W-2 vs 1099: Which One Should You Use?
When it comes to tax reporting, Forms W-2 and 1099-NEC are two of the most important documents employers need to understand. Each serves a distinct purpose and applies to different types of workers—employees versus independent contractors.
As a result, for employers, knowing the difference is crucial to staying compliant with IRS regulations and avoiding costly mistakes. Sending the right form to the right worker can make all the difference during tax season.
In this article, we’ll break down the key differences between Form W-2 and Form 1099-NEC, explain who should receive each, and explore their broader tax implications for businesses.
| Key Summary • A W-2 and Form 1099-NEC are two types of tax documents that are commonly used to report various types of income, taxes, and other employee benefits. • Form 1099-NEC is used by independent contractors and is obtained after they have provided a service. Unlike a W-2, this form generally isn’t subject to payroll tax. • Form W-2 is used by permanent employees who earn a set salary and are subject to payroll taxes. |
Differences at a Glance
Understanding the distinctions between Form W-2 and Form 1099-NEC is essential—not just for tax compliance, but also for determining worker classification and benefit eligibility.
To help clarify, here’s a quick breakdown of the key differences between these two forms:
| Form W-2 | Form 1099-NEC | |
| Issued By | Employers | Anyone who employs an independent contractor |
| Best For | Permanent employees who earn a set monthly salary | Specialized services provided by an independent contractor |
| Purpose | Reports wages, tips, and other forms of compensation paid to permanent employees | Reports various types of income paid to independent contractors |
| Information | Includes employee wages, taxes withheld, and benefits | Includes nonemployee compensation |
| Tax Implications | Subject to income tax and payroll taxes | No income tax withholding; the payee is responsible for their own taxes |
Form W-2
What Exactly is Form W-2?
Form W-2 is a key tax document that outlines an employee’s total earnings—wages, tips, and other compensation—earned throughout the year. It also details the federal, state, and other taxes the employer withheld from those earnings.
Employers must issue a W-2 to each employee by the IRS deadline, typically by the end of January. Specifically, they must provide a W-2 to any employee who earned at least $600 during the year or to anyone from whom they withheld taxes, regardless of income.
What Information Needs to be Reported on a W-2?
As an employer, you must include the following information on every W-2 you file on behalf of each employee:
- Employee’s name(s) and address
- Employee’s Social Security Number (SSN)
- Employer Identification Number (EIN)
- Minimum wage and compensation details
- Federal and state taxes withheld
- Payroll taxes withheld
- Social Security and Medicare or health insurance contributions
- Any other benefits, like unemployment insurance
Ultimately, this information is important for filing this form correctly. Additionally, you’ll need it to file income tax returns at the end of the tax season.
Are There Any Tax Obligations for Form W-2?
Form W-2 carries important tax responsibilities for employers. The wages reported are subject to federal, state, and local income tax withholding, as well as Social Security and Medicare taxes.
It is the employer’s duty to accurately withhold the appropriate amounts from each employee’s paycheck and report these withholdings to the relevant tax authorities. In addition, employers must calculate, report, and pay all required contributions accurately and on time.
What is the Filing Deadline for Form W-2?
For the 2025 tax year, employers must adhere to the following deadlines:
- February 2nd, 2026: Employers must furnish Form W-2 to each employee.
- February 2nd, 2026: Employers must file Form W-2 (Copy A), along with Form W-3, with the Social Security Administration (SSA) by this date, regardless of whether filing electronically or by mail.
Otherwise, failure to meet these deadlines can result in penalties ranging from $60 to $310 per form, depending on the delay. For intentional disregard of filing requirements, the penalty is $630 per form, with no maximum limit.
Employers who file 10 or more information returns in a calendar year must file electronically, unless the IRS grants a waiver.
If employers need more time to file with the SSA, they can request a 30-day extension by submitting Form 8809 by February 2nd. However, this extension does not change the deadline for furnishing W-2s to employees.
