Tax season can be scary, but it doesn’t have to be. We can explain all the complicated documents and deductions, starting with the W-2 and 1099 forms for reporting your income.
If you have any kind of employment, your employer (either a company, entity or individual) likely reports your income to the IRS using a W-2 or 1099 form. While W-2 forms are primarily used for employee income, 1099 forms have a variety of uses. They can report the money you made as an independent contractor, including gig work, or even income from interest and investments.
To help you get ready for tax season, we’ll take a look at both types of forms, so you can file confidently.
What is a W-2 form?
A W-2 form, officially called a Wages and Tax Statement, is the main document that tracks an employee’s earnings. If you get a W-2, it means you’re an employee and not considered self-employed.
The main things a W-2 reports are your income, pretax withholdings and benefits you received during the prior year from the company that employs you. It’s calculated based on your paycheck withholdings. You can choose how much your employer should withhold by filling out a W-4 form and submitting it to your employer, which you’re typically asked to do when starting a new job.
The IRS needs a record of your income and the amount you withheld for taxes. Social Security also tracks your W-2 to determine your future benefits.
Pay close attention to Boxes 1, 2, 3, and 16 on your W-2. These boxes deal with the amount of your income that your state and federal government can tax. They’re important to understand because they relate to how much money you’ll get back after filing your taxes (tax refund), or if you still owe money (tax bill).
Here’s a table detailing each of these key boxes and how to understand them.
|
Box 1 |
Wages, tips, other compensation |
This shows the dollar amount of your regular job income that the federal government can tax, minus pretax deductions such as contributions to tax-advantaged retirement accounts. |
|
Box 2 |
Federal income tax withheld |
This is the amount your employer took from your paycheck during the year and sent to the IRS. |
|
Box 3 |
Social security wages |
This shows your taxable income for Social Security. It may be higher than Box 1 because some deductions, like 401(k) contributions, don’t apply here. |
|
Box 16 |
State wages, tips, etc. |
This is how much of your income your state can tax. It may be different from the amount in Box 1, as your state’s rules about what is considered taxable income might be different from federal rules. |
|
Box 17 |
State income tax |
Similar to “federal income tax withheld” in Box 2, this shows how much your employer already withheld from your paycheck and paid to your state’s tax agency. It may be blank if your employer didn’t withhold state taxes or if you live in a state with no income tax. |
Box 2 is especially important because it shows the money for federal taxes that you’ve already paid from your paychecks during the year. Your employer takes care of this, so you don’t have to worry about sending your withholding to the IRS.
However, it’s important to know that you may still owe an additional sum, even if money for taxes was withheld from your paychecks during the year. Tax withholdings are helpful in making sure you owe less when tax season rolls around.
Here’s an example of what the current W-2 form looks like. It’s for information purposes only.
Understanding the 1099 forms
A good way to understand 1099 forms is that they cover income sources other than what an employer pays an employee. You’ll probably receive a 1099 form if you’re an independent contractor or a gig worker. If you earned interest from a savings account or made money by selling stocks or some other financial security, a 1099 can cover this as well.
A 1099 form comes from the company or person who paid you, either for work you performed or for another reason (such as interest earnings from a bank). If you drove your own car for a food delivery service, you probably worked as an independent contractor, not an employee, so you’ll get a 1099 form, not a W-2 form.
If the total amount you were paid by one entity over the course of the year did not reach the reporting threshold, you might not receive a 1099 form. However, you’re still responsible for reporting that income and paying taxes on it.
A few of the most common 1099 forms include:
1099-NEC. This form is for nonemployee compensation. If someone paid you for a project or a gig and you’re not an employee, you’ll probably receive this form. Reporting threshold: $600.
1099-INT. This form is for interest income. This form is issued by a bank, credit union, or brokerage firm if you earned interest on a cash account or CD (certificates of deposit). Reporting threshold: $10.
1099-B. This form is for income (or losses) from selling financial securities, like stock shares. You only pay taxes on your profit, called capital gain, not the full sale amount. Reporting threshold: None.
1099-DIV. This form is for dividend and distributions from any investments, such as stocks, you may own. It’s different from a 1099-B, and you may receive both forms if you sold securities and received dividends from your securities. Reporting threshold: $10.
1099-MISC. This form is for miscellaneous income that doesn’t fall into other categories. Examples of income for this form include prize money, jury duty pay, and intellectual property payments. Reporting threshold: $600 for most income types, $10 for royalties.
Pro tip: The reporting thresholds above are for tax year 2025, and changes to some of the thresholds are coming in 2026 under the One Big Beautiful Bill Act. Notably, the reporting threshold for the 1099-NEC and 1099-MISC forms will rise from $600 in 2025 to $2,000 in 2026.
A key detail here is that the entity that paid you for your work did not deduct any tax withholdings from the money you received. That’s your responsibility. You have to deduct and pay your own taxes, both state and federal.
Here’s a screenshot of a 1099-NEC form. It’s for information purposes only. Note Box 1, which is nonemployee compensation. That’s the amount you were paid for your work.
The critical difference: Employment versus self-employment
The typical difference between an employee who gets a W-2 and an independent contractor who gets a 1099 is the tax withholdings. W-2 employees have taxes withheld by their employer, while 1099 contractors are responsible for their own self-employment tax withholdings.
W-2 employees also get matching contributions from their employer for Social Security and Medicare taxes, while 1099 contractors are on the hook for the full amount. If you work as an independent contractor, you can deduct business expenses to reduce the taxes you owe.
