How to File W-2 and 1099 Together: A Comprehensive Guide

In today’s volatile economic climate, many professionals have multiple streams of income and often engage in contractual or freelance work in addition to their regular employment. In these cases, they need to know how to file W-2 and 1099 together to ensure tax compliance and avoid problems with the IRS.

This article explores the differences between Form W-2 and Form 1099, examines when you might need to file both, and provides a step-by-step guide on filing them properly. Also, it discloses some of the most common mistakes individuals make when filing W-2 and 1099 forms together.

Key Takeaways

• You need to file W-2 and 1099 together if you received income from traditional employment and independent work within the same tax year.
• Form W-2 details an employee’s wages and taxes withheld, while Form 1099 reports various types of income from nonemployment.
• Typical scenarios in which you’ll need both documents include doing side hustles while having a main job, transitioning from employment to contracting (and vice versa), and being a dual-status worker.
• You can use Paystub.org’s software tools to generate professional and accurate Forms W-2 and 1099, as well as pay stubs and invoices.

Form W-2 vs. Form 1099: What Are the Key Differences?

When comparing W-2 vs. 1099 forms, the main difference is that the former is provided by an employer to an employee, while the latter is given to an independent contractor. Let’s see what that means by examining each form individually.

Form W-2

Let’s start with the Form W-2 and examine its main aspects:

• Definition: Form W-2, Wage and Tax Statement, is an annual statement that an employer files for each of their employees.

• Purpose: The document contains all of the employee’s earnings and withheld taxes for the year. This includes regular wages, tips, bonuses, and other compensation, as well as federal, state, and other taxes withheld from their paycheck.

• Who is it for: Form W-2 is reserved for employees who are on the company’s payroll and are typically receiving their wages on a regular payment cycle.

• Filing requirements: Every employer must file Form W-2 for every employee that they paid $600 or more for the year, as long as they also withheld income, Social Security, or Medicare tax from their paycheck.

Form 1099

Now, let’s take a look at the main aspects of Form 1099:

• Definition: The Form 1099 group encompasses different documents used to report nonemployee income. The most common is Form 1099-NEC, Nonemployee Compensation.

• Purpose: This family of IRS forms is used to report nonemployment income, with each form corresponding to a specific income category. For instance, Form 1099-B is used for proceeds from broker and barter exchange transactions, while Form 1099-DIV is used for dividends and distributions.

• Who is it for: Form 1099 is typically used for freelancers and independent contractors who are earning income outside traditional employment.

• Filing requirements: Requirements vary depending on the specific form. The most common Form 1099-NEC is filed by businesses that hired and paid self-employed professionals or entities at least $600 in a tax year.

Form W-2 vs. Form 1099 Comparison Table

Here’s a concise table that outlines the main differences between these two documents:

When You Might Need to File Both Forms

You have to file W-2 and 1099 together every year during which you made both employment and nonemployment income. There are several situations during which this can happen, such as:

• Doing a side hustle during full-time employment. Many individuals work in a variety of capacities, ranging from occasional gigs to serious independent contractor work, in addition to their regular jobs. This is particularly prominent in fields where freelancing is popular, like graphic design, programming, consulting, or writing.

• Transitioning from employment to contracting (and vice versa). If you started the tax year working as an employee before switching to contractual work along the way (or the other way around), you’ll have to report both your income as an employee (using Form W-2) and as a contractor (using Form 1099-NEC).

• Freelancing while working a part-time job. Many part-time workers are classified as employees, which means they’ll receive Form W-2 during the tax season. If they supplement their income with freelancing or side gigs, they’ll need tax forms for multiple jobs.

• Being a dual-status worker. In rare instances, an employer can have a worker on the payroll while also compensating them for another type of services that falls under the category of contractual work. The distinction needs to be clear, however; otherwise, the employer and employee may face legal issues due to worker misclassification.

