1099 vs. W-2

Forms 1099 and W-2 is used to report income. What differentiates these tax forms is the type of income being reported. Form W-2 is used by employers to report wage, salary, and other compensation paid to an employee, hence the name Wage and Tax Statement. Forms 1099, on the other hand, reports income outside of employment.

While there is only one Form W-2, the 1099 comes in multiple variations. Each variation of Form 1099 reports different kinds of income. It can be used to report different types of income anywhere ranging from miscellaneous income to government payments to interest and dividend payments.

The most commonly used Forms 1099 are the 1099-MISC, 1099-INT, 1099-DIV, 1099-G, and 1099-R. Here is a simple breakdown of these Forms 1099.

Form 1099 Variations

Form 1099-MISC reports income paid to nonemployees by a business owner. If you made payments more than $600 to a contractor to do some work, you will file a Form 1099-MISC. Then, the receiver will file their federal income tax return with it.

Form 1099-INT reports interest payments. If you have a savings account, you are going to receive a Form 1099-INT reporting the interest you earned during the course of the tax year.

Form 1099-DIV reports distributions of any kind. As an investor, you will receive Form 1099-DIV by January 31st to report this income on your tax return.

Form 1099-G reports payments made to you by the local, state, or federal government. For example, if you made an unemployment claim, this income will be reported with Form 1099-G.

Form 1099-R reports retirement income. All of your withdrawals from your retirement account(s) whether it be an IRA or 401(k)—depending on the type of retirement account, you will be issued a Form 1099-R.

Reporting Income with 1099 and W-2

The bottom line here is Form 1099 and Form W-2 reports income you earned during the tax year. If you’re a worker, you will receive a Form W-2 for the income you earned through employment. Any other form of income that is outside of employment will be reported using Form 1099.

Also, if you’re going to file any variation of Form 1099, you must also file a Form 1096 to the IRS. This lets the IRS know about the transactions other than employment. Learn more about the use of Form 1096 and how to file one from here.

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