Form 1099
What Exactly is Form 1099?
Form 1099 includes a series of tax documents that report various types of income earned by individuals or entities who aren’t classified as employees. Typically, this applies to freelancers, independent contractors, and other nonemployee service providers.
In fact, several versions of Form 1099 exist—such as 1099-NEC, 1099-MISC, 1099-INT, and 1099-DIV—each of which is designed to report a specific type of income. Among these options, businesses most commonly issue the 1099-NEC (Nonemployee Compensation) for payments made to independent contractors.
For example, if a hotel hires a plumbing company to do contract work, and the plumbers aren’t employees, the hotel must issue a Form 1099-NEC if it paid them $600 or more during the year.
What Information Needs to be Reported on Form 1099-NEC?
The information you report on Form 1099-NEC may vary depending on the type of income. Generally, common information that may appear on most 1099-NEC forms includes:
- Payer’s name(s), address, and Taxpayer Identification Number (TIN).
- Recipient’s name(s), address, and TIN, SSN, or EIN.
- Amount of income received during the tax year.
- Income-specific details.
- Federal income tax withheld, if relevant.
Are There Any Tax Obligations for 1099 Forms?
Businesses that issue 1099 forms are generally not responsible for withholding or paying taxes on behalf of the recipient. Instead, independent contractors and other nonemployees are responsible for reporting and paying their own income taxes, including self-employment taxes, on a quarterly basis throughout the year.
While businesses must report payments of $600 or more to contractors using Form 1099-NEC, the tax obligation itself falls entirely on the recipient of the income.
What is the Filing Deadline?
For the 2025 tax year, the IRS requires that businesses:
- Furnish Form 1099-NEC to recipients by January 31st, 2026.
- File Form 1099-NEC with the IRS by January 31st, 2026, regardless of whether filing electronically or on paper.
These deadlines apply to all filers, with no extensions available for electronic submissions. Missing them can lead to penalties ranging from $60 to $310 per form, depending on how late the filing occurs. If a business intentionally disregards the filing requirements, it faces a $630 penalty per form with no maximum limit.
Employers who file 10 or more information returns in a calendar year must file electronically, unless they receive a waiver from the IRS.
If a business needs more time to file with the IRS, it can request a 30-day extension by submitting Form 8809 by January 31st. However, this extension does not change the deadline to furnish Form 1099-NEC to recipients.
How Do You Know Which Form to Use?
Determining whether to issue Form W-2 or Form 1099-NEC depends on how your workers are classified—employee or independent contractor. This classification hinges on the degree of control you have over how the work is performed.
Employee vs Independent Contractor: Key Differences
Use Form W-2 if the worker is an employee—someone you manage closely in terms of:
- How, when, and where the work is done.
- The tools, equipment, and training provided by the employer.
- A set schedule or working hours.
- Ongoing work as part of your regular business operations.
- Being paid a regular wage or salary.
Use Form 1099-NEC if the worker is an independent contractor—someone who:
- Controls how and when the work is completed.
- Supplies their own tools and equipment.
- Is typically paid per project or per job, not a regular wage.
- Operates independently and may work for multiple clients.
Real-World Example
Mark is a full-time employee at a landscaping company. His employer, Alex, provides all the tools, assigns tasks, sets a fixed schedule, and pays him a monthly salary. Mark is classified as an employee and will receive a W-2.
Sarah, on the other hand, is a freelance gardener who works with Alex on a project-by-project basis. She sets her own schedule, uses her own tools, and sends invoices for her services. Sarah is an independent contractor and will receive a Form 1099-NEC.
W-2 Workers (Employees)
- Full-time employees
- Part-time employees
- Seasonal workers
- Temporary staff
1099 Workers (Independent Contractors)
- Freelancers
- Consultants
- Self-employed professionals
- Gig workers (e.g., rideshare drivers, delivery workers)
- Contractors paid for specific tasks or services
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