How to File W-2 and 1099 Together

As an employee, you don’t directly file Form W-2 and 1099 together, but instead use the information they provide to fill in and file Form 1040, U.S. Individual Income Tax Return. Then, you attach your Form W-2, if you receive it, as well as Form 1099-R, if tax was withheld.

If you haven’t received your Form W-2 and Form 1099-R by the tax filing deadline, you should call the IRS for assistance, as per the tax topic number. 154.

Step 1: Gather All Forms

The first step in reporting multiple income sources is to gather all the necessary forms from your employers and clients. This includes collecting Form W-2 from each employer and Form 1099-NEC from every client who paid you $600 or more in the same tax year.

Once you have the documents that detail every payment you received, you want to verify their accuracy. Look for specific details, like your name, the Social Security Number (SSN), and the Employee Identification Number (EIN), to make sure that you’ve received the proper document.

Moreover, you want to check the numbers and verify the amounts for income and deductions on every form. If you encounter any discrepancies or inaccuracies, you should immediately contact the issuer to rectify the problem and provide you with a corrected form. Incorrect forms can lead to improper tax filing, which can further escalate into bigger issues and tax disputes.

Step 2: Report W-2 Income

You should start the filing process with W-2 income, as it is reported directly on Form 1040. The process is straightforward, which is why you should report employment income before nonemployment earnings.

The process includes taking the information from your Form W-2 (or multiple forms) and entering it on the appropriate lines on your Form 1040. This includes details such as your total wages, federal income tax withheld, and tip income, among others.

If you had multiple employers within the same tax year, and thus more than one Form W-2, you should add the amounts from each form and include the totals in your Form 1040.

Lastly, you need to attach Form(s) W-2 that you received and used to fill in the required information before submitting your 1040.

Step 3: Report 1099 Income

Reporting 1099 income requires additional work, as you will need to use Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).

You need to report your total income from all Forms 1099-NEC on Part I of Schedule C. This is where you’ll ultimately report your gross profit and gross income. Following that, you’ll report your expenses on Part II, which includes aspects like advertising, car and truck expenses, commissions and fees, depletion, depreciation, and more.

After that, you’ll need to calculate your self-employment tax using Schedule SE (Form 1040), Self-Employment Tax. This will show your Social Security and Medicare contributions.

Lastly, you will attach Schedule C and Schedule SE to your Form 1040 and file them together. In general, you don’t need to attach your Form 1099-NEC.

Step 4: Deduct Expenses

As previously mentioned, when reporting your 1099 income, you’ll also include the expenses. The main benefit of reporting these expenses is that you can use them as deductions to legally lower your taxable income, thus reducing your tax liability.

Some of the most common tax deductions include:

• Home office expenses
• Business travel
• Software and subscription costs
• Office supplies
• Internet and phone bills

It’s essential to keep detailed records and receipts for all the business expenses that you report, since you need to show proof to reduce your taxable income.

Step 5: Pay Estimated Taxes If Needed

When it comes to 1099 income, you typically need to pay quarterly estimated taxes to avoid an underpayment penalty. This is because taxes are pay-as-you-go, meaning you should pay them whenever you earn income and not as a lump sum at the end of the year.

When it comes to regular employment, employers practice this by withholding taxes from every paycheck. However, the difference between W-2 and 1099 taxes is that you’re entirely responsible for taxes on any income from self-employment. This means you should make regular tax payments to avoid problems at the end of the year.

These payments will be estimates, which you can determine using the Form 1040-ES. There are generally four payment periods, each with a due date. You should pay taxes on your 1099 income each of these payment periods to avoid being charged a late penalty when you file your tax return, which you can receive even if you are due a refund.

4 Common Mistakes to Avoid When Filing W-2 and 1099 Together

Now that you know how to file taxes with 1099 and W-2 forms, let’s see what the most common mistakes you should avoid:

#1. Forgetting to Include 1099 Income

If the majority of your income comes from regular employment, you may forget or neglect to include your 1099 income when filing your taxes. However, this is a critical mistake as you need to include income even from side gigs and part-time jobs, as long as your net earnings are $400 or more within a tax year.

