Understanding W-2 and 1099 Forms
The W-2 form is issued by employers to employees by January 31st of each year. It shows: Box 1 (Federal wages), Box 2 (Federal income tax withheld), Box 4 (Social Security tax withheld), Box 6 (Medicare tax withheld), and state tax information. Employers are responsible for withholding the employee's income taxes and paying both the employer and employee shares of FICA taxes. The 1099-NEC (Nonemployee Compensation) is issued to independent contractors, freelancers, and self-employed individuals who received $600 or more from a single payer during the year. Key difference: 1099 income has NO taxes withheld — the recipient is responsible for paying both the employee AND employer portions of Social Security and Medicare taxes (self-employment tax) plus income tax. Other 1099 types: 1099-INT (bank interest income), 1099-DIV (dividend income), 1099-B (brokerage sales/capital gains), 1099-R (retirement distributions), 1099-G (government payments including tax refunds and unemployment compensation), 1099-K (payment card and third-party network transactions over $600 — controversial threshold). The distinction between employee (W-2) and independent contractor (1099) is determined by IRS criteria around behavioral control, financial control, and type of relationship — workers cannot be misclassified.