How to Choose W2 or 1099

W-2 and 1099-MISC forms are two tax forms that employers use to report incomes earned by people that work for them. Their employees then use those forms to prove that they earned their income legitimately. Form W-2 is used to report income earned by regular employees, while Form 1099-MISC is used to report income earned by independent contractors. In order to ensure that all the taxes paid property, the employees must understand the differences between the two and fill out the forms accordingly.

W-2 vs. 1099-MISC

From employer perspective, the key difference between employees and independent contractors comes down to their status within the company. Employees are full-time members of the workforce and, as such, are entitled to certain benefits. Independent contractors, on the other hand, are free agents who are not technically part of the company, so they don't get any benefits.

Employers must withhold part of their employees' wages for tax purposes. This includes Social Security and Medicare contributions as well as federal, state and local taxes. Employers must fill out a W-2 form for each employee to explain how much money was paid and how much of it was withheld. With independent contractors, the employers don't have to deduct anything. They can simply fill out a 1099-MISC form for each contractor and put down how much he or she was paid.  If an independent contractor was paid less then $600 during the course of a tax year, the employers aren't required to file an 1099-MISC form.