However, keep in mind that spending a certain amount on a business expense doesn’t mean you get to deduct that exact same amount. “It may not be dollar for dollar,” said Lance Morgan, financial advisor and founder of College Funding Secrets. For example, while you can deduct business meals as a business expense, you can generally only deduct 50% of the meal cost.
Owing money at the end of the year versus getting money back depends on how much tax you paid during the year. Because W-2 employees have taxes withheld from each paycheck by their employer, they often get money back at the end of the year.
If you work for yourself, it’s easy to fall behind on paying taxes, and you might find out you owe a larger sum when it’s time to pay up. Independent contractors are supposed to pay taxes quarterly, which helps to ease their tax burden at the end of the year. If contractors don’t pay taxes at least every quarter, they owe late fees at the end of the year.
|
W-2 Employee |
1099 Contractor |
|
|
Tax withholding |
Your employer withholds the money from each paycheck automatically |
You’re in charge of withholding and paying the money, usually quarterly |
|
Social Security/Medicare Obligation |
You split the cost with your employer |
You have to pay the full amount by yourself with the self-employment tax |
|
Deductible Expenses |
Your employer generally does this for you |
You figure out your own deductible expenses, which must be ordinary and necessary |
Quarterly estimated tax payments
Independent contractors are generally required to pay quarterly estimated taxes throughout the year. Typically, the minimum total amount you need to pay over the course of the year to avoid penalties is 90% of the taxes you owe for the current year or 100% of the taxes you owed for the previous tax year, whichever is less. You’re also safe from penalties if you owe less than $1,000 in taxes for that year after subtracting withholdings and credits.
The rules are different from high-income individuals whose previous year’s adjusted gross income was over $150,000 ($75,000 if married filing separately). These taxpayers need to pay 90% of the taxes they owe for the current year or 110% of the taxes they owed for the previous year.
The deadlines for estimated tax payments in 2026 are:
- April 15, 2026 (for income earned between Jan. 1 and March 31, 2026)
- June 15, 2026 (for income earned between April 1 and May 31, 2026)
- Sept. 15, 2026 (for income earned between June 1 and Aug. 31, 2026)
- Jan. 15, 2027 (for income earned between Sept. 1 and Dec. 31, 2026)
Case study: How forms influence a refund advance
A refund advance loan, or a RAL, is a short-term loan. The collateral for the loan is the estimated tax refund you’ll get back. So, you’re essentially borrowing against any money you’ve overpaid for your taxes during the year.
These loans are commonly offered by tax preparers, like TurboTax and H&R Block. To be considered for a RAL, you usually need a tax professional from a tax preparer to file your taxes for you.
If you’re a W-2 employee, it’s probably easier to get a RAL than it is if you’re a 1099 contractor. That’s because employers for W-2 employees have been withholding taxes and sending them to the IRS throughout the year. Like we discussed above, this amount is represented by Box 2 on a W-2 form.
If the tax preparer knows what your taxable income is with reasonable certainty, they can make a decision about whether to approve the loan with high confidence. It’s a little trickier with 1099 earners seeking a refund advance.
If you’re self-employed, the 1099 forms you get don’t include tax withholdings. You’re in charge of withholding and paying your taxes throughout the year. You’re also responsible for your own deductions. None of this is done automatically, like it is for a W-2 employee.
Because there’s more uncertainty with 1099 contractors, a company offering a RAL is less certain that they’ll get paid back with the refund. If you work independently and receive 1099 forms, make sure to carefully calculate your estimated self-employment tax before counting on a tax refund at the end of the year.
Actionable steps to take with your forms
You should get either paper or electronic W-2 or 1099 forms that reflect the income you earned for the tax year. Sometimes it takes employers a while to send them, but you should still get everything you need well before the deadline for filing your taxes.
When you get the forms, it’s smart to review everything immediately to make sure there are no discrepancies. Before filing taxes, ensure the people you worked for reported your income accurately.
Here’s a checklist to help with good filing and record-keeping practices.
- Check that you’ve received all the forms you should have (for example, a W2 from your employer; 1099-NECs from any entities that paid you for contract or gig work; 1099-INTs, 1099-Bs and 1099-DIVs from your financial institutions if you earned interest, received dividends or sold investments, etc.)
- Verify your name and Social Security Number or Tax Identification Number
- Confirm your income (Box 1) matches your final pay stub or personal records
- Make sure the employer information is accurate on the form(s)
- Report discrepancies immediately to the company or person who paid you
- Keep a record of all forms, either physically or digitally, for 3 years after filing
“Keep really good records in case you get audited,” Morgan said. And if you’re an independent contractor or business owner, make sure you keep records of the time and expenses you’ve spent on your business, as well as how you used personal assets — like your house or car — for business purposes, he added.
Conclusion: File smart, not scared
Whether you’re a W-2 employee with a regular 9-to-5 job or a 1099 contractor who works independently, it’s smart to start working on your taxes as early as possible. If an issue comes up, you’ll have more time to correct it, and you’ll get your tax return back sooner. It also saves a whole lot of stress if you don’t wait until the last minute.
And don’t forget to check in on your finances throughout the year, both to make sure you’re in compliance with tax rules like estimated payments and to take advantage of any tax-saving opportunities that are available.
“The number one mistake people make with taxes is they have the tax conversation with their CPA in April of the year, after the tax year is gone,” said Morgan. “You need to be thinking about tax strategies in January, and you need to be reviewing those tax strategies either monthly or quarterly throughout the year.”