-NEC |
| Form W2 is used to report employees’ annual wages and the amount of taxes withheld from their paychecks. | Form 1099-NEC is used to report nonemployee compensation. |
| W2 is used for tax reporting by employers. | 1099-NEC is used for reporting payments issued by businesses to contractors |
| W2 must be filed with the Social Security Administration (SSA) | 1099-NEC does not need to be filed with the SSA. It needs to be filed with the IRS. |
It’s interesting that the main similarity between these two forms is that they are both used for reporting payments issued to workers.
If you accidentally use the wrong form, the IRS will send you a notice, asking you to file the forms with the correct information. But this isn’t the case all the time.
When in doubt, you can always use Tax1099’s AI Assist for help with any questions about filing your tax forms.
Form 1099-NEC Due Dates
| Filing Type | Due Date |
| Recipient copy | January 31, 2025 |
| IRS e-Filing | January 31, 2025 |
| IRS Paper Filing | January 31, 2025 |
Form W-2 Due Dates
| Filing Type | Due Date |
| Recipient copy | January 31, 2025 |
| IRS eFile | January 31, 2025 |
| IRS Paper Filing | January 31, 2025 |
How can Tax1099 help in filling 1099s and W2s?
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