What’s the difference between a Form W-2, Form 1099-MISC, & Form 1099-NEC? (Video)

By the time tax season rolls around, you may feel overwhelmed with the variety of forms that you need to have and keep track of. They may all seem similar or you may be unsure of why you need one over another. Here is an example of some of the forms that you may confuse, but need to understand come tax time.

What’s the difference between a Form W-2 and a Form 1099-MISC or Form 1099-NEC? All three documents serve the same basic purpose.  The payer reports the amount of payments to the recipient and to the IRS.  This way, the IRS can make sure the recipients are including the income on their tax returns and the recipient has a concise record that sums up all the payments made to him during the year.

• An employee gets a W2 which shows the total taxable wages earned for the calendar year.  The form also shows the taxes that were withheld, any retirement plan deferrals, and other information like the total cost of employer-sponsored health care coverage.
• Form 1099-NEC is for non-employee compensation.  This is used to report payments made to individuals or non-incorporated businesses who performed services for the payer.  Typically, we think of issuing Form 1099-NEC to our business’s independent contractors.
• Form 1099-MISC is issued for many different types of payments, but typically for ones that are not subject to self-employment taxes.  Some of the payments that go on this form include rent, royalties, and medical & health care payments paid in the course of your trade or business.

Remember, only businesses need to issue 1099s.  An individual may hire someone to perform services for them (like moving their lawn or cleaning their home), but he doesn’t need to issue a 1099.  Whether or not a form is issued does not change the taxability of the payment for the worker, however.  All income for services performed is subject to income tax even if no tax form is issued to you.

If you have any further questions about the forms you need prepared for tax season this year, reach out to an Alloy Silverstein advisor today!

Learn more:

• Year-End Tax Planning for Your Business to Prepare for 2023
• Your Tax Records: Toss This, Not That
• A Guide to Post Tax-Filing Record Retention
• What Tax Records Do I Need to Keep?
• Year-end tax planning for your business