In this article, you will discover everything about the W-2 form and the 1099-NEC form. What they are, how they work, and what their differences are.
Let’s get started.
Differences between the W-2 Form and the 1099-NEC Form
The main difference is that the W-2 form is issued by employers to employees.
In contrast, the 1099-NEC form is issued by payers to non-employees, who could be individuals or independent businesses providing services.
How Does the W-2 Form Work in the United States?
It’s a tax form that businesses use to report the annual compensation they pay to their employees and the payroll taxes withheld from the compensation.
Employers must send this W-2 form to their employees via mail by January 31 of the following calendar year.
Upon receiving the form, employees receive their payment through their employers’ payroll, and payroll taxes are withheld throughout the year.
You can find and download the W-2 form here.
What are the benefits of hiring an employee with the W-2?
- You have more control over their job responsibilities and schedule.
- You maintain a stable relationship between the employee and the employer.
- The employee is protected under federal and state labor laws. In other words, they have the right to receive overtime pay, minimum wage, medical and family leave, among other benefits.
When is the 1099-NEC Form Used?
When a company hires individuals or agencies that provide services, they must report these payments through a series of documents that make up the 1099-NEC form.
The payments made during the previous year must be reported.
However:
When a company pays a worker or independent business $600 or more in a calendar year, they must send them a completed Form 1099-MISC (Copy B) before January 31 of the following calendar year.
Simultaneously, when a company sends a Form 1099-MISC (Copy B) to a worker or service provider, they must also fill out Form 1099-MISC (Copy A) and send it to the IRS before January 31 of the following calendar year.
About these 1099-MISC forms, you can request a free copy from the IRS here.
After these forms, there are some others to file, but we will focus on the W-2 and 1099-NEC forms in this article.
Benefits of Hiring an Independent Worker or Business
- You don’t have to worry about payroll taxes.
- You have more flexibility in choosing the times they will work with you.
- They provide their own equipment and tools.
- You don’t pay benefits.
What is the Difference Between an Employee and an Independent Worker in Terms of Payments?
Typically, when you hire an independent worker, it’s because of their expertise in a specific field. Therefore, they are paid by the hour and at a higher rate (depending on their expertise).
An employee is someone who is hired by the company on a fixed payroll.
The difference lies in that independent workers are not subject to social security and Medicare taxes or other benefits that employees receive.
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We hope you have managed to resolve your doubts regarding the W-2 and 1099-NEC forms.
If you need assistance or legal advice for your business in the United States, then contact us.
