How to File Taxes With a W-2 and a 1099

1099 and W-2

Working two jobs is no longer the exception. It is becoming more and more popular, especially with millennials. A second “side gig” allows you to have your dream job, even if that job doesn’t yield a lot of income. To support your passion, you usually have a “day job” or a more regular, standard job that receives a W-2. More and more tax returns that include both a W-2 and a 1099 MISC are filed each year. 

What is a W-2? 

If you work at a salaried or hourly job as a regular employee, you will receive a Form W-2. This form stands for “Wage and Tax Statement”.  Your employer will send a copy to you and one to the IRS to report your wages and the total tax withheld from those wages.  

When do I receive a W-2? 

Employers are required to send you your W-2 by January 31st of the year after which you worked for them.

What is a 1099 MISC? 

If you earned more than $600 as a contract employee or from other self-employed work, you should receive a Form 1099-MISC from the person who paid you to perform your job or service. 

When do I receive a 1099 MISC? 

Employers are required to send you a 1099 by January 31st of the year after you worked for them. However, 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. The only 1099 form you need to ask for if you don’t receive it is a 1099-R. This is why it is especially important to keep your own earnings and expenses records. You can also pay quarterly estimated taxes to decrease the amount of tax you will owe at tax time. Read more on paying estimated quarterly payments here.

What is the difference between a W-2 employee and a 1099 worker? 

An employee receives a W-2 and a contractor receives a 1099. There are three determining factors listed by the IRS to decide whether you are an employee or a contractor.  

  1. Behavioral Control: Does your employer control how you do your job? 
  2. Financial Control: Does your employer pay for the tools needed to perform your job? Do they reimburse your job-related expenses? 
  3. 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 are an employee. If you answered no, then you are a contract worker.  

Can receive a 1099 and a W2 from the same employer? 

Technically yes, you can receive both forms from the same employer. But this is usually rare. For example, if you work a regular 40-hour week under a contract, you would receive a W-2. 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 can receive a 1099 for that extra work. The bottom line is if you, the employee, perform work that would be paid with a 1099 if done by a non-employee, you will be paid with a W-2 for your regular work and a 1099 for your freelance work. 

What is the self-employment tax?

The self-employment tax is a tax paid by people who work for themselves. They do not have an employer withholding taxes from their paycheck year-round and are required to pay a lump sum at tax time. The rate is 15.3% which covers Social Security and Medicare. Read more about the self-employment tax here.

Am I required to pay the self-employment tax?

If you have a side gig and receive a Form 1099, then you are considered self-employed by the IRS and must pay the self-employment tax. Self-employed is an umbrella term that covers many different occupations. Read more about types of self-employed jobs here.

Will having two jobs increase or decrease my refund?

Typically, when you enter your first form of income, 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 increasing or decreasing your refund. You only get a refund when you are withholding too much income from your paycheck. That’s why self-employed taxpayers usually don’t receive a refund. If you pay quarterly estimated payments, you can avoid this inflation that makes it look like your refund is less. If you do have a W-2 job, make sure to check your withholdings to verify that you are receiving the correct amount of income each month. Read more about checking your withholdings here

This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.

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