You’ve been working hard all year and now you’ve got to start thinking about paying those yearly income taxes. But what tax forms do you need and what exactly is the difference between a W-4, a W-2, and a 1099?
The W-4 Tax Form and Withholding
This is the form you fill out when you get a new job, and it helps your employer know how much in taxes should be withheld from your paycheck. You don’t really need to do anything with it around tax time, but it is a good time to reassess if the right amount is being withheld from your paycheck. Too little and you’ll end up with a big tax bill. Too much and you will get a refund, but that is money you could be putting to good use throughout the year. Also, if you’ve had any big life changes, such as marriage or a new baby, you’ll want to update your W-4.
The W-2 Form: The Wage and Tax Statement
Based on your W-4, your employer will send you and the IRS the W-2 form by January 31st of every year. The W-2 form shows the totals for the year of how much you were paid and how much in taxes was withheld from your paychecks. It also totals how much was withheld for social security and Medicare, as well as other fringe benefits you may have. The W-2 is one of the most important tax forms for completing your taxes.
1099 Forms and Estimated Tax Payments
There are actually several types of 1099 forms, and they are all used to report income that you receive that is not considered wages from an employer. For example, the 1099-NEC is used by businesses to report nonemployee compensation over $600. In other words, if you’re a freelancer or an independent contractor, you’ll receive a 1099-NEC instead of a W-2.
It’s important to know that a business will not withhold taxes for you if they pay you nonemployee compensation and issue you a 1099-NEC. Therefore, you are responsible for paying estimated taxes throughout the year, known as quarterly estimated taxes.
You may receive other 1099 forms for such things as dividends, interest, or retirement income.
Have more questions about these or other tax forms? Give one of our tax preparers a call.