When the client sends you your Form 1099-NEC, detailing your payment, they also send a copy to the IRS. That’s how the IRS will know if you omit to report income from self-employment, and you’ll incur penalties.

#2. Missing Deadlines for Form W-2 or Form 1099 Submissions

Employers must file Forms W-2 and 1099-NEC by January 31st for the previous tax year. Missing them can incur financial penalties that increase as time passes. For instance, an employer must pay the fine of $60 per missed Form W-2 submission if they are late by less than 30 days. This goes up to $680 the more they wait.

On the other hand, the tax filing deadline is typically on the 15th day of the fourth month after the fiscal year ends, which is April 15. Additional deadlines to keep in mind are those associated with quarterly payments for estimated tax on 1099 income.

#3. Misreporting Income or Tax Withheld

Inaccurately reporting your income or withheld taxes on your Form 1040 may result in severe penalties due to negligence or disregard. Whether you didn’t make a reasonable attempt to follow the law or deliberately chose to ignore the rules, you’ll likely receive a notice or letter from the IRS detailing your penalty.

Penalties are typically tied to the amount you underpaid, and are 20% of the portion of the underpayment. These penalties also accrue interest that increases until they are paid in full, making it all the more important to follow IRS guidelines on W-2 and 1099 filing.

#4. Ignoring Deductions and Credits for Self-Employment

Lastly, not taking advantage of deductions or credits that you’re entitled to as a self-employed individual means you’ll pay more in taxes than you have to. While you won’t receive any penalties for not leveraging deductions or credits, you’ll still lose money by overpaying taxes.

Generate Form W-2, 1099, and More with Paystubs

At Paystub.org, we developed a professional and intuitive solution for creating documentation needed to run a business and file taxes. We offer the following tools:

• Form W-2 generator. Simplify employee tax reporting with accurate Forms W-2 that you can design by using templates and auto-complete features.

• Form 1099 generator. Generate professional Forms 1099 for freelancers and independent contractors.

• Pay stubs generator. Streamline pay stub creation and simplify your administrative processes.

• Invoice generator. Bill clients and improve your cash flow with professional invoices.

Final Thoughts

Now that you know how to file W-2 and 1099 together, make sure to meet the deadlines and include all necessary additional documentation (e.g., Schedule C, Schedule SE, receipts, and so on).

Don’t forget that you’re responsible for the entirety of taxes on the income in your Forms 1099, and that you need to pay quarterly estimates to avoid penalties. Other than that, always make sure that the forms you received from your clients and employees are accurate before using them to file taxes.

And if you need any help with documentation, feel free to use our software generators to create not just Forms W-2 and 1099, but also pay stubs and invoices.

How to File W-2 and 1099 Together FAQ

#1. What is the biggest tax difference between a W-2 and a 1099?

The biggest tax difference between a W-2 and a 1099 is in how Social Security and Medicare taxes are paid. Employers withhold and pay half of these taxes for their employees, which is reported on their W-2. Self-employed professionals pay these taxes independently, and they aren’t reported on Form 1099.

#2. Can I file a W-2 and a 1099 with the same company?

You can receive both W-2 and 1099 forms from the same company to file your tax return in some cases. This can occur when you transition from being an employee to a contractor (or vice versa) during the middle of the tax year, or when you are a dual-status worker.

#3. How can a freelancer handle both a 1099 and a W-2 in the same tax year?

As a freelancer, you need to report income from both Form 1099 and Form W-2 on your Form 1040, U.S. Individual Income Tax Return. You will need to calculate how much self-employment tax you owe on freelance earnings and pay it in addition to your portion of employment tax.

#4. Do I need to pay self-employment tax on 1099 income?

You need to pay self-employment tax on 1099 income if you made $400 or more in a tax year. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare.

#5. What if my W-2 and 1099 totals are incorrect?

If your W-2 and 1099 totals are incorrect, you should immediately contact the person or entity who issued them (your employer or client). Request the correct form and refer to the IRS guidelines for assistance if the problem persists.