W-2 vs 1099: What Filers Need to Know

How you are paid changes withholding, self-employment tax, and which forms you use.

Form W-2 (employees)

Employers withhold federal income tax, Social Security, and Medicare. You report wages on Form 1040. You generally do not pay self-employment tax on W-2 wages.

Tips, bonuses, and vested equity may still appear on the W-2 — read every box.

Form 1099 (and similar)

Payers use different 1099 variants:

Form	Common use
1099-NEC	Nonemployee compensation (contractors)
1099-MISC	Rents, prizes, other misc.
1099-INT / DIV	Interest and dividends
1099-B	Broker proceeds from sales
1099-G	Unemployment, state refunds, etc.
1099-K	Payment card / third-party network (thresholds change by law/year)

Receiving a 1099 does not always mean you owe self-employment tax — interest and stock sales are different from contractor income.

Independent contractors

If you are self-employed:

• Report income on Schedule C (typical sole prop)
• Pay self-employment tax via Schedule SE (Social Security & Medicare)
• Make quarterly estimated payments if withholding will not cover your bill
• Deduct ordinary and necessary business expenses (keep receipts)

Misclassification

Workers and businesses sometimes disagree about employee vs. contractor status. The IRS looks at behavioral control, financial control, and relationship type. If you believe you were misclassified, see IRS worker classification resources or a tax professional.

Practical checklist

• Collect every W-2 and 1099 — match them to your records
• Report income even if a form never arrives
• Separate personal and business bank accounts if you freelance
• Budget ~25–30% of profit for federal taxes if you have no withholding (rough rule of thumb; your rate varies)

Continue with How to file or the filing checklist.