The information in this article is up to date for tax year 2022 (returns filed in 2023).
America’s workforce looks different today than it did just ten years ago. It’s more and more common to work full-time for an employer and have a side-gig to earn additional income. If this sounds like your situation, here is what you need to know when it’s time to file your tax return.
What’s the difference between a W-2 and a 1099-NEC?
A W-2 and a 1099 are two very different tax forms, but they basically do the same thing: Both forms show how much money you’ve earned for work you’ve done during the year. Your employment type will determine which form you’ll receive at tax time.
When you work at a salaried or hourly job as a regular employee, you will receive a Form W-2, Wage and Tax Statement. Your employer should send one copy of the form to you and one to the IRS, reporting your wages and total tax withheld from those wages.
Form 1099-NEC is used to report compensation paid to non-employees. This includes contract workers (self-employed) and anyone who is paid for performing work but is not technically an employee. So, if you do freelance work or you’re a sole proprietor, you can expect to get a 1099 from any client who paid you more than $600 in one year.
Independent contractors may also receive a 1099-MISC for income that isn’t subject to self-employment taxes. Read The Ultimate Guide to the 1099-MISC for the Freelancer to learn more.
Why did I get a 1099 instead of a W-2?
If you receive a 1099-NEC, it means the organization who pays you (i.e. a business, a client, etc.) is treating you like an independent contractor for tax purposes. You’ll need to pay your own income tax and self-employment tax, since none of these amounts are withheld from paychecks throughout the year.
There are three determining factors listed by the IRS to decide whether you are an employee or a contractor.
- Behavioral Control: Does your employer control how you do your job?
- Financial Control: Does your employer pay for the tools needed to perform your job? Do they reimburse your job-related expenses?
- Type of Relationship: Do you have a written contract with your employer? Do you receive benefits? Is your contract longer than one project?
If you answered yes to most of these questions, then you should be classified as an employee and get a W-2 at tax time. If you answered no, then you should be classified as a contract worker and get a 1099-NEC.
For more about this, read Independent Contractor vs. Employee: What’s the Difference?
Is W-2 income taxed the same as 1099 income?
No, W-2 income will be taxed differently than 1099 income in a couple of important ways.
First of all, as a W-2 employee, you only pay 7.65% of your FICA tax out of pocket. Your employer is responsible for the other 7.65%. The other major difference is that your employer withholds tax from your paycheck to cover your tax liability all year long.
As a 1099 worker, there are no income taxes withheld from your paycheck, so you’ll be responsible for calculating and paying your full tax liability when you file your tax return. You’re also responsible for paying your entire 15.3% FICA tax, also called the self-employment tax.
You know you can also pay quarterly estimated taxes instead of paying in full at tax time. Read more about quarterly estimated payments.
Can I receive a 1099 and a W-2 from the same employer?
Technically yes, you can receive both forms from the same employer. But this is rare. An example might go something like this:
Say you work a regular 40-hour week as a traditional employee. You’ll receive a W-2 at the end of the year for that job. But if you also performed work that differs from your own job, like cleaning the office on the weekend or being on a committee for a work-related event, then you might receive a form 1099-NEC for that extra work.
When will I get my 1099?
Employers are required to send you a 1099 by January 31 of the year after you worked for them. But unlike a W-2, you don’t need a Form 1099 to file your return. You can report your income from your contract jobs by yourself. This is why it is especially important to keep your own earnings and expenses records. The only 1099 form you need to ask for if you don’t receive it is a 1099-R.
Do I have to pay self-employment tax for my side-gig?
It depends. If you receive a Form 1099, the IRS is considering you self-employed, and you’ll be expected to pay the self-employment tax.
Can I file a 1099 and a W-2 together on the same tax return?
Yes, TaxSlayer Self-Employed lets you enter both types of income on the same tax return. It also includes all the schedules you’ll need to calculate your tax bill and report your self-employment expenses.
Simply follow the step-by-step instructions in the program. Your info will be automatically entered into the correct forms and schedules, and the calculations will be done for you. Once your return is complete, you’ll submit all the forms, schedules, and any other necessary documentation together to the IRS.
Create a free TaxSlayer account to get started.
Can I deduct my self-employed expenses if I have 1099 and W-2 income?
Yes, your self-employed business expenses are deducted directly from your income on your Schedule C. But remember: If you deduct your expenses, you must be able to show that they are for specific business purposes—so it’s important to keep your receipts and organize your records.
You generally can’t deduct work-related expenses for your W-2 job.
Does having two jobs increase or decrease my refund?
In general, you could expect a refund if you had more income withheld than you owe for taxes. But it’s important to note that, if you’re getting a 1099, none of that income has been withheld to cover your tax liability. That’s why self-employed taxpayers usually don’t receive a refund.
Your W-2 job might be able to help. Since your employer can and will withhold money from your paycheck for taxes, consider increasing your withholding amount to cover what you owe for your self-employment tax. This will help ensure that you don’t have a surprise tax bill at the end of the year.
Note: Typically, when you enter your first form of income into your return, your refund is inflated due to the standard deduction being withheld from that amount. When you enter your second income, it reduces your refund because the standard deduction only applies once. But this is not actually increasing or decreasing